The attorney-client privilege applies with equal force to internal investigations today as it did 30 years ago thanks to the D.C. Circuit’s recent decision in In re: Kellogg Brown & Root, Inc., No. 14-5055 (D.C. Cir. June 27, 2014). The appeals court decision vacates the March 6, 2014 district court decision in the same case. At the district court, Judge James Gwin ruled that the attorney-client privilege did not protect documents developed during KBR’s internal investigations of potential fraud relating to its LOGCAP III contract. According to Judge Gwin, KBR’s investigations were not privileged because they were conducted “pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.”

The D.C. Circuit’s decision reverses Judge Gwin’s ruling. The decision recognizes the “uncertainty generated by the novelty and breadth of the District Court’s reasoning” and echoes the Supreme Court’s concern that an “uncertain privilege, or one which purports to be certain but results in widely varying applications by the courts, is little better than no privilege at all.” If the district court’s decision were to stand, “businesses would be less likely to disclose facts to their attorneys and to seek legal advice.” The behavior created by this uncertainty in the attorney-client privilege would undercut the very compliance and disclosure regulations central to Judge Gwin’s analysis.

Continue Reading Barko v. Halliburton—How the D.C. Circuit’s decision reaffirms the attorney-client privilege in internal investigations

[UPDATE: On May 26, 2015, the Supreme Court reversed the Fourth Circuit’s decision in Carter and held that the Wartime Suspension of Limitations Act is limited to criminal offenses. Kellogg Brown & Root Services, Inc. v. Carter, No 12-1497 (U.S. May 26, 2015) [pdf]. Our discussion of the Carter decision is available here.]

Whether the Wartime Suspension of Limitations Act tolls the six-year statute of limitations for civil claims under the False Claims Act will soon be addressed by the Supreme Court. In Kellogg Brown & Root Services, Inc. v. United States ex rel Benjamin Carter, No. 12-1497 (July 1, 2014), the Court will have the opportunity to address several important questions about the application of the WSLA. Should it apply to civil claims or be limited to criminal actions? Does the tolling specified in the WSLA require a formal declaration of war? And does the WSLA apply to a qui tam claim in which the United States declines to intervene?

[Note:  The case also asks the Court to address whether the FCA’s “first-to-file” bar applies to cases filed after the first case is dismissed.  We’ll look at that question in another post.]

The case comes to the Supreme Court following the Fourth Circuit’s decision in U.S. ex rel Carter v. Halliburton Co., 710 F.3d 171 (4th Cir. 2013). In that case, the Fourth Circuit held that the WSLA tolled all civil actions—including civil FCA claims brought by qui tam relators—until the President or Congress declared a “termination of hostilities.” The Supreme Court accepted Halliburton’s petition for certiorari and will hear the case in 2015.

We believe the Fourth Circuit’s opinion represents a significant expansion of the WSLA. As Judge Agee points out in his dissenting opinion, a particularly troublesome aspect of the Fourth Circuit’s decision is its application of the WSLA to civil qui tam actions in which the United States has not intervened. The underlying purpose of the WSLA is to allow the law enforcement arm of the United States government to focus on its “duties, including the enforcement of the espionage, sabotage, and other laws’” in times of war. Id. (citing Bridges v. United States, 346 U.S. 209, 219 n. 18 (1953)). In a qui tam action initiated by a private citizen, the rationale for tolling the limitations period is diminished.

Continue Reading Will the Supreme Court uphold tolling of the six-year limitations period for civil False Claims Act cases during times of war?

In its May 2014 report [pdf], the GAO found that the total number of contractor suspension and debarment actions continues to rise, more than doubling from 1,836 in FY 2009 to 4,812 in FY 2013. At a high level, the increase in suspension and debarments tracks the dramatic rise in federal contract spending. Looking at the data more closely suggests that all is not doom and gloom. Between 2012 and 2013, suspension actions increased by less than six percent. There were fewer debarments in 2013 than there were in 2012, and the decrease in some agencies is significant.

The 2014 annual report published by the Interagency Suspension and Debarment Committee [pdf] reflects these figures. According to this report, there were 836 suspensions and 1,722 debarments in FY 2012. There were 883 suspensions and 1,715 debarments in FY 2013. The number of suspension actions increased by less than six percent and the number of debarments decreased slightly from 2012 to 2013. The percentage of proposed debarments that became actual debarments also decreased.

Continue Reading The favorable trends in suspension and debarment

Read the press about Judge James Gwin’s decision in United States ex rel. Barko v. Halliburton Co., No. 1:05-cv-1276 (D.D.C. Mar. 6, 2014), and you might see it as the beginning of the end for the attorney-client privilege in internal investigations. While the ultimate implications of the decision remain to be seen, that’s not how we see it.

