In addition, several recent decisions regarding waiver of the attorney-client privilege or work-product protection serve as cautionary tales to companies hoping to rely on past compliance efforts or ongoing cooperation to resolve or defend against enforcement activity by government regulators. As the regulatory and enforcement landscape continues to expand and evolve, companies must remain cognizant of the ways in which their overlapping legal, business, and compliance activities are covered by—or can limit—the availability of the attorney-client privilege or work-product protection.
The Attorney-Client Privilege and Corporate Compliance
The attorney-client privilege protects from disclosure confidential communications between an attorney and client that are made for the purpose of obtaining or providing legal advice. In Upjohn Co. v. United States, 449 U.S. 383 (1981), the Supreme Court famously held that the attorney-client privilege extends to communications between corporate employees and attorneys seeking to provide legal advice to the corporation. In rejecting a narrow construction of the privilege in the corporate context, the Court warned of the chilling effect such a construction would have on “valuable efforts of corporate counsel to ensure their client’s compliance with the law.” Id. at 392.
While Upjohn made clear that the attorney-client privilege can apply to communications with in-house counsel, when these communications serve both legal and nonlegal purposes, the application of the privilege is less clear. Courts have frequently addressed the overlap between legal and business advice in the context of potentially privileged communications. In recent years, with the expansion of corporate compliance programs, a nuanced line has also developed between legal advice and general compliance efforts, particularly when addressing communications about internal investigations. When dealing with communications that have these types of overlapping purposes, courts have applied different tests to determine whether a communication was made for the “primary purpose” of obtaining or providing legal advice within the meaning of the attorney-client privilege.
The Halifax Decision—A Narrow View of the “Primary Purpose” Test
On one extreme, the district court’s opinion in Halifax reflected a very narrow view of the applicability of attorney-client privilege by suggesting that the privilege cannot apply when a communication has overlapping purposes. In Halifax, a relator filed a False Claims Act lawsuit alleging that a hospital’s compensation arrangements with certain physicians violated the Stark law. During discovery, the hospital asserted the attorney-client privilege over various communications between in-house counsel and non-attorneys, as well as a “referral log” maintained by the compliance department to document investigations into issues and concerns.
The court first concluded that the privilege did not apply to the referral log because the log did not “evidence legal advice [was] sought or received.” The referral log was maintained by the compliance department to facilitate discussions with the general counsel regarding litigation risk and exposure, and the cover sheets for each individual incident were addressed to the general counsel. The court nevertheless reasoned that the privilege did not apply because “[i]n no instance [had] a lawyer commented on the information recorded nor [had] an employee in the Compliance Department indicated that he or she would seek advice of counsel.” Thus, the court contemplated a distinction between general compliance investigations and those undertaken for the express purpose of obtaining legal advice. SeeHalifax, 2012 U.S. Dist. LEXIS 158944, at *19–22.
The court similarly appeared to draw a hard distinction between communications regarding “compliance advice” and those pertaining to “legal advice.” In response to the hospital’s argument that the privilege applied to a number of documents generated to facilitate, obtain, or provide “compliance advice,” the court flatly concluded that the materials were not privileged and were discoverable.
With regard to various email communications, the court determined that emails addressed both to in-house counsel and non-attorneys were not privileged. The court based this determination on a presumption that a company could not “claim the primary purpose of the communication was for legal advice or assistance because the communication served both business and legal purposes.” Id. at *26 (quoting In re Seroquel, 2008 U.S. Dist. LEXIS 444597, at *4 (M.D. Fla. May 7, 2008)).
The analysis on which the court relied in Halifax certainly could be characterized as a restrictive approach to the primary-purpose test. With regard to the referral log and documents pertaining to compliance advice, the court did not address the possibility that the materials may contain both legal and compliance advice. Furthermore, the court seemingly precluded communications from being considered privileged if those communications served both legal and business purposes. In other words, Halifax appears to have applied the primary purpose test in a manner in which the attorney-client privilege would not apply unless the sole purpose of the communication was to obtain legal advice.
The KBR Decision—“One of the Significant Purposes” Test
On the other extreme, a recent decision from the D.C. Circuit vacated a district court’s decision applying a version of the primary-purpose test that was similarly restrictive to the approach in Halifax and announced a more permissive test for analyzing attorney-client privilege when a communication has overlapping purposes. See In re Kellogg Brown & Root(KBR), 756 F.3d 754 (D.C. Cir. 2014). In KBR, a relator sought documents generated by a government contractor in connection with an internal investigation conducted pursuant to the company’s compliance policies. As a government contractor, the company was also required to maintain a business ethics and compliance program that provided a mechanism for internal reporting and disclosure of certain types of misconduct.
In response to the contractor’s privilege claim, the district court applied a “but for” analysis to determine whether the documents were made for the purpose of obtaining legal advice. Under this approach, the primary purpose of a communication would be to obtain legal advice only if “the communications would not have been made ‘but for’ the fact that legal advice was sought.” Consequently, the district court concluded that the internal-investigation documents were not privileged because the investigation was undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.
According to the D.C. Circuit, however, the lower court “applied the wrong test.” The D.C. Circuit explained that the “‘but-for’ test articulated by the district court was not appropriate for the attorney-client privilege analysis” because the privilege “apparently would not apply unless the sole purpose of the communication was to obtain or provide legal advice.” This approach would improperly eliminate the privilege from communications made for both legal and business purposes. Furthermore, the D.C. Circuit warned that such an approach would “eradicate the attorney-client privilege for internal investigations conducted by businesses that are required by law to maintain compliance programs, which is now the case for a significant swath of American industry.” Thus, 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 and even if the investigation was mandated by regulation rather than simple an exercise of company discretion.”
