Posted by Ellyce Cooper and Patrick Kennell
The ongoing saga regarding privilege and work product issues continues in United States ex rel. Barko v. Halliburton Co., No. 05-cv-1276 (D.D.C. 2005). (Our previous blog posts on the case can be found here, here, and here.) As we previously reported, in June of 2014, the D.C. Circuit ordered the lower court to reconsider its order that Halliburton turn over to the relator the results of an internal investigation. The D.C. Circuit held that “[s]o long as obtaining or providing legal advice was one of the significant purposes of the internal investigation, the attorney-client privilege applies, even if there were also other purposes for the investigation.” In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014) (emphasis added). However, the court directed the District Court to examine the other reasons advanced by the relator as to why the documents at issue were “not covered by either the attorney-client privilege or the work product doctrine.” Id. at 764.
As we have written about on this blog previously, Lance Armstrong’s former teammate, Floyd Landis, filed a qui tam suit alleging that Armstrong’s and his team’s use of performance enhancing drugs and practices violated their sponsorship agreement with the United States Postal Service and thereby defrauded the government of approximately $40 million over six years. Landis brought suit against Armstrong individually, as well as Armstrong’s management company, Tailwind Sports, and his talent agent, Capital Sports & Entertainment Holdings (CSE). The government joined in the claims against Armstrong and Tailwind Sports in February 2013, but declined to intervene against CSE.
Landis and CSE subsequently negotiated a settlement, which was presented to DOJ for approval. However, after DOJ declined to approve the settlement – or to explain why it would not approve the settlement – CSE moved the Court to accept the settlement notwithstanding DOJ’s opposition. However, on April 9, the district court denied the motion. The court held that the False Claims Act affords DOJ essentially unfettered power to veto settlements, even in cases in which it has not intervened. While the D.C. Circuit has not expressly ruled on whether the government’s right to veto a settlement in a non-intervened case is unfettered, several appellate courts that have ruled on the issue have held that it is. Both the Fifth and Sixth Circuits have held explicitly that settlements in non-intervened cases are subject to government approval. See, e.g., Searcy v. Philips Elecs. N. Am. Corp., 117 F.3d 154, 159-60 (5th Cir. 1997) (cited by the District Court here, and reasoning that the government is allowed to “stand on the sidelines and veto a voluntary settlement”). The Ninth Circuit, by contrast, has held that the government’s decision to veto a settlement is reviewable when the government has declined to intervene. See, United States ex rel. Killingsworth v. Northrop Corp., 25 F.3d 715 (9th Cir. 1994) (reasoning that the government’s settlement veto power exists only while the case is under seal, prior to an intervention decision).
In its opposition to the motion, the government noted that it is willing to continue negotiations to reach settlement terms on which all parties agree. For now, however, Landis and CSE must continue their litigation.
The U.S. District Court for the District of Columbia ruled on June 19, 2014 that the Wartime Suspension of Limitations Act (WSLA) does not apply to the FCA. As a result, the court dismissed Floyd Landis’s non-intervened qui tam claims against his former cycling teammate, Lance Armstrong.
As we have discussed previously on the blog, Lance Armstrong is the defendant in a False Claims Act qui tam case brought by Landis alleging that Armstrong and others defrauded the United States Postal Service of approximately $42 million in sponsorship fees between 1995 and 2004 as a result of Armstrong’s use of performance enhancing drugs and practices. Landis filed suit in 2010 and the Government intervened in part back in February 2013. Landis has continued to press forward with those claims on which the Government has not intervened.
In its order on the defendants’ motion to dismiss, the District Court ruled that Landis’s claims are largely time-barred. Principally, the court held that the tolling provision of the FCA does not apply to Landis. Section 3731(b)(2) of the FCA provides that government has up to three years to bring claims after it knows or has reason to know that a violation of the FCA has occurred, even if this extends beyond the law’s six year statute of limitations (up to a maximum of ten years). Despite his arguments to the contrary, Landis, as a whistleblower and not a government official, is not covered by the provision. All but approximately $68,000 of Landis’s claims are therefore time-barred by the law’s six year statute of limitations, and were accordingly dismissed with prejudice.
