Unprecedented Discovery Orders Vacated: Fourth Circuit Confirms Government Contractors Do Not Waive Privilege by Disclosing Facts Uncovered during an Internal Investigation under the FAR’s Mandatory Disclosure Rule

FCALawyers often view a writ of mandamus to a Court of Appeals as a last-gasp—indeed, almost hopeless—stratagem.  But sometimes they are granted, particularly when the district court order they challenge is even more extraordinary.  That is what just happened in In re Fluor Intercontinental, Inc., No. 20-1241 (4th Cir. March 25, 2020).  In this case, the attorney-client privilege came under attack in a recent decision in the District Court for the Eastern District of Virginia, when the court found that a government contractor, Fluor Intercontinental, Inc., had waived its attorney-client privilege by making a mandatory disclosure to the government.  The district court then required the contractor to disclose privileged files from the internal investigation that preceded the company’s disclosures.

Fluor appealed to the Fourth Circuit, requesting a writ of mandamus directing the district court to vacate its orders compelling disclosure of documents and other information related to Fluor’s privileged internal investigation.  The Fourth Circuit granted Fluor’s petition, concluding that the contractor had not waived attorney-client privilege when it submitted its mandatory disclosure to the government.

The mandatory disclosure rule, FAR 52.203-13, requires a contractor to timely disclose, in writing, whenever it has credible evidence of, among other things, violations of the civil False Claims Act.  Requiring contractors that disclose potential wrongdoing to produce privileged materials would likely conflict with the purpose of the disclosure requirements by encouraging companies to submit vague and incomplete disclosures.  The Fourth Circuit’s decision protects contractors’ right to shield confidential communications with its attorneys from discovery and aligns with the policy objectives behind the disclosure requirements.  Still, this is a cautionary tale, with lessons for companies and their lawyers when conducting internal investigations and making disclosures to the government.

Proceedings at the District Court for the Eastern District of Virginia

This case arises from Fluor’s internal investigation and subsequent termination of a worker’s employment.  Fluor conducted an internal investigation of an alleged conflict of interest involving an employee, Steven Anderson, and a company, Relyant Global, LLC, to which Fluor planned to award a contract.  Fluor’s legal department supervised the investigation and provided legal advice about the requirement to report any wrongdoing to the government.

Following the investigation, Fluor terminated Anderson’s employment and sent a summary of the investigation findings to the Inspector General of the Department of Defense (DoD-IG) in compliance with FAR 52.203-13.  As mentioned above, FAR 52.203-13 requires contractors to “timely disclose, in writing, to the agency Office of the Inspector General . . . whenever . . . the Contractor has credible evidence that a principal, employee, agent, or subcontractor of the Contractor has committed— . . .  [a] violation of the civil False Claims Act (31 U.S.C. 3729-3733).”

Anderson sued Fluor in district court, asserting claims of wrongful termination, defamation, and negligence stemming from Fluor’s internal investigation and disclosure to the government.  During discovery, Anderson moved to compel production of files related to Fluor’s internal investigation.  Fluor objected and asserted that the attorney-client privilege and the attorney‑work product doctrine protected files relating to the internal investigation.

The district court found that Fluor’s disclosures to the government were voluntary and concluded that Fluor waived the attorney-client privilege when it made its disclosure to the DoD‑IG.  In particular, the court focused on the following four statements:

  • “Anderson had a financial interest in and appears to have inappropriately assisted [a] Fluor supplier and potential subcontractor” (emphasis added)
  • Fluor considers this a violation of its conflict of interest policy and Code of Business Conduct and Ethics” (emphasis added)
  • “Anderson used his position as the [Afghanistan] project manager to pursue Relyant concrete contracts with the German military, and Mr. Anderson used his position as the [Afghanistan] project manager to obtain and improperly disclose nonpublic information to Relyant” (emphasis added)
  • Fluor estimates there may have been a financial impact to the Government because Mr. Anderson’s labor was charged to the contract task order while he engaged in improper conduct.” (emphasis added)

The district court explained that, because “these statements are legal conclusions which characterize Plaintiff’s conduct in a way that reveals attorney-client communications,” they thereby waived the attorney-client privilege.  While Fluor’s disclosure to the government purported to reveal mere facts, the district court determined that, because these four statements are “conclusions which only a lawyer is qualified to make,” they revealed attorney-client communications.

