The United States Court of Appeals for the Fourth Circuit recently, and importantly, reestablished the status quo for government contractor disclosures made pursuant to the Mandatory Disclosure Rule (MDR), while also providing further insight into when a disclosure could waive privilege. Specifically, the Fourth Circuit, in a non-precedential decision, overturned an unsettling decision from the U.S. District Court for the Eastern District of Virginia that certain disclosures a government contractor (Fluor) made pursuant to the MDR constituted a waiver of the attorney-client privilege. Background on the prior District Court decision and the disclosures which the District Court determined to constitute a waiver of privilege can be found in our prior client alert located here.

Before the Fourth Circuit, Fluor asserted that three of the District Court’s conclusions were erroneous: (1) that Fluor’s disclosure revealed attorney-client communications and thus waived attorney-client privilege; (2) that Fluor’s disclosure was voluntary under 48 C.F.R. § 52.203-13; and (3) that Fluor’s description of the disclosure as “voluntary” in its answer and counterclaim was a binding judicial admission. The Fourth Circuit, in granting Fluor’s writ of mandamus (a drastic remedy reserved for extraordinary circumstances), agreed with Fluor that the District Court “clearly and indisputably erred” in holding that Fluor’s disclosure revealed privileged communications and waived the privilege. 

In reaching this conclusion, the Fourth Circuit distinguished between disclosures based on the advice of an attorney (not a waiver of privilege) and disclosures that divulge the underlying attorney-client communication itself (a waiver of privilege). The Fourth Circuit also compared the disclosure Fluor made pursuant to the MDR in this case (finding no waiver) to its decision in In re Martin Marietta Corp., 856 F.2d 619 (4th Cir. 1988) (finding waiver of privilege as to internal audit interviews). Specifically, it determined that Fluor’s disclosures, unlike those in Martin Marietta, did not quote from the interviews and did not summarize in substance and format what employees had said to counsel in the interviews. Instead, Fluor’s disclosures did “no more than describe Fluor’s general conclusions about the propriety of [the employee’s] conduct.” The disclosure of general conclusions, even if based on interviews conducted at the direction of counsel or reached based on counsel’s advice, is insufficient to waive the attorney-client privilege—it does not disclose the underlying attorney-client communication itself. 

The Fourth Circuit, even though it did not reach whether the District Court’s other conclusions were likewise erroneous (e.g., whether the disclosure was “voluntary” under the MDR), identified using strong dicta that its decision is consistent with the purpose of the MDR. In specifically focusing on the MDR, the Fourth Circuit stated 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”; and

• “the district court’s decision has potentially far-reaching consequences for companies subject to [the MDR] and other similar disclosure requirements. We struggle to envision how any company could disclose credible evidence of unlawful activity without also disclosing its conclusion, often based on the advice of its counsel, that such activity has occurred. More likely, companies would err on the side of making vague or incomplete disclosures, a result patently at odds with the policy objectives of the regulatory disclosure regime at issue in this case.”

While contractors must remain vigilant about the level of information disclosed pursuant to MDR and ensure the disclosure do not divulge the underlying attorney-client communication, this decision should provide comfort to the government contract community. Contractors, pursuant to the MDR, should be able to inform their government customers in sufficient detail of the contractor’s general conclusions as to whether conduct satisfies the credible evidence standard under the MDR. This, in turn, should enable contractors and the government to preserve resources and enable cost-savings to the extent additional investigations are unnecessary.