by Greg Brower and Brett W. Johnson, Snell & Wilmer LLP*
Government contractors and other companies subject to internal investigation requirements won some relief from the United States Court of Appeals for the D.C. Circuit last week with a decision that firmly reiterated that Upjohn v. United States does indeed stand for the proposition that confidential employee communications made during a business’s internal investigation led by company lawyers are privileged.
In United States of America ex rel. Harry Barko v. Halliburton Company, et al, defendant Halliburton’s subsidiary, Kellogg, Brown & Root (KBR) filed a petition for writ of mandamus seeking to reverse a district court’s order that KBR produce in discovery, certain reports created as part of internal investigations conducted at the direction of in-house counsel. Over KBR’s objection, the district court had ordered production of the documents, reasoning 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. For more on the trial court’s opinion, see our March 24 Legal Pulse commentary here.
A three-judge panel of the D.C. Circuit disagreed and vacated the district court’s order. In so doing, the panel found that the privilege claim by KBR was “materially indistinguishable” from the assertion of the privilege in the seminal Upjohn case. Specifically, the court of appeals found that because, as in Upjohn, KBR initiated an internal investigation to gather facts and ensure compliance with the law after being informed of potential misconduct, and because the investigation was conducted under the auspices of KBR’s in-house legal department, the privilege applied. Continue reading
In publications, formal comments, and here at The Legal Pulse, Washington Legal Foundation has consistently questioned the wisdom and legality of requiring “plain packaging” for disfavored consumer products. We wrote in a December 2011 post that plain packaging laws like the one Australia formally adopted in 2012 will “boomerang . . . by creating a vigorous black market in cigarettes and forcing tobacco prices down as new and cheaper cigarettes enter the marketplace.”
Recent sales data and studies on the tobacco market in Australia show how that nation’s plain packaging law has, in fact, boomeranged as we predicted it would.
First, a late-2013 study by KPMG revealed that counterfeit tobacco sales in Australia had risen since the passage of the plain packaging law to almost 14% of the Australian market. Illicit sales not only deprive Australia of hundreds of millions in lost tax revenue, they also increase law enforcement costs in reaction to greater criminal black market activity. Australian press accounts demonstrate how the illicit sales are funding larger criminal enterprises, such as gangs. In addition, counterfeit sales have harmed Australia’s small retailers, as a study by an Australian market research firm has demonstrated.
Second, much to the shock of plain-packaging devotees, tobacco sales are increasing Down Under. Reports last month indicate that deliveries to tobacco retailers rose in 2013 for the first time in five years. This news should not be a surprise to anyone who understands basic economics and consumer behavior. Tobacco producers who are no longer able to differentiate their cigarettes from rivals through package branding and imaging, are forced to lower their prices to maintain or expand market share. Lower prices, of course, routinely lead to increased sales. Such a reaction is especially true when generic, lower-cost cigarette companies enter the market, as they have in Australia. WLF explained this effect in its 2010 comments to the Australian Parliament, emphasizing the success generic tobacco brands have had in the U.S.
Other nations such as Britain looking to sweep away trademark and speech rights with plain packaging laws should pay heed to these developments in Australia. Regulators who proceed in the face of such demonstrated economic hazards will be doing so more for ideological, rather than public health, reasons.
Also available at WLF’s Forbes.com contributor page
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.
Off-Label Speech After U.S. v. Caronia: Implications for Drug & Device Regulation and the First Amendment, a Washington Legal Foundation Web Seminar program, is now available for on-demand viewing.
Our program featured analysis and commentary from Coleen Klasmeier of the Sidley Austin law firm and WLF’s Chief Counsel, Richard Samp. Coleen and Rich make reference to a Powerpoint slide deck, which due to a technical problem wasn’t available to viewers during the program. The slide deck can be downloaded here.
For her presentation, Coleen coined the term “Sorrellonia” because the U.S. Court of Appeals for the Second Circuit two-judge majority in Caronia became the first court to fully apply the holding and rationale of the U.S. Supreme Court’s 2011 Sorrell v. IMS Health opinion.
Coleen’s and Rich’s presentations drew upon their combined years of experience in dealing with FDA’s application of its off-label speech restrictions and the Justice Department’s prosecution of cases where criminal violations of those rules allegedly occurred.
While they both saw great promise in the opinion for greater freedom in the exchange of critical medical information, they also offered firm notes of caution that the ruling not be interpreted as a green light for businesses’ promotion of off-label uses. Great peril still exists in this area they warned, a fact that is all the more apparent today with the announcement of another nearly $1 billion Justice Department settlement with a pharmaceutical company.
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
Nick Hendrix, a 2012 Judge K.K. Legett Fellow at the Washington Legal Foundation and a student at Texas Tech School of Law.
In its conference today, the United States Supreme Court will consider Cory King’s petition for certiorari in King v. United States. Washington Legal Foundation is serving as King’s counsel of record in his appeal from the U.S. Court of Appeals for the Ninth Circuit. SCOTUSBlog has named the petition to its “Petitions to Watch” section. As we point out in the petition, the Ninth Circuit’s ruling on a key issue of criminal law – the breadth of the federal “false statements” statute – conflicts directly with a Sixth Circuit decision. Such a circuit split is considered a major factor dictating in favor of Supreme Court review.
Mr. King, owner and operator of an Idaho farm since 1986, was charged and convicted of violating the Safe Drinking Water Act (SDWA). State agriculture investigators, who were at the time inspecting Mr. King’s cattle operation, discovered he was injecting melted snow into his wells for crop irrigation without a permit. State investigators ordered King to cease this practice, which he did, and the investigators imposed a substantial administrative fee. The state later relayed this information to federal officials, who felt that Idaho’s punishment was insufficient. The federal officials charged King with violations of the Safe Drinking Water Act (even though no drinking water was affected) and 18 U.S.C. § 1001 (the false statements statute). 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