In analyzing the statute of limitations arguments, the court addressed the applicability of the WSLA to Landis’s claims. The WSLA, in brief, suspends statutes of limitations for offenses involving fraud against the government during wartime. In recent years, the government often has relied on the law to stop the clock from running, arguing that while the U.S. is still at war in Iraq and Afghanistan, it has nearly unlimited time to bring fraud claims. According to a Wall Street Journal article last year, U.S. Uses Wartime Law to Push Cases Into Overtime (April 15, 2013), the government relied on the WSLA twelve times between 2008 and 2012. That is equal to the number of times the government used the law in the preceding 47 years.
Until this month, the wartime law has been invoked with almost complete success in FCA cases. The Landis court, however, found that the WSLA does not apply to the FCA. According to the court, the WSLA only suspends statutes of limitation when the offense at issue requires proof of specific intent to defraud the government. The FCA does not and has not since its amendment in 1986. Therefore, the court found that Landis cannot rely on the WSLA to bring his otherwise stale claims. While other courts have previously limited the reach of the WSLA (e.g., to FCA cases in which the government has intervened; to cases regarding war-related contracts), the District Court is the first to completely reject its applicability to the FCA.
The court’s motion to dismiss order in United States ex rel. Floyd Landis v. Tailwind Sports Corporation, et al., No. 10-cv-976 (RLW) can be found here.
Posted by Ellyce Cooper and Patrick Kennell
On May 7th, a three-judge panel (Judges Thomas Griffith, Brett Kavanaugh and Sri Srinivasan) of the U.S. Court of Appeals for the D.C. Circuit heard oral argument on the privilege issues raised by documents created as part of an internal investigation. As previously reported in this blog, in U.S. ex rel. Barko v. Halliburton Co., 1:05-CV-1276 (D.D.C. Mar. 6, 2014) the D.C. District Court required that the defendant in an FCA case turn over documents from a related internal investigation. The Court reasoned that since the investigation was not conducted at the behest of in-house counsel, the documents were ordinary business records created to comply with federal regulations and corporate policy. In other words, the Court ruled that they were not created to obtain legal advice.
The petition sets forth the significance of this matter to internal investigations: “It is no exaggeration to say that if the district court’s ruling stands, no defense contractor—and indeed, no public company, given widespread internal-control and auditing requirements under laws such as Sarbanes-Oxley and the Foreign Corrupt Practices Act  —can claim privilege over materials generated in internal investigations, because all such companies face obligations under ‘regulatory law’ (comparable to those the court held rendered KBR’s investigative documents unprivileged.” (Petition at 8) (emphasis in original).
The United States Chamber of Commerce, Association of Corporate Counsel, the National Association of Manufacturers, Coalition for Government Procurement, and American Forest & Paper Association, filed an amicus brief in support of the appeal. The brief argued that the District Court’s ruling “threatens to work a sea change in the well-settled rules governing internal corporate investigations.” (Amicus Brief at 1). As the amicus brief states: “stripping the attorney-client privilege where corporate policy drives employees to report legally significant facts to in-house lawyers would  penalize companies that have effective compliance policies.” (Amicus Brief at 14) (emphasis in original).
Regardless of the Court’s ruling, the decision is almost certainly going to have an impact on compliance policies and internal investigations going forward. Stay tuned to the Sidley FCA Blog for further updates as this case moves forward.
Posted by Kristin Graham Koehler and Jeffrey J. Young
A recent district court ruling should serve as a warning to companies to structure internal compliance investigations so as to preserve the attorney-client privilege and work product protections. See U.S. ex rel. Barko v. Halliburton Co., 1:05-CV-1276 (D.D.C. Mar. 6, 2014). In Barko, the district court ordered a qui tam defendant to turn over certain documents, including internal investigation reports, which the court held were ordinary business records created to comply with federal regulations and corporate policy and not to obtain legal advice.
Harry Barko, a former employee of Defendant Halliburton’s former subsidiary KBR, filed the qui tam action under the False Claims Act alleging that KBR had subcontracted work to third parties who submitted inflated invoices for shoddy work, resulting in overcharges to the government. During discovery, Barko sought documents that KBR had prepared in the course of an internal investigation into the same alleged misconduct. After reviewing the documents in camera, the court rejected Halliburton’s contention that they were protected.
Central to the court’s reasoning was that KBR conducted the internal investigation pursuant to its Code of Business Conduct (“COBC”) procedures, an internal controls system required by Department of Defense contracting regulations. Under KBR’s COBC procedures, investigations were initiated by a dedicated COBC director and conducted by non-attorneys. Only once the investigation was complete did COBC transmit its written reports to the law department. Describing this process as a “routine” corporate compliance investigation, the court found that it would have occurred regardless of whether legal advice was sought.
