This material is from a presentation given at The Network of Trial Law Firms
Litigation Management Supercourse
October 25-28, 2001
Palm Beach, Florida
DEFENDING GOVERNMENT INVESTIGATIONS
By Austin J. McGuigan, Esq. and Glenn E. Coe, Esq.
There are few events more disrupting to a corporation than learning that it is the subject of an investigation by a governmental agency, particularly if the investigation concerns criminal statutes and penalties. In this day and age, where legislatures act on the premise that looking after the public good means attaching criminal penalties to behavior contrary to the public good, there is the likelihood of being caught up in a criminal investigation. In addition to obvious criminal wrongdoing, such as bribery of public officials, investigations can include fraud in any number of areas, such as Medicare/Medicaid, SEC violations, environmental protection violations and many more.
Once notice is received that an investigation of a corporation is about to commence, certain facts immediately come into play: the corporation is soon to be engaged in a time-consuming, expensive exercise that may prevent it from focusing on its everyday business.
That is, the corporation will find itself in an area in which it may have little or no experience: a government entity empowered by statutes will now have the authority to question and probe into many areas of the corporation's daily existence which are never discussed outside that corporation and which would never be disclosed to a third party but for the government's investigative powers. Nor is the government entity charged with helping the corporation to comply with government directives. They are most probably looking at how an individual and/or the corporation failed to comply with a statute, regulation and/or administrative directive.
The aim of a corporation's in-house and outside lawyers is the same: how to gather the necessary facts and background information on which to make a decision as to how to proceed in response to the governmental entity and to assess the cost of any solution? Obviously, the threshold issue to decide is whether or not there really is a problem and, if so, how serious it is.
Regardless of whether there is or is not a basis for the government's investigation, the corporation must defend against the government investigation by doing the following:
1. Conduct a thorough internal investigation and assess exposure and costs;
2. Determine who needs separate lawyers;
3. Determine if there will be cooperation with the investigation;
4. Prepare witnesses for interviews and/or grand jury testimony; and
5. Settle the investigation, if possible, or prepare for battle.
II. An Unwelcome Contact: The Government Alerts The Corporation Of An Investigation
In most instances, the aim is to keep the focus on the corporation, as opposed to the corporation's officers. The exception is a rogue officer who acted without corporate authority and thus exposed the corporation to penalties and fines by acting in a manner contrary to the interests of the corporation and without authorization or approval.
In all cases, the corporation must take the necessary steps to investigate itself and to determine the extent of its exposure, if any. To do that, the investigating lawyer must investigate thoroughly the background facts, and locate and review all relevant documents, including electronic materials, before responding to the government entity.
The investigating lawyer must also be sensitive to differentiating between the corporation's interests and the interests of individual employees. Should a conflict emerge, or should a potential conflict emerge, the investigating lawyer must remind him or herself and the individual employee that the investigating lawyer represents the corporation and only the corporation.
If there is a conflict, the corporate employee should retain a separate lawyer. Who pays this lawyer's fees may be dictated by an employment agreement and/or addressed by statute. In Connecticut, there is a statute whereby a corporation may reimburse a corporate employee for his or her legal fees if it is determined that the corporate employee's conduct was not adverse to the interests of the corporation and was not criminal. By agreement, the corporation may advance and pay legal fees subject to a court not finding that the corporate employee did either of the above.
III. What Are The Objectives Of A Successful Plan?
The investigating lawyer must have a clear (but flexible) idea of what he or she is looking for before deciding whom is to be interviewed and what topics will be broached with each particular employee. It simply is not acceptable for the government entity shepherding the investigation to have more facts available to it than the corporation has knowledge. The gathering of information is, in many ways, equally or more important than deciding what to do once the facts appear to have been collected.
The major legal and factual issues in play must be identified. Knowledge of why something took place, looking back, is invaluable as a resource and in formulating how to address the situation with the government entity.
The maximum potential exposure to the corporation and any individuals allegedly involved must be determined. Additionally, potential conflicts between the corporation and individual employees must be identified and addressed immediately.
The investigating lawyer needs to determine the number of potentially relevant, informative documents, what they are, where they are (or should be or were once) and who has had access to them.
The investigating lawyer needs to compile a list of potential interviewees, including those within the corporation and any former employees with relevant information who have left the company, with special attention on how to contact these latter individuals on short notice.
The investigating attorney must be acutely aware of the level of sensitivity of the investigation within the framework of the corporation, including such questions as to the involvement of trade secrets or highly sensitive company information being at issue. Further, the investigating lawyer must determine if the potential exposure and/or alleged involvement of corporate employees is limited or if it is possible that high-level management are allegedly involved.
