by Greg Brower and Brett W. Johnson, Snell & Wilmer LLP*
It has long been assumed that under the U.S. Supreme Court’s decision Upjohn Co. v. United States, reports generated during an internal investigation undertaken at the direction, and under the supervision, of corporate attorneys are protected from discovery by the attorney-client privilege. It came as a significant surprise then that the U.S. District Court for the District of Columbia recently held that the privilege does not apply when an investigation is conducted pursuant to a legal requirement, and not purely for the purpose of obtaining legal advice. Unless reversed, this decision could pose a significant new dilemma for regulated companies, and especially for government contractors, that perform internal investigations to determine whether “credible evidence” of actual wrong-doing exists.
The decision in United States of America ex rel. Harry Barko v. Halliburton Company, et al. is the latest in a long-running False Claims Act (“FCA”) suit against Halliburton and its former subsidiary, Kellogg, Brown & Root (“KBR”). In the course of pre-trial discovery, the relator sought the production of reports created by KBR in the course of conducting internal investigations into alleged violations of the company’s Code of Business Conduct (“COBC”). KBR objected to the production of the COBC reports, contending they were protected from discovery by the attorney-client privilege and work-product doctrine. On the relator’s motion to compel, the court rejected KBR’s argument that Upjohn was dispositive of the issue, and ordered that the reports be produced. The court reasoned that because the KBR investigators who prepared the reports were not lawyers, and because the subject investigations were done pursuant to legal requirements and corporate policy, and not solely for the purpose of obtaining legal advice, the reports were not privileged.
Cross-posted at Forbes.com’s WLF contributor page
Washington Legal Foundation, along with other organizations, business, and individuals with an interest in the Supreme Court and free enterprise cases before it, watched with great anticipation this morning as the justices issued their first new list of certiorari grants since the Court adjourned last June (the so-called Long Conference). We came away from the big cert grant morning, as likely did many other interested parties, wanting more.
The orders list is here. The grants include a tax case, United States v. Quality Stores addressing whether severance payments made to employees whose employment was involuntarily terminated are taxable. Two other grants relate to the standard of review the U.S. Court of Appeals for the Federal Circuit uses when assessing a district court’s determination that a case is “exceptional” for purposes of imposing attorneys’ fees and other sanctions. Those cases are Octane Fitness v. Icon Health and Fitness and Highmark Inc. v. Allcare Management Systems Inc.
The final cert grant impacting free enterprise is Petrella v. MGM, which involves the movie Raging Bull and the defense of laches against claims of copyright infringement. Marcia Coyle at National Law Journal discussed the interesting facts of the case in a September 16 story.
The bigger story from the big cert grant morning was which petitions the Court did not act on. WLF filed amicus briefs in support of review in a number of the cases, which we’ll indicate below (all noted on SCOTUSblog’s “Petitions we Are Watching” page).
Failure to act on these and other petitions does not mean that the Court cannot reconsider them in a future “conference,” and it does not mean that they have been denied. The Court will be issuing an order list on First Monday, October 7, but that order traditionally has only contained cert denials.
Cross-posted at WLF’s Forbes.com Contributor blog
With their law enforcement counterparts at the federal level raking in prodigious financial settlements, it’s no surprise that state attorneys general (“state AGs”) want a bigger piece of the action on off-label drug “promotion” regulation. The $181 million settlement reached August 29 between 36 attorneys general and a drug maker confirmed that state AGs must indeed be reckoned with on off-label issues. What will get medical product companies’ attention is not the financial settlement, though. The real eye-opener was the precision of the settlement’s conduct requirements, most notably one restraint on speech which goes beyond the dictates of federal law.
The settlement arose from “deceptive marketing” suits filed by state AGs throughout the country involving Ripersdal. Some of those suits resulted in verdicts imposing six- or seven-figure damages on the defendant, Janssen Pharmaceuticals. Janssen and its parent company, Johnson & Johnson (J&J), had appealed those verdicts, but the cost-benefit calculus of fighting vs. settling likely led the companies to resolve the claims on a global basis (much like the tobacco companies did with the state AGs).
In addition to the monetary settlement, Janssen and J&J agreed to conditions and limitations on how they share information about Ripersdal with medical professionals. As noted above and emphasized by former FDA associate chief counsel Arnie Fried in a Pharmalot interview, such behavior-changing dictates were what the AGs were really after here. Continue reading
Cross-posted by Forbes.com at WLF contributor site
Two weeks ago in Friedman v. Sebelius, a divided U.S. Court of Appeals for the District of Columbia Circuit largely upheld what amounts to the lifetime exclusion of three senior pharmaceutical executives from any further involvement in the industry. Their offense: pleding guilty to misdemeanor charges that they were executives of Purdue Frederick Co., at a time when (unbeknownst to them) some company employees engaged in the improper promotion of Purdue Frederick drugs.