The attorney-client privilege and the work product doctrine are alive and well, as is their application to internal investigations. The FAR clause implementing the requirement for a Code of Business Ethics and Conduct preserves the contractor’s right to conduct an internal investigation subject to the protections of the attorney-client privilege and the work product doctrine. See FAR 52.203-13. The Justice Department’s Principles of Federal Prosecution of Business Organizations explicitly states that a company is not required to waive privilege in order to get credit for cooperating with a government investigation. “[W]aiving the attorney-client and work product protections has never been a prerequisite under the Department’s prosecution guidelines for a corporation to be viewed as cooperative.”

For federal contractors, publicly-traded companies, and others in highly-regulated industries, the real question presented by Barko is more granular: How can my company avoid the same result?

Continue Reading Preserving attorney-client privilege in internal investigations after Barko v. Halliburton

The line between “white collar crime” and “street crime” is often blurred as prosecutors and investigators deploy all of the tools at their disposal against white collar and regulatory offenses. Principal among these tools is the search warrant. While the execution of a lawfully-obtained search warrant cannot be stopped, a company’s reaction to the search and to the agents conducting it can have a significant impact on the course of a government investigation. A well-executed response may yield intelligence about the nature and scope of the investigation and may limit the amount of information the government obtains.

In this post, we present an overview of the search warrant process and offer some basic guidelines that may be used in preparing for and responding to a search warrant.

Understanding the element of surprise

Government investigators correctly see search warrants as their one chance to use the element of surprise. They make every effort to use it effectively. Long before a warrant is served, agents spend weeks or months on pre-search surveillance. They serve warrants simultaneously at all of a company’s offices. They conduct interviews of key executives at their residences early in the morning before attorneys are available. They use whistleblowers present during the execution of the warrant wired to record employee conversations of the employees. They interview employees on site before company attorneys can inform them of their rights or contact the lead prosecutor. They engage in surveillance of key individuals after the search is executed. They even search nearby dumpsters for evidence. Several weeks later, they may issue a grand jury subpoena requiring the company to produce email and text messages sent during and after the search.

Investigators have the process down to a science, while the company at the center of the investigation likely will be going through it for the first time. Preparation and training on the process will help level the playing field. Here are the five basic elements that should be addressed in an action plan for responding to a search warrant.

Continue Reading A five-part action plan for responding to a federal search warrant

The FAR permits the government to suspend or debar a contractor based solely on its affiliation with another contractor that has been suspended. See FAR 9.406-1(c) & FAR  9.407-1(c). The Eleventh Circuit’s decision in Agility Defense & Government Services v. U.S. Dept. of Defense, No. 13-10757 (11th Cir. Dec. 31, 2013), significantly expands the impact of a suspension due to affiliation. The court held that the initiation of legal proceedings (such as an indictment) permits the indefinite suspension of the contractor’s affiliates, even if the affiliates have not been accused of any wrongdoing. The decision overturned a 2012 Alabama district court decision that was a limitation on suspension due solely to corporate affiliation. We discuss the district court case in an earlier blog post.

https://www.contractorsperspective.com/wp-content/uploads/sites/218/2014/01/4439643419_aeb436ba10_n.jpgPublic Warehousing Company was indicted for fraud related to a government contract in November 2009 and was suspended as a result of the indictment. The Defense Logistics Agency then suspended Agility Defense & Government Services and Agility International, Inc., subsidiaries of Public Warehousing. The affiliates submitted written requests for reinstatement because they were not implicated in the indictment. After the agency’s refusal to reinstate them, the affiliates undertook several actions attempting to end their suspension, including a proposed management buyout that would have resulted in Public Warehousing retaining only an indirect 40-percent ownership in one of the affiliates.

As their suspension approached three years, the affiliates filed suit in the United States District Court for the Northern District of Alabama. The court found in their favor, ending the suspension. The district court reasoned that the applicable regulation limited the automatic suspension to 18 months. In the district court’s view, suspension beyond 18 months required the agency to initiate legal proceedings directed to the affiliates’ involvement. The Eleventh Circuit Court of Appeals reversed.

Continue Reading Indefinite suspension of affiliates under Agility Defense & Government Services

The Contract Disputes Act imposes a six-year statute of limitations on all claims, whether they are asserted by the contractor or by the Government. See 41 U.S.C. § 7103(a)(4)(A). The limitations period begins to run upon accrual of a claim, which is “the date when all events . . . that fix the alleged liability of either the Government or the contractor and permit assertion of the claim . . . were known or should have been known.” FAR 33.201. Because six years must Aeroplane Sunsetpass before the claim expires, the precise date of accrual is often little more than an academic question. Indeed, there have been relatively few cases applying the CDA limitations period to Government claims. But accrual has recently become a real and sometimes insurmountable obstacle to Government claims. Here is a short summary of the basic concepts that have emerged from the decisions that have addressed the issue.

1.         The government has the burden of proving timeliness. 

The CDA limitations period is “jurisdictional.” When the government asserts a claim against a contractor, the government has the burden of proving jurisdiction. To do so, the government must establish that the claim was timely asserted. If the government cannot show that the claim was asserted within six years of accrual, the Board or the Court lacks jurisdiction to hear the claim. Raytheon Missile Systems, ASBCA No. 58011 (Jan. 28, 2013) [pdf].