Additionally, the investigating lawyer must determine who will be involved in the investigation itself (query if there are any conflicts as to any individual and the corporation) and ensure that a chain-of-command is established. This will reduce duplicative efforts while also ensuring that information flows to those who have a need to know and that said information can be coordinated efficiently to ensure that employees are not being contacted repeatedly by different individuals involved with the investigation, who are not passing on what they have learned to the investigating team.
The scope of the investigation must be known and a determination made as to whether the government agency is involved in a limited investigation of specific charges or a broad investigation of a suspicion or belief of wrongdoing by the corporation. The investigating lawyer must ensure the investigating team is well-briefed on this point and that it does not widen the scope of a narrow investigation unless such is warranted.
It is important to be clear as to the goals of the investigation. Without doing this, the overall strategy of the investigation will be of little value.
IV. Who Should Conduct The Investigation?
The general rule give in response to this question is that a lawyer should conduct, or at the least, supervise, any internal investigation (many retain former prosecutors, given their previous experience of initiating such investigations for the government). Two primary reasons are usually given: (1) legal issues are likely to arise which will require interpretation; and, (2) certain privileges attach to a lawyer's work product and/or with communications to and/or from certain corporate employees.
Additionally, more often that not, the underlying stimulus for a government investigation commences with or is heavily influenced by lawyers, be they prosecutors, in-house or outside lawyers for a competitor or even a lawyer representing a present or former employee with a grudge or a "cause." Lawyers much rather speak with lawyers about sensitive issues, which is what almost all investigations revolve around, as concepts such as confidentiality, sensitive business information and such do not have to be explained. Lawyers understand what can be and what cannot be disclosed, to whom it can or cannot be disclosed and, most importantly, when something should or should not be disclosed.
In-house lawyers have numerous advantages with respect to bringing an understanding of the terrain within which the investigation will take place. In-house lawyers know the internal structure and workings of the corporation and the personnel who make the corporation run. They know whom to call to obtain information and/or documentation. Almost without exception, a call from an in-house lawyer will smooth the path for the outside lawyer, should one be associated with the investigation. In-house lawyers are relied upon by management and their urging that an investigation be conducted is often critical in ensuring any such investigation is undertaken in the proper manner at the outset.
Given that in-house lawyers are already on the corporation's payroll, some corporations find that it is cost-effective for a corporation to use an in-house lawyer to conduct the internal investigation.
Even so, almost all investigations concerning allegations of malfeasance within a corporation and/or by a corporation are best investigated by outside lawyers. Outside lawyers have certain advantages, which are so familiar to all that a quick list of these advantages should suffice, over in-house lawyers:
* independence (both in the view of the entity making the allegations and the reality of not having any vested self-interest in the result of the investigation);
* having no self-interest in the result viz-a-viz the corporation;
* little likelihood that outside lawyers were involved in any of the decisions now under scrutiny;
* the experience of having advised and/or investigated other corporations in similar positions;
* fewer ties to officers within the corporation;
* the years of experience an experienced lawyer brings with respect to the investigation and/or the litigation of the underlying matter;
* credibility with a prosecutor as a result of similar, past cases;
* litigation and trial experience;
* not being seen as a part of the corporate management which allowed the alleged situation to have occurred in the first place; and,
* far less chance of an inadvertent waiver of privilege, given that outside lawyers are not usually consulted as to business decisions which may be affected by the investigation.
In short, an outside lawyer who has experiences with such matters offers the corporation greater protection - and should offer more insightful analysis which is presented without the influences of the internal workings of the corporation. Finally, the outside lawyer can provide a certain level of insulation for the in-house lawyer.
Outside lawyers must be receptive to and willing to act upon the advice of in-house lawyers or he or she will be at risk of squandering the greatest resource of the corporation's actions, reactions and/or resources.
V. Be Prepared - But Be Even More Prepared To Be Flexible
An internal investigation must be planned, but with the understanding that the investigation may change. In fact, all investigations, no matter how well formulated and inclusive as to how to approach the investigation, will undergo significant restructuring as the investigation unfolds. It is, therefore, absolutely essential that the investigative plan be flexible enough to permit adaptations to the needs of each particular case.
Saying that you need to be flexible is often more difficult than being flexible. The problem is that the malleability of the plan is dependent on the relative flexibility of the planner. Indeed, flexibility of the plan is not nearly as important as planner flexibility, particularly given the modest respect each planner has for his or her own ideas.
