On The Case

After key appellate wins on privilege, Halliburton stomps out FCA case

Halliburton’s long fight to preserve attorney-client privilege over its internal investigation of Iraq War-era kickback claims was vindicated Tuesday when U.S. District Judge Royce Lamberth of Washington granted the company summary judgment in a False Claims Act suit accusing Halliburton of defrauding the federal government.

Whistleblower Harry Barko, a former subcontract administrator for Halliburton subsidiary Kellogg Brown & Root, filed the case back in 2005. His lawyers at Kohn Kohn & Colapinto alleged that a KBR executive received kickbacks from a subcontractor KBR hired to build a camp and provide laundry, water drilling and labor services for troops in Iraq. Broadly speaking, Barko claimed KBR deceived the federal government by failing to conduct a competitive bidding process for the subcontracts and by overbilling for the subcontractor’s services.

Barko and his lawyers believed they’d find key support for the whistleblower’s claims in Halliburton’s own internal investigation of kickback allegations, apparently launched in response to employee tips about “various luxuries” (to use Judge Lamberth’s words) that the subcontractor, Daoud & Partners, conferred upon the KBR executive. Halliburton’s lawyers at Vinson & Elkins contended that the internal investigation was shielded by attorney-client privilege.

In 2014, U.S. District Judge James Gwin, who sits in Cleveland but had been designated to oversee the KBR case, ruled that the privilege did not apply because KBR’s primary reason for conducting the investigation was to comply with regulatory requirements, not to obtain legal advice. Judge Gwin’s opinion threw a scare into government contractors but it was quickly overturned by the District of Columbia U.S. Circuit Court of Appeals. A three-judge appellate panel granted Halliburton’s petition for a writ of mandamus, holding that as long as one of the goals of the investigation was to obtain legal counsel, the privilege applies.

Barko came up with a new theory, asserting that Halliburton had waived privilege by allowing an in-house lawyer to review documents from the internal investigation in preparation for a deposition. His lawyers also said the company had referred to the outcome of the investigation in a summary judgment motion so privilege was waived. In November 2014, Judge Gwin once again ruled that Barko was entitled to see the records of KBR’s internal investigation.

In 2015, the D.C. Circuit once again overruled Judge Gwin. The appeals court said Gwin’s reasoning was fundamentally flawed and would have undermined the basic principle of attorney-client privilege. “If all it took to defeat the privilege and protection attaching to an internal investigation was to notice a deposition regarding the investigations we would expect to see such attempts to end-run these barriers to discovery in every lawsuit in which a prior internal investigation was conducted relating to the claims,” the appeals court said.

Though the D.C. Circuit denied Halliburton’s request for a new judge, the case was reassigned to Judge Lamberth within weeks of the second appellate rebuke of Judge Gwin. Based on the 66-page opinion Judge Lamberth issued Tuesday, the suit does not appear to have been his favorite assignment. He talked about “wading through” voluminous briefings and hundreds of exhibits from both sides, weighing “countless discrepancies and disagreements.”

In the end, he said, Barko had turned up “an incredible amount of information” about KBR’s subcontracting practices, convincing the judge that “numerous issues of waste, fraud and mismanagement may have existed.” But Judge Lamberth ruled Barko hadn’t offered admissible evidence that KBR’s executive accepted kickbacks or that KBR’s submissions for payment from the government were factually or legally false. “Not every instance of waste, fraud, mismanagement or breach of contract translates into a False Claims Act violation,” the judge wrote. (Based on the citations in Judge Lamberth’s opinion, KBR has done a truly remarkable job of establishing favorable FCA precedent in previous cases against the company.)

So would evidence from the privileged internal investigation have changed the outcome of the case? It’s tough to answer the question because we don’t know what’s in the records of the investigation. Judge Lamberth ran through the employee reports and allegations that apparently prompted the internal inquiry, including claims that Daoud & Partners rewarded the KBR executive who favored the subcontractor with a yacht and a Rolex. He concluded, however, that the tips were rumor and speculation – not actual evidence. “None of Mr. Barko’s proffered evidence creates a genuine dispute of material fact regarding kickbacks,” the judge wrote.

Barko’s lawyers tried to salvage a shred of good from his privilege losses at the D.C. Circuit, arguing that Judge Lamberth should infer from KBR’s assertion of privilege that the internal investigation turned up evidence of wrongdoing. Judge Lamberth did not take that suggestion kindly. “The policy concerns which enshrine ‘the oldest of the privileges – including encouraging frank and open discussion – could not allow for such results,” he wrote. “If the assertion of attorney client privilege could produce an adverse inference ‘persons would be discouraged from seeking opinions, or lawyers would be discouraged from giving honest opinions. Such a penalty for invocation of the privilege would have seriously harmful consequences.’”

The judge also refused to allow Barko time to depose any of the 168 witnesses with knowledge of the internal investigation. The whistleblower had asked the judge to order KBR to disclose additional information about the witnesses. Judge Lamberth said that was effectively the same as asking for privileged information. He refused the request – and said Barko should have tried a different way to prove his case.

“It was not KBR’s job to build Mr. Barko’s case by providing such information,” Judge Lamberth wrote. “Mr. Barko should have sought to discover these facts without relying on the ultimately misplaced expectation that he would have access to them via the privileged (internal investigation) reports, or via an equally privileged explanation from KBR regarding the contents of the same reports.”

Craig Margolis of Vinson & Elkins sent an email statement on the summary judgment decision via a firm representatives. “KBR is pleased with the district court’s ruling bringing this more than decade-long case to a deserving end,” the statement said. “KBR made herculean efforts to support our soldiers fighting in Iraq and Afghanistan, and in the years of protracted litigation and many cases brought since, has not once been found to have violated the False Claims Act.”

Barko lawyer Michael Kohn said in an email statement that his client would appeal the summary judgment ruling. “Barko presented evidence that KBR had sufficient reason to suspect that a violation may have occurred and failed to give the government notice as required by law,” the statement said. “The judge also appears to be weighing the evidence throughout the decision and to have required the submission of ‘actual evidence’ as opposed in inferential evidence. If a party presents evidence to a jury that a bird looked like a duck, walked like a duck and quacked like a duck, a jury can reasonably infer that there was a duck without DNA evidence that the bird was duck.”