United States ex rel. Garbe v. Kmart Corp.—Rejecting the Selective Waiver Doctrine
The KBR decision recognized that encouraging compliance with a complex regulatory scheme supports a permissive approach to finding that privilege exists when a communication has overlapping purposes. Companies are cautioned, however, that cooperation with regulators does not similarly provide policy support for a protective approach to attorney-client privilege or the work-product doctrine in the context of waiver.
In United States ex rel. Garbe v. Kmart Corp., No. 3:12-cv-00881, 2014 U.S. Dist. LEXIS 73261 (N.D. Ill. May 29, 2014), a district court refused to apply the selective-waiver doctrine when a company provided attorney work product to government regulators in connection with their investigation. In response to a subpoena from the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services, attorneys for Kmart created and produced a subset of transactional data assembled “in an easier-to-understand format” with “the primary motivation [of appearing] cooperative in order to hopefully obtain a more favorable result in the investigation. . . .” The data were provided as part of a production that was subject to an agreement stating that “confidential proprietary” business information would be protected, but the agreement did not address attorney work product.
When a relator in a subsequently unsealed qui tam lawsuit requested the materials Kmart produced to the OIG, Kmart withheld the transactional data on the basis that the data were protected by the attorney work-product doctrine. The relator sought to compel production of the transactional data, arguing that Kmart had waived the attorney work-product protection through disclosure to the government. Kmart countered that it had “selectively waived” work product with regard to the federal government, such that the attorney work-product protection was preserved vis-à-vis the relator.
The district court held that selective waiver was not appropriate because “both the federal government and Relator are adversaries of K-Mart under essentially the same circumstances.” The court also noted that the confidentiality agreement did not cover attorney work product. Even if the attorney work product had been in the scope of the agreement, however, the term would be moot because Kmart could not salvage the work-product protection after disclosure to an adversary who was similarly situated to the party seeking to compel production. Because Kmart had made a “strategic calculation” that “the potential benefits [of appearing cooperative] outweighed the risk [of waiver of work-product protection],” the court held that the attorney work-product protection had been waived.
United States ex rel. Barker v. Columbus Regional Healthcare System—Privilege Waiver via a Good-Faith-Compliance Defense
Strategic determinations can similarly result in waiver once litigation has commenced, regardless of whether the complex nature of a regulatory environment might support a protective approach to privilege. In United States ex rel. Barker v. Columbus Regional Healthcare System, No. 4:12-cv-108 (M.D. Ga. Aug. 29, 2014), a district court rejected a healthcare provider’s argument that its alleged waiver of the attorney-client privilege should be narrowly construed to ensure that healthcare providers could engage in open communications with counsel in light of the complex and changing regulatory healthcare environment.
Columbus Regional faced allegations that it violated the False Claims Act by falsely certifying compliance with the anti-kickback statute and the Stark law. In answering the complaint, the defendant pled as a defense that its actions were undertaken in good faith and constitute conduct that is lawful, proper, justified, or privileged, or a combination of these. When Columbus Regional asserted the attorney-client privilege over documents regarding the legality of the transactions at issue, the relator filed a motion to compel production. The relator argued that, by taking the position that it believed its conduct was lawful, Columbus Regional had waived attorney-client privilege as to any communications regarding the legality of the transactions at issue.
Relying on Eleventh Circuit precedent, the district court held that Columbus Regional had waived its attorney-client privilege as communications regarding the legality of the relevant transactions. The court explained that, “when a defendant affirmatively asserts a good faith belief that its conduct was lawful, it injects the issue of its knowledge of the law into the case and thereby waives the attorney-client privilege.” Id. at *6 (citing Cox v. Adm’r U.S. Steel & Carnegie, 17 F.3d 1386, 1419 (11th Cir. 1994)).
Furthermore, the court found “no legal justification under existing precedent” to support Columbus Regional’s proposed “healthcare industry exception.” The court acknowledged, however, that “certain policy considerations may support” Columbus Regional’s argument that waiver should not apply “because the healthcare industry is highly regulated and uniquely dependent on regular and candid communication with attorneys.” The court nevertheless concluded that the Eleventh Circuit’s decision in Cox did not support a special exception to the waiver and noted that “[a]ny exceptions to Cox must be made by the Court of Appeals and not a district judge.” Id. at *10.
Practical Principles
While companies and courts will continue to refine the contours of the attorney-client privilege and work-product doctrine in the changing regulatory environment, healthcare providers should heed the following principles to maximize the likelihood that privilege will be established and preserved.
- When legal advice overlaps with compliance or business advice, clearly indicate that a primary purpose of the communication is to obtain or provide legal advice.
- When sending emails seeking legal advice, consider including only lawyers in the “to” field.
- Establish a protocol for investigating allegations or evidence of misconduct that defines the allocation of responsibilities between legal personnel and nonlawyers and that clearly identifies certain types of conduct that must be investigated for the purpose of obtaining legal advice.
- In considering the extent to which cooperation with enforcement authorities is appropriate, carefully weigh the benefits of cooperation against the risks of waiver vis-à-vis other potential adversaries.
- To the extent that the benefits of cooperation justify waiving the attorney-client privilege or work-product doctrine, attempt to secure a confidentiality agreement to mitigate the risk of waiver.
- Consider whether it is possible to avoid pleading defenses that rely on the client’s knowledge of the law.
Keywords: litigation, health law, attorney-client privilege, work-product doctrine, corporate compliance, False Claims Act, FCA, healthcare
Kaitlin Harvie and Matthew Curley are attorneys with Bass Berry & Sims PLC in Nashville, Tennessee.