Problems arise when the inevitable happens: what was anticipated does not conform to reality. At that point, the investigating lawyer has two choices: adjust the plan or adjust reality. Unfortunately, the latter is often chosen. This natural human tendency to adjust reality rather than one's conception of it is compounded by the multiple author factor (the MAF) which holds that all plans approved will have more authors than pages. Note that this principle is only valid until the plan fails, at which time the unknown author principle (the UAP) suddenly goes into effect.
The unwillingness to adjust a plan to changed circumstances can have direct and dire consequences. An example of this is evident in the (apocryphal) tale of the German High Command during the Normandy invasion in 1944. It seems that the High Command, based on all the best intelligence, had concluded that the Allied invasion would take place at Caen, France. When informed by a German officer-observer that the invasion was taking place in Normandy with some 4,000 Allied ships in view, the General staff command replied that this was impossible because the Allies didn't have 4,000 ships. As the shells rained in on his observation post, the officer replied that the 4,000 ships that the Allies did not have were blowing the hell out of his bunker.
VI. The Investigation: Where Do You Look? And With Whom Do You Speak?
The sources of information that will be examined are minimal in number with respect to categories of information, but can be vast both in volume and in substance as to the information contained therein. The investigation must look to communications with the government entity "forcing" or initiating the investigation to focus the investigation; it must look for and review documentation held by and/or for the corporation; and the investigation must identify and consider interviewing present and former employees of the corporation whom may have relevant information.
When dealing with corporation personnel, the investigating lawyer must identify him or herself as a lawyer for the corporation and that he or she has been retained by said corporation to render legal advice. Often, depending on the nature of the investigation, a memo from management stating such can be circulated, asking for cooperation from employees.
The investigating lawyer will have almost certainly contacted the government entity which initiated the investigation in an effort to commence (or to continue) a relationship with that entity. Further, any such communication should result in the scope of the investigation being refined and thus will impact what is being reviewed and who is to be questioned. Additionally, such contact will notify the government entity that the corporation is represented and thus the investigating lawyer must be contacted should the government entity desire to speak with any current employees.
In a separate topic examined when discussing the Economic Espionage Act, a determination must be made as to any potential conflicts between present employees and the corporation. However, many of the communications between corporation employees are confidential and some are privileged (the investigating lawyer should consider the impact of taking notes; all resulting notes should be marked Privileged). This potential conflict of interest must be relayed to the employee being interviewed. The investigating lawyer must always be cognizant of this factor, as a conflict may not be apparent during the first or subsequent interviews with a corporate employee.
Documents used to examine the employee must be reviewed prior to any interview, with the investigating lawyer taking steps to obtain all copies of the document at issue. Was there a routing slip for the document? Did anyone show said document to anyone not on the routing slip? What is the individual's practice with respect to retaining documents? What notations were made on the documents and by whom? These, and many other questions, must be reviewed with the employee being interviewed.
So as to avoid any surprises, before a corporate employee is interviewed by the government, the investigating lawyer should (almost without exception) meet with the corporate employee to review what might be asked of said employee and examine how that employee may respond. Nor does a person's position within the corporation change the need to conduct initial interviews with all individuals and to review what facts, opinions and documentation said employee may refer to with the government.
No assurance should be given that information relayed during an interview with a corporate employee will remain only with the interviewing lawyer. It may be necessary to pass certain information on the government entity. It remains prudent to request of the employee that the employee not discuss the interview with anyone, particularly fellow employees. Further, employees should be made aware that absent a compelling directive and/or order, they do not have to speak with a governmental agency conducting an investigation. If a present employee is forced to speak with a government entity considering charges against the corporation, the investigating lawyer should know in advance if the corporation is willing and able to pay for its employee's legal costs. If so, conveying that information to the employee will obviate many of the barriers and/or concerns the employee may otherwise have.
Before any such interview with a corporate employee, the investigating lawyer should inform the employee of the following:
* the purpose of the investigation, who and/or what entity is conducting it and that information is being gathered by the corporation for its evaluation of its position;
* why the employee is being interviewed and that the corporation expects the employee's cooperation and is owed a duty to cooperate (or a duty of loyalty);
* that others may be interviewed;
* that there is no obligation, absent papers demanding the presence of the employee, that the employee speak with anyone outside the corporation's investigating team;
* that the corporation has retained a lawyer to investigate the allegations and that said lawyer represents the corporation, that the attorney-client privilege is held by the corporation and thus the employee should keep the contents of the interview confidential;
* that the corporation may use any information obtained in the course of its investigation in a variety of ways, including disclosing such information to prosecutors and/or regulators, and in deciding whether to discipline employees;
* that the employee can terminate the interview at any time; and,
* that the employee has the right to have a separate lawyer at any time, including during the interview about to commence.
