K EY I SSUES AND B EST P RACTICES FOR C ORPORATE I NTERNAL I - - PDF document

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Corporations often hire outside counsel to conduct an internal investigation into compliance issues,

• r in response

to allegations of

• wrongdoing. This

article identifies some key issues and best practices for counsel conducting this type

• f investigation.

KEY ISSUES AND BEST PRACTICES FOR CORPORATE INTERNAL INVESTIGATIONS

by Adam P. Schwartz and Erin J. Hoyle

ABOUT THE AUTHORS...

Corporations today face a strict reg- ulatory environment and close scrutiny surrounding corporate activity. Public and private companies face the potential

• f not only governmental investigations,

but also private complaints with sig-

• n compliance issues — whether com-

panies comply with the legal obligations and ethical practices applicable to their businesses and industries. To prevent

• r mitigate the risks associated with this

environment, corporations often appoint

• utside counsel to conduct an internal

investigation of any potential or active compliance issues. Participating in an internal inves- tigation can be daunting to the lawyer who is more familiar with the structured, rule-based arena of litigation than in the unfamiliar tasks of investigatory document collection, interview memo- randums, Upjohn warnings, and investi- gation report drafting. There are no easy precedents or treatises to research, and no uniform rules or procedures to follow. Instead, internal investigations offer new legal issues and tasks that an inexperi- enced practitioner has yet to encounter. The following tips should assist attorneys in becoming valuable assets to internal investigations. Proper Preparation As with any matter, begin by taking time to understand the background of the investigation, including (i) the company; (ii) the allegations prompting the inves- tigation; (iii) the applicable legal frame-

• in the allegations and their roles in the

company; (v) the client’s expectations; and (vi) the law of attorney-client privi- lege and work product protection. Maintaining the attorney-client privilege and work product protection is critically important to the success

• f an internal investigation. Counsel’s
• protected by the attorney-client privilege,1

and the documents counsel creates in the course of the investigation are pro- tected by work product protection.2 To protect against an inadvertent waiver, the client and counsel should: Provide Upjohn warnings at all witness interviews and instruct witnesses to keep the discussions 3 Ensure that any non-attorneys involved in the investigation work at the direction of designated

• attorneys. 4

Include legends on communications and documents, including witness interview memoranda, indicating that they are protected by the attorney- client privilege or work product protection where applicable.5

ADAM P . SCHWARTZ is a shareholder with Carlton Fields. He concentrates his practice on white collar criminal defense, False Claims Act (Qui Tam/Whistleblower) defense, and health care fraud and abuse matters. He represents individuals and corporations in internal investigations, securities and accounting fraud, asset forfeiture, real estate and mortgage fraud, defense contractor fraud, money laundering, corporate compliance, grand jury practice and procedure, and complex civil fraud defense. Prior to joining the firm, Mr. Schwartz prosecuted money laundering and asset forfeiture matters as an Assistant U.S. Attorney with Eastern District of New York. He is a graduate of the Temple University Beasley School of Law. ERIN J. HOYLE is an associate with Carlton Fields, Tampa. Her practice focuses on securities and business litigation, the defense of False Claims Act allegations, and corporate internal investigations.

• Ms. Hoyle advises public and private clients on corporate governance matters, including issues relating

to director independence, fiduciary duties, and director and officer liability. She also advises educational institutions on matters including employment issues, records retention, student safety, administrative best practices, and compliance. Ms. Hoyle is a member of the firm’s Data Privacy and Cybersecurity Task Force. She is a graduate of the Stetson University College of Law.

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Avoid disclosing any documents

• r other information about the

investigation to individuals

• utside of the attorney-client

privilege and work product

• protection. For example, if the

client is the audit committee, sharing documents or other information with the full board may waive privilege.6 An initial review of applicable priv- ileges and protections will ensure proper steps are taken to preserve and protect them. Document Collection and Review Document collection and re- view are critical to reconstructing past events and assisting further

• Documents, particularly email and
• provide the only contemporaneous

memorialization of the conduct under investigation and contain the most important and substantive informa- tion obtained. Documents not only provide the chronology of what tran- spired, but will serve to refresh wit- nesses’ recollections of past events. Investigators should attempt

• information with potential relevance.