The factors the Barko court considered in reaching this decision were specific to the facts of the case, but offer practical guidance for all companies seeking to preserve the privilege. Internal investigations should be initiated by in-house counsel, based on a legal assessment of the need. Counsel should be involved in designing the investigation, including setting its objectives and scope. Preferably, in-house or outside counsel should be used to gather and review evidence and conduct interviews. If non-attorneys are used, the company should document that this was done at the direction and under the supervision of counsel, and interviewees should always be made aware of the legal nature of the investigation. Finally, the company should explicitly label all documents it believes are subject to the attorney-client and work product protections.
Cyclist Lance Armstrong argued last week in federal court to have a False Claims Act qui tam suit against him dismissed as time-barred. The lawsuit, filed in June 2010 by Armstrong’s former teammate, Floyd Landis, alleges that Armstrong, his cycling team, the team manager and others defrauded the United States Postal Service of approximately forty million dollars worth of sponsorship fees between the mid-1990s and 2004 as a result of Armstrong and the team’s use of performance enhancing drugs and practices. Armstrong was stripped of his seven Tour de France titles in August 2012 by the United States Anti-Doping Authority, and admitted to using banned substances on national television in January 2013. The United States intervened shortly thereafter in some of the claims alleged by Landis, and now seeks treble damages.
Last Monday, on November 18, 2013, the federal district court for the District of Columbia heard nearly three hours of arguments in which Armstrong asserted that the Postal Service had constructive knowledge of his doping as early as 2000, when the French racing authorities conducted an investigation and allegations of the team’s drug use were widespread. The Postal Service chose not to investigate the allegations a decade before Landis’s lawsuit, and did not investigate in the subsequent years despite continued doping allegations. According to the defense, the Postal Service turned a blind-eye and renewed Armstrong’s contract because it profited from the publicity gained by the cycling team’s success.
The government’s last sponsorship payment to Armstrong’s team was made in 2004. Based on the timing of that last payment, Armstrong argues that the False Claims Act’s six year statute of limitations expired nine days before Landis filed his claim and now prevents the suit from going forward.
The government argues, however, that it was not on notice of Armstrong’s improper conduct before 2010. The French investigation found nothing, and Armstrong and his cycling team vehemently denied doping allegations and went to extreme lengths to cover up their use of steroids and other prohibited substances. As a result, the Postal Service had no way of knowing about Armstrong’s cheating. The government further argues that professional athletes routinely are accused of doping; such allegations do not inherently warrant an investigation, particularly in this case, when Armstrong and others repeatedly assured the Postal Service and the public that the accusations were unfounded.
The presiding district court judge, Judge Robert Wilkins, indicated during Monday’s hearing that he expects to let some claims go forward and plans to issue his ruling within thirty days.
Landis, a former teammate of Armstrong’s, previously admitted to using banned substances and was stripped of his own Tour de France title. He has been a primary source for the Anti-Doping Authority’s investigation of Armstrong. In August, in connection with a federal deferred prosecution agreement, Landis admitted to defrauding donors contributing to his defense fund when he lied about using performance enhancers. He would receive a portion of the recovery in this case if the government succeeds.
The case, United States ex rel Landis v. Tailwind Sports Corp., et al, 10-cv-00976, is pending in the District Court for the District of Columbia.
Posted by Jonathan F. Cohn and Brian P. Morrissey
Amidst last week’s coverage of Tour de France-winning cyclist Lance Armstrong’s public acknowledgement that he used banned performance-enhancing substances during all of his Tour victories, numerous news outlets reported that Amstrong’s “doping” had also become the basis of a federal False Claims Act suit. The suit was brought under the FCA’s qui tam provisions by Armstrong’s former teammate, Floyd Landis, and alleges that Armstrong and other defendants defrauded the U.S. Postal Service, which paid millions of dollars to sponsor Amstrong’s team in six of his Tour de France wins. The contract between the Postal Service and the team allegedly prohibited team members from using performance-enhancing drugs. Landis contends that Armstrong’s use of banned substances violated this contractual term and, thus, constituted a false claim against the Postal Service.