Criminal prosecution of corporate executives not shown to have a guilty state of mind (or even to have acted negligently) has long been controversial. Such prosecutions—under what is known as the “Responsible Corporate Officer” (RCO) doctrine—have twice survived constitutional challenges in the Supreme Court by razor-thin 5-4 margins in 1943 and 1975. The Supreme Court reasoned that the RCO doctrine allows society to make a strong statement regarding its disapproval of corporate misbehavior without unduly punishing largely blameless senior executives, because penalties in RCO cases “commonly are relatively small, and conviction does no grave danger to the person’s reputation.” Morisette v. United States. There is serious reason to question whether the lifetime exclusion largely upheld by the D.C. Circuit fits the Supreme Court’s definition of a “relatively small” penalty. In light of federal officials’ determination to bring more such prosecutions, the Supreme Court ought to revisit the RCO doctrine and decide whether it is being applied in a manner that comports with due process of law. Continue reading
Katie Owens, a 2012 Judge K.K. Legett Fellow at the Washington Legal Foundation and a student at Texas Tech School of Law.
According to the Antitrust Division of the U.S. Department of Justice, no corporate compliance program is worthy of credit when considering punishment of corporations. The U.S. Sentencing Commission should correct this outlier policy.
At the Department of Justice (“DOJ”), corporate compliance programs are not treated equally among the agencies various divisions. The U.S. Attorney’s Manual expressly “recognizes that no compliance program can ever prevent all criminal activity by a corporation’s employees.” All but one of DOJ’s divisions applies this principle. The Antitrust Division believes that an antitrust violation directly correlates to a “failed” compliance program, one not deserving of credit under the Federal Sentencing Guidelines (“Guidelines”).
DOJ-Antitrust reserved a carve-out from the Guidelines specifically for antitrust violations based on its stance that these violations go to “the heart” of a company’s activities. Note that this carve out applies to antitrust violations only, meaning that all other crimes, including fraud, bribery, and environmental harm, may receive credit for maintaining an effective compliance program. Furthermore, this antitrust rule is an absolute with no exceptions. No compliance program, no matter how diligent, will be considered, because the program is deemed a “failure” by the Division if there is any antitrust law violation.
Rather than rewarding compliance efforts as a means of overall prevention of antitrust violations, the Division focuses instead on amnesty as a means of enforcement. Under this idiosyncratic approach, the first member of a cartel to admit wrongdoing receives amnesty from prosecution, regardless of guilt. The reporting company is then required to do nothing, while in other contexts, violations reported to the Criminal Division of the DOJ require violators to implement compliance programs or to improve existing ones. As commentator Joe Murphy observed, this policy could potentially lead a company to not “worry about compliance, but instead to devote its attention to making sure that it was always the first one to confess to the government if a cartel was about to be discovered. It could then keep most of its excess cartel profits, since it would not be responsible for large fines, and its plea would limit its civil exposure to single damages.” Continue reading
Two years ago, The Legal Pulse featured a guest commentary by White & Case LLP partner Eric Grannon, who is also a member of Washington Legal Foundation’s Legal Policy Advisory Board, entitled Is an Antitrust Violation a “Crime Involving Moral Turpitude”? DOJ Thinks So. In the post, Mr. Grannon described a “Memorandum of Understanding” that subjects foreign business executives to exclusion or deportation from the U.S. if they are convicted of a criminal violation of U.S. antitrust laws.
Mr. Grannon and his White & Case colleague Nicolle Kownacki have authored a more extensive analysis of the Memorandum for the April 2012 issue of The Champion, published by the National Association of Criminal Defense Lawyers. Even though, as the article explains, the Memorandum has never been subjected to judicial scrutiny or gone through any public comment process, the Justice Department routinely uses it as a “carrot” to encourage foreign executives to plead guilty to antitrust violations. In each of the 50 cases where foreign executives entered plea agreements with the Antitrust Division, DOJ granted the defendants a waiver from the moral turpitude memo.
Grannon and Kownacki lay out a very convincing case in the article that criminal violations of the Sherman Act are not acts of moral turpitude, citing to compelling case law which supports their argument.
One would hope that at some point in the near future, a Justice Department which claims to respect civil liberties will take a second look at this Memoradum and either eliminate it or make substantial changes. Grannon and Kownacki’s article certainly provides the intellectual basis for doing just that.