Counsel should immediately coor- dinate with the client to identify the custodians or employees likely to possess relevant documents, the types of documents generated by the client, and the storage method(s) of those documents.7- tion of potentially relevant documents and the corresponding custodians

• f that data is critical to placing the

client and applicable employees on notice to maintain the integrity of the data pending the investigation.

• interviews, pay particular attention to

any mention of additional custodians

• r locations of potentially responsive

documents and again provide rapid notice to maintain those documents and coordinate their collection. Most importantly, make a record

• f the review process, including

which documents have been col- lected and reviewed, the location of the documents, what search terms were applied, the number of doc- uments and pages reviewed, and who conducted the review. Such housekeeping measures not only ensure the integrity of the process, but also assist in drafting the report

• To that end, develop a comprehen-
• documents by topic and individual to
• documents when compiling a chro-

nology of events, witness lists, and topic binders for interview prepara-

• Witness Interviews

In addition to document review and collection, witness interviews are the other primary source of informa- tion gathering in any internal investi-

• gation. If possible, interviews should

begin only after a review of relevant documents to provide an understand- ing of the issues or events relevant to the interviewee. During interviews, have witnesses clarify the language used in documents and its context. Accordingly, interview outlines should reference the particular documents to be covered with each witness. Consider ordering witness inter- views to most effectively achieve the investigation’s priorities and prevent

• duplication. For example, counsel

may consider arranging interviews

• zational hierarchy. This would allow

investigators to develop facts sur- rounding relevant issues or events before interviewing senior manage- ment and executives to determine whether they knew of or were impli- cated in them. Before the interview, clarify with any fellow interviewers whether and how to raise any issues or topics that arise during the interview. An interviewer may make a conscious

• n the interview outline. If you are

unsure whether a topic was skipped due to a conscious decision or was simply overlooked, ask for a break in the interview so you can discuss the point away from the witness. To preserve privilege and work product protections, have the Upjohn warnings handy and ensure they are given to and understood by each witness. Reliable Interview Notetaking Reliable notetaking is an essen- tial skill to master in internal investi-

• gations. The purpose of notetaking is

not to provide a transcript. Instead, be as thorough as possible, with-

• ut recording every word verbatim.

Verbatim notetaking has serious

• memorandum may not be considered

protected work product if they simply transcribe the interview.8 Instead,

• f the interview and concentrate on

accurately recording that substance. Determine your preference for taking notes on a laptop versus by

• hand. Although laptops have their ad-

vantages, such as typing speed and ease of converting typed notes into a polished interview memorandum, notetaking by laptop may not be appropriate under all circumstances. Laptops can be distracting during an interview or make witnesses more cautious in their responses. If you do use a laptop, always remember

• to back up your notes after each

interview and bring a notepad should technology issues arise. Concise and Organized Interview Memoranda Less is more with interview

• memoranda. Internal investigations
• ften involve many witnesses and an

urgency associated with the release

• refresher on a particular interview,

no one wants to spend two hours reading a memo to decipher its sub- stance. An interview memorandum is meant to be a coherent and concise reference point for accessing the substance of the interview.9 Accord- ingly, determine whether drafting the memo in bullet-point form with short

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narratives is the most appropriate

• format. By removing any unneces-

sary verbiage that accompanies the

• cantly decrease the length of the
• Reporting Findings and

Conclusions At the conclusion of the investi- gation, a report (either oral or writ- ten)10 is expected. The report should detail the work of counsel, its legal conclu- sions, and its legal advice.11 If the client, such as the audit committee, intends to provide a report of the investigation to another recipient, such as the full board, the client should prepare a separate

• conclusions, but the client’s report

should not include a detailed recita- tion of facts or counsel’s legal advice. This allows the client to maintain attorney-client privilege and work product protection.12 The investigation may provide details to assist the client with iden- tifying and implementing remedial measures, such as new compliance procedures, improving internal controls, promoting ethical behav- ior and awareness of policies, and/