Landis’s suit, filed in the U.S. District Court for the District of Columbia, remains under seal. However, the New York Daily News last week obtained and published a copy of the qui tam complaint. (News of this suit had emerged even earlier when a federal magistrate judge issued an order in December 2012 unsealing the record in a subpoena enforcement proceeding initiated by the Postal Service Office against Armstrong. Briefing filed in that case referenced the separate, sealed FCA action.)
Several media outlets reported that the seal on Landis’s qui tam complaint was set to expire on January 17, 2013. That date has come and gone, however, suggesting that the Department of Justice likely requested and received an extension of the seal. The Department may be continuing to consider whether its intervention in the case is appropriate, or it may be engaged in settlement negotiations with Armstrong. (It was reported last week that Armstrong offered the Department $5 million to resolve the case, and that his offer was declined.)
If the case proceeds to litigation, it would raise many novel questions regarding the scope of the Act. For one thing, few—if any—courts have been called upon to assess whether a false statement made to a Government agency to induce its assent to an advertising or sponsorship contract can be considered an actionable false claim. Moreover, there may be interesting arguments as to whether Armstrong’s alleged false statements can be considered material to the Postal Service’s decision to enter into that type of contract.
Separately, the suit raises several fascinating questions regarding Landis’s share of any recovery. Landis’s 2006 Tour de France victory was revoked because of his own use of banned substances. Consequently, because Landis was a member of Armstrong’s teams, a court may conclude that Landis was complicit in any alleged false claims made by the team to the Postal Service. Under the FCA, 31 U.S.C. § 3730(d)(3), a court has discretion to reduce the FCA award to any qui tam relator who “planned or initiated” the FCA violation that forms the basis of his complaint. Moreover, if Landis is convicted of a crime in association with his alleged doping, the Act would preclude him from receiving any proceeds from the qui tam suit entirely. Id.
Finally, several anecdotes appearing in the Complaint had appeared in the press prior to Landis’s filing suit. This could create obstacles to his recovery under the FCA’s original source bar. See § 3730(e)(4)(iii) (authorizing courts to dismiss FCA actions based on allegations “publicly disclosed” in the “news media” unless the qui tam relator is an “original source” of the information). In all events, the case bears watching as it moves forward.
In a recent decision, United States v. ISS Marine Services, Inc., No. 12-mc-481, Mem. Op. (D.D.C. Nov. 21, 2012), the U.S. District Court for the District of Columbia ruled that an internal investigation report prepared by an internal auditor of an affiliate of respondent ISS Marine Services, Inc. (ISS) was not subject to the protections of the attorney-client privilege or the work-product doctrine despite the involvement of outside counsel. The opinion serves as a strongly-worded reminder that direct attorney oversight and supervision of internal investigations is the surest way to safeguard privileges.
The case involved a government petition to enforce an administrative subpoena issued by the Department of Defense Inspector General’s Office. The respondent, ISS, had agreed to produce non-privileged, responsive documents but had claimed privilege with respect to an investigative report prepared by an internal auditor of the company’s U.K. affiliate. While the facts surrounding the commissioning of the investigation and report were disputed, the court found ultimately that, although an outside law firm had initially proposed conducting the investigation, had provided advice on issues to investigate and documents to review, and was provided a copy of the finished report, neither outside nor in-house counsel directed or supervised the work of the auditor to the extent necessary to protect the final report with a privilege.
Regarding the attorney-client privilege, the court focused on the purpose for which the investigation was conducted and the audit report was created. The court applied a strict test, concluding that the party claiming privilege must demonstrate that the communication in issue would not have been made “but for” the purpose of seeking legal advice. Mem. Op. at 9. The court first noted that, despite the fact that outside counsel suggested the investigation, there was evidence that the report was prepared to allow the U.K. affiliate of respondent to make a business decision about what further action should be taken to address the issues. Id. at 11. Then, in strikingly strong language, the court found the outside law firm’s involvement too tenuous to support blanketing the internal auditor’s work with privilege:
At bottom, respondent’s claim to privilege appears to be premised on a gimmick: exclude counsel from conducting the investigation but retain them in a watered-down capacity to “consult” on the investigation in order to cloak the investigation with privilege. Unfortunately for respondent, this sort of “consultation lite” does not qualify the Audit Report for the protections of the attorney-client privilege.
Mem. Op. at 12. The court continued that “[t]his sort of arms-length coaching by counsel, as opposed to direct involvement of an attorney, undercuts the purposes of the attorney-client privileged in the context of an internal investigation.” Id. at 13.