Continue Reading “Accrual” of government claims under the Contract Disputes Act

[UPDATE: On May 26, 2015, the Supreme Court reversed the Fourth Circuit’s decision in Carter and held that the Wartime Suspension of Limitations Act is limited to criminal offenses. Kellogg Brown & Root Services, Inc. v. Carter, No 12-1497 (U.S. May 26, 2015) [pdf]. Our discussion of the Carter decision is available here.]

What is the statute of limitations for qui tam actions brought against a contractor during a time of war? The answer to this question depends not only on whether the Wartime Suspension of Limitations Act applies to actions brought by an individual relator under the qui tam provisions of the False Claims Act, but also on when the United States is “at war.” The Fourth Circuit Court of Appeals addressed both of these questions in U.S. ex rel. Carter v. Halliburton Co., 710 F.3d 171 (4th Cir. 2013).

“At war” does not mean “declared war.”

The Wartime Suspension of Limtations Act was enacted in 1942. It suspends the applicable limitations period for any offense involving fraud against the United States when the country is “at war” or when Congress has enacted a specific authorization for the use of the Armed Forces. The suspension lasts for the duration of the war and until five years after hostilities end. 18 U.S.C. § 3287. Hostilities must be terminated “by a Presidential proclamation, with notice to Congress, or by a concurrent resolution of Congress.”

The meaning of “at war” is not specifically outlined in the WSLA, but it is a focal point of the decision in Carter. The relator, a water purification operator at two U.S. military camps in Iraq, asserted that his employer charged the government for work that was not performed. Due to a number of procedural obstacles, the action was filed outside of the six-year limitations period that normally applies to FCA qui tam actions. As a result, the district court dismissed the action as untimely. The relator appealed, asserting that the WSLA tolled the limitations period because the hostilities in Iraq meant that the United States was “at war.” The Fourth Circuit agreed, reasoning that a “formalistic” definition of when the country was “at war” did not reflect the “realities of today.”

Continue Reading The statute of limitations for qui tam actions under the False Claims Act when the United States is “at war”

Just in time for Thanksgiving, the federal government has withdrawn its False Claim Act suit against KBR alleging $100 million in improper charges for private security costs under KBR’s LOGCAP III contract. We criticized the court’s August 3, 2011 decision denying KBR’s motion to dismiss the case last summer. While KBR has good reason to celebrate the withdrawal of the claim, the court’s approach to the case will continue to present problems for government contractors.

The case arose out of a dispute relating to the allowability of private security costs. KBR attempted to seize the initiative by submitting a Contract Disputes Act claim to the Army contracting officer and then appealing to the Armed Services Board of Contract Appeals. The government responded to the Board case with a False Claims Act complaint in the D.C. federal district court. KBR moved to dismiss the FCA case, contending that there was nothing “false” about its claims for payment of private security costs. KBR argued that the issue was just a contract dispute that ought to be resolved as such.

The court denied KBR’s motion, citing internal KBR emails questioning the allowability of private security costs and KBR’s effort to obtain change order allowing them. The court held that that the government’s allegations satisfied the “materiality” element of the implied false certification theory under the DC Circuit’s SAIC decision.

The government’s decision to withdraw the complaint is certainly a positive development for KBR. Perhaps the claim will be resolved as an ordinary contract dispute, as it should have been in the first place. The informal resolution of the case is not as positive for other contractors facing government efforts to wield the False Claims Act sword in connection with resolving ordinary contract disputes. Without further consideration of the issue in the KBR case, some courts will no doubt be tempted to treat the issue of materiality as a factual, and not a legal, question. The risk remains that the government or a qui tam relator can cite a contractor’s internal discussion of the meaning of ambiguous contract terms as evidence of an FCA violation.

Under a recent ruling by the U.S. Court of Appeals for the Ninth Circuit, contractors may face False Claims Act liability for the submission of false estimates, including fraudulent underbidding. In United States ex rel. Hooper v. Lockheed Martin Corporation, No. 11-55278 (9th Cir. Aug. 2, 2012) [pdf], the Ninth Circuit joined the First and Fourth Circuits in holding that “false estimates, defined to include fraudulent underbidding in which the bid is not what the defendant actually intends to charge, can be a source of liability under the FCA.”

In this case, a former Lockheed Martin employee alleged that the company intentionally underbid its proposal for the Air Force’s Range Standardization and Automation IIA (“RSA IIA”) program. Lockheed was awarded the RSA IIA contract in 1995, and since then it has been paid more than $900 million on a cost-reimbursement plus award fee basis. Hooper, the qui tam relator and former Lockheed employee, alleged that the employees preparing Lockheed’s RSA IIA bid were told to “lower their estimates without regard to actual costs.”

Continue Reading Underbidding and faulty estimates may carry FCA liability