Of course, it should be pointed out that the only responses to the investigating lawyer's questions which should be given must be truthful, accurate and complete responses.
Before concluding any interview of a corporate employee, the investigating lawyer should solicit and respond to questions the employee has, particularly as to said employee's rights and/or obligation. A written, confidential summary, complete with the mental impressions of the interviewing lawyer, should be completed by the investigating lawyer soon after any interview.
VII. Joint Defense Agreements
If the employee obtains their own lawyer, the corporation may want to consider entering into a joint defense agreement if it is found or thought that a mutuality of interests exists between it and the employee. Such an agreement can allow for the sharing of certain privileged and/or confidential information and allow lawyers for the corporation and the individual to speak freely about the potential case and/or action.
Joint Defense Agreements can be written to permit the protection of certain privileges, which should lead to the exchange of information and ideas. However, lawyers must never mislead their co-counsel's clients: the lawyer's duty and allegiance is to their client and their client only.
VIII. Preparing the Employee Witness for Testimony Before A Grand Jury
It should be clear that a witness who has not been properly prepared to appear before a governmental agency and/or a grand jury may, without ever knowing there was an option, lose an immunity opportunity, commit perjury and/or make him or herself a target even though they may have entered the room as a fact witness who was drawing no one's attention.
Many of the same principles described above are important when taking an employee before the grand jury: truthful testimony is the only option, answer only that which is asked, do not speculate and do not volunteer information. The investigating lawyer should only review documents with the employee for which the investigating lawyer is prepared to have the employee examined.
It is important to ensure that the corporate employee not confuse that which he or she knew at the time the events at issue commenced versus what he or she has since learned.
IX. Reporting Findings and Opinions To The Government And/Or The Corporation
The investigating lawyer must be aware of what he or she is reporting to the corporation. Once reported in writing to the corporation, a claim of work product is very difficult to defend if a challenge to disclosure is made on the grounds of privilege.
The investigating lawyer must also be aware of whether the corporation has an obligation under statute to make mandatory disclosure to the government entity of the possible wrongdoing of which the government entity is not aware, or if, faced with such a scenario, whether the corporation should make a voluntary disclosure of the same.
Absent a duty to disclose, whether set forth in statute or regulation, there is no duty to disclose wrongdoing. However, the government favors those corporations who bring improprieties and/or wrongdoing to the government's attention voluntarily. Clearly, a corporation acting as such demonstrates to the government entity investigating it that the corporation as a whole has integrity and is committed to acting within the laws and regulations governing said corporation. Voluntary disclosure may also avoid prosecution and/or indictment while simultaneously setting forth the corporation's view of events before the government entity has had a chance to skew the facts, thus possibly helping to shape the investigation in the direction the corporation would rather see.
Voluntary disclosure can have a downside, however. Employees may ask how strong the corporation will back it if a questionable act becomes a governmental concern rather than an internal matter. Such could easily lead to corporate employees choosing not to cooperate with future investigations. Further, the investigating lawyer must ask what work product and/or attorney/client communications have been waived in presenting information to the government entity on a voluntary basis. Of course, voluntary disclosure will never, in and of itself, preclude prosecution and no corporate officer should be led to believe otherwise. In fact, voluntary disclosure could well provide a roadmap into the corporation and/or open avenues the government entity had not previously explored and/or been aware.
When reporting to the corporation, the investigating lawyer will often find it helpful to draft a confidential memo directed to the board summarizing the facts developed, analyzing the legal issues involved, identifying and discussing weaknesses in the corporation's policies and/or practices, setting forth arguments against criminal prosecution and/or administrative sanctions and/or recommending corrective actions. One warning as to the drafting of such a memo: if an indictment appears certain, a memo of findings would be highly inappropriate as anyone outside of the company, who obtains a copy of the memo, assuming it sets forth defenses to the charges as well, could hasten the demise of an otherwise credible defense. If a memo is drafted, all copies of such should be retained by the investigating lawyer after the corporate officers with a need to see such have reviewed it.
X. Remedial Action
Appropriate remedial action to be taken by the corporation is an important aspect of any investigation resulting from charges or contact with a governmental entity. If policies could have been in place to prevent whatever occurred, those policies must be enacted. If there were policies in place, an investigation as to how such did not bring the matter to the proper individual or department's attention must be undertaken.
Remedial actions are legitimate actions which government entities will listen to when gauging the corporation's response to the allegations made against the corporation. The investigating lawyer must make him or herself aware of any such aspect of an investigation as soon as possible so as to be ready to bring such to the government entity's attention.