The court emphasized that, for the results of an internal investigation to be privileged, “the company must clearly structure the investigation as one seeking legal advice and must ensure that attorneys themselves conduct or supervise the inquiries and, at the very least, the company must make clear to the communicating employees that the information they provide will be transmitted to attorneys for the purpose of obtaining legal advice.” Id. at 14.
The district court also rejected the respondent’s claim that the report was protected from disclosure by the work-product doctrine. In a detailed analysis of various tests for determining whether a document was prepared for purposes of litigation, the court concluded that the respondent had not met its burden under any potentially applicable test. After pointing out that the investigation was conducted and the report was prepared some two years before the government commenced its investigation of respondent, as well as evidence that the company had an alternative business purpose for conducting the investigation, the court returned again to the fact that counsel was not closely involved with the investigation. The court stated: “Minimal attorney involvement in an internal investigation represents a distinct difficulty for corporations claiming work-product privilege because it is the rare case in which a company genuinely anticipating litigation will leave its attorneys on the outside looking in.” Id. at 26.
A copy of the opinion is available here.
Posted by Robert J. Conlan
In an opinion providing a view of the interactions between DOJ and a qui tam relator during the Government’s investigation of the relator’s claims, the U.S. District Court for the District of Columbia last week ordered the Government to pay the relator more than DOJ had argued the relator was entitled to receive as a share of the Government’s recovery pursuant to 31 U.S.C. 3730(d). The case, U.S. ex rel. Shea v. Verizon Communications, Inc., No. 07-111(GK) (D.D.C. Feb. 23, 2012) (reported at 2012 U.S. Dist. LEXIS 22776), is one of relatively few judicial decisions addressing relator’s-share issues in detail.
The relator in Shea filed his qui tam action in 2007, alleging that MCI/Verizon had submitted false claims for improper surcharges on invoices submitted under two telecommunications contracts with the United States. The case remained under seal for several years while the Government conducted its investigation. In February 2011, the Government intervened and settled the case. The Government and the relator were not able to agree on an appropriate relator’s share, so the parties litigated the issue.
Conducting its analysis under factors identified in the Senate Report accompanying the 1986 amendments to the FCA (S. Rep. No. 99-345, at 28 (1986)), as well as in accordance with a set of “Relator’s Share Guidelines” that DOJ issued in December 1996 (11 FCA and Qui Tam Quarterly Review, at 17-19 (Oct. 1997)), the Shea court ultimately concluded that the relator in the case before it was entitled to 20% of the settlement. The court focused much of its analysis on the extent to which the relator was involved in the Government’s investigation, and it thereby provided a fairly detailed account of the interactions between DOJ and the relator in this case. Among other things, the court noted the following:
- The relator “participated fully in all aspects of the Government’s investigation and settlement discussions with Verizon,” and estimated “he spent hundreds of hours each year on the case.”
- The relator hired a “leading” telecommunications attorney to assist in the effort.
- Early in the case, the Government requested that the relator provide a memorandum stating relator’s position on why each surcharge relator identified was prohibited under the Federal Acquisition Regulation and the contract in issue. The Government also asked the relator to rank the charges in priority for investigation. The relator and his counsel provided an “exhaustive” chart and a legal memorandum setting forth the factual and legal bases for the allegations about each surcharge. The court stated that the relator’s and his counsel’s work “sav[ed] the Government enormous resources” and “helped the Government’s auditors to identify relatively quickly the ad valorem charges in Verizon’s back-up billing data.”
- The relator, through counsel, worked with the Government to draft proposed categories for subpoenas to be issued.
- The relator, “[o]n numerous occasions, . . . discussed with the GSA auditors the methods they were using to identify illegal surcharges.”
- The relator signed a non-disclosure agreement so “he could have access to the findings of the GSA audit team and analyze their usefulness to the litigation.”
- The relator reviewed a PowerPoint presentation Verizon had used to present its defenses to the Government. The relator thereafter made a “multi-hour presentation” to DOJ addressing Verizon’s positions.
- The relator “was forced to ask [the] Court to enter an Order, which was granted, directing GSA and [DOJ] to share the Government’s underlying damages estimate with him so he could analyze the methodology used.”
While each FCA qui tam case is, of course, different, the recent opinion in <lt;EM>Shea demonstrates the significant involvement that relators can have, behind the scenes, in the Government’s investigation of qui tam allegations.