Fluor moved for reconsideration of the district court’s order.  First, Fluor argued that its disclosure to the DoD-IG was mandatory under the FAR’s Mandatory Disclosure Rule (MDR).  Second, Fluor asserted that the court erred in treating its statements characterizing the disclosure as “voluntary” as binding judicial admissions.  Third, Fluor argued that its disclosure did not reveal attorney-client communications or protected information.

The district court denied Fluor’s motion to reconsider.  The court was unpersuaded that Fluor mistakenly used the word “voluntary.”  The court held that the MDR only requires a timely disclosure, in writing, whenever there is credible evidence of a prohibited act, so any disclosure made by Fluor beyond this was voluntary.  Furthermore, the court decided that Fluor’s third‑party disclosure to the government waived the attorney-client privilege, and the MDR did not provide any additional privilege protection.  The court thus ordered Fluor to produce the materials for which it had waived privilege, including communications, witness statements, reports, and summaries of interviews from the underlying investigation relating to the subject matter of the four statements.

Appeal to the U.S. Court of Appeals for the Fourth Circuit

Fluor filed a petition for a writ of mandamus in the Fourth Circuit directing the district court to vacate its orders compelling disclosure of documents and other information related to Fluor’s internal investigation.  Fluor argued that a government contractor does not waive attorney-client privilege or work product protection by disclosing facts uncovered during an internal investigation under the MDR.  Although a writ of mandamus is an extraordinary remedy, the Fourth Circuit granted Fluor’s petition and directed the district court to vacate the portions of its prior orders that required Fluor to disclose privileged information from the investigation.

In its March 25, 2020 opinion, the Fourth Circuit court found that the district court erred in concluding that Fluor’s disclosure revealed attorney-client communications and thus waived attorney-client privilege.  Specifically, the Fourth Circuit took issue with the district court’s conclusion that, because the four statements identified above are “conclusions which only a lawyer is qualified to make,” they revealed attorney-client communications and thereby waived attorney-client privilege.  The circuit court explained, “[t]o find waiver, a court must find that there has been ‘disclosure of a communication or information covered by the attorney-client privilege or work-product protection.’”

When is Privilege Waived?

To illustrate waiver of attorney-client privilege, the circuit court drew a distinction between Fluor’s disclosure and the disclosure in In re Martin Marietta Corp., 856 F.2d 619 (4th Cir. 1988).  In Martin Marietta, the Fourth Circuit concluded that the appellant waived privilege over protected internal audit interviews because its disclosure to the government quoted from interviews conducted during an investigation, and it waived privilege over protected internal notes and memoranda on the interviews because the disclosure “summarize[ed] in substance and format the interview results.”  The Fourth Circuit explained, “[b]y directly quoting and summarizing what employees had said to counsel in the interviews, the appellant in In re Martin Marietta Corp. revealed privileged communications.”

In contrast, the Fourth Circuit held that there was no evidence the four statements in Fluor’s disclosure quoted privileged communications or summarized them in substance and format.  Instead, “the statements do no more than describe Fluor’s general conclusions about the propriety of Anderson’s conduct.”

The Fourth Circuit further stated, “in determining whether there has been disclosure of a communication covered by the attorney-client privilege, we distinguish between disclosures based on the advice of an attorney, on the one hand, and the underlying attorney-client communication itself, on the other.”  When a party makes a statement based on the advice of his or her attorney, it does not waive privilege.  Privilege is only waived when the underlying communications between the client and their attorney are shared with a third party.  The Fourth Circuit stated that it “will not infer a waiver merely because a party’s disclosure covers ‘the same topic’ as that on which it had sought legal advice.”  The Fourth Circuit concluded that “requiring Fluor to produce privileged materials is particularly injurious here, where Fluor acted pursuant to a regulatory scheme mandating disclosure of potential wrongdoing.  Government contractors should not fear waiving attorney-client privilege in these circumstances.”  In so ruling, the Fourth Circuit recognized the undesirable incentives the district court’s decision would have created for contractors considering whether and how to make a disclosure to the government.

Takeaway

The district court’s decision in this case, left uncorrected, could have had far-reaching consequences for companies subject to FAR 52.201-13 and other similar disclosure requirements.  Even though Fluor found relief in the Fourth Circuit, the district court’s decision demonstrates the need to remain vigilant when conducting internal investigations and making disclosures.  Companies of course should carefully guard their privileged communications.  In particular, they should think twice before labeling a disclosure as “voluntary,” avoid any disclosure of underlying privileged communications, and take care when describing the results of their investigations, particularly along the sometimes murky border between factual findings and legal conclusions.