• r self-reporting any misconduct to

the government or regulators.13 A company’s voluntary provision of

• ment or regulatory agencies can

accrue cooperation credit, which may result in mitigation of penalties or deferral of prosecution in the criminal context.14 Conclusion Conducting an internal inves- tigation can be a complex matter, fraught with pitfalls for the inexperi- enced practitioner. When a corpora- tion is confronted with evidence or allegations of potential wrongdoing, conducting an effective corporate investigation, protected by the at- torney-client privilege, can mitigate potential risks. Critical steps in such investigations include understanding the intricacies of attorney-client priv- ilege and work product protections; coordinating document collection and reviews; leading preparations for witness interviews; taking reliable interview notes; drafting concise and accurate interview memoranda;

• drafting written reports or oral pre-

sentation outlines. Overall, thought- ful, proactive preparations will reduce mistakes, ensure important investi- gatory standards are met, and help evidence the corporation’s efforts to identify and resolve any actual or perceived compliance issues.

1

Section 90.502(1), Florida Statutes, pro-

• whether a communication is protected by

the attorney-client privilege. The privi-

• communications made for the purpose
• f rendering legal advice. Fla. Stat. §

90.502(2). Accordingly, in the context of internal investigations, the attorney-client

• purposes of the internal investigation was

to obtain or provide legal advice.” In re Kellogg Brown & Root, 756 F.3d 754, 760 (D.C. Cir. 2014).

2

Attorney work product is protected under Florida’s discovery rules. Fla. R. Civ.

• against disclosure of the mental impres-

sions, conclusions, opinions, or legal theories of an attorney or other represen- tative of a party concerning the litigation.”);

• Fla. R. Crim. P. 3.220(g)(l) (“Disclosure
• f records, correspondence, reports, or

memoranda to the extent that they contain the opinions, theories, or conclusions of the prosecuting or defense attorney or members of their legal staffs”). This priv- ilege can apply to investigative materials when they are compiled in response to an event that foreseeably could be made the basis of a claim. See, e.g., Fireman’s Fund

• Ins. Co. v. Signorelli, 681 So. 2d 720, 721

(Fla. 2d DCA 1996).

3

The Upjohn warning takes its name from the seminal case, Upjohn Co. v. United States, 449 U.S. 383 (1981). A typical Upjohn warning consists of an explanation that the lawyer represents the company, not the individual. Therefore, anything revealed during the course of the interview is only privileged as between the lawyer and the company. The employee has no control over whether the company decides to waive the privilege.

4

Section 90.502(c), Florida Statutes,

• statute states in relevant part that attor-
• tial” provided there is no intent to disclose

them to third persons. Note, however, that the statute allows for disclosure to addi- tional parties if such disclosure is “in fur- therance of the rendition of legal services to the client.” Further, the attorney-client privilege protects communications made by and to non-attorneys, provided those non-attorneys participate in the investiga- tion as agents of attorneys. In re Kellogg Brown & Root, 756 F.3d at 758.

5

These disclaimers maximize the likelihood that the communications or documents will be covered by the various privileges and protections by indicating the intent for

• 6

Florida’s attorney-client privilege statute

• consulting a lawyer to obtain legal services
• r receiving legal services from a lawyer.

§ 90.502(1)(b). In the example above, if the audit committee retained the lawyer it is the committee, not the full board, that is the client.

7

• tigation to determine those employees

most likely to possess potentially relevant

• documents. Companies developing a list
• f employees likely to be in possession of

responsive documents should typically err

• n the side of over-inclusion.

8

Because the work-product doctrine protects documents or other items that

• merely transcribing an interview fails to

incorporate any attorney impressions, conclusions, opinions, or legal research

• r theories, and may not invoke the work

product protection. See State v. Rabin, 495 So. 2d 257, 262 (Fla. 3d DCA 1986) (discussing “fact” work product, which

• f need, versus “opinion” work product,

which is afforded greater protection).

9

Regardless of the form of the interview memorandum, explicitly state that the memorandum does not contain a verbatim transcript of the interview, but rather contains counsel’s impressions from the

• interview. This highlights the need for the

more protective “opinion” work product protections, which helps ensure the protection applies to the document. Rabin, 495 So. 2d at 262.

10

The disadvantages of a written report

• tiality, the attorney client privilege, and

work product protection — government agencies or private litigants may be able to discover the report and use it as a roadmap in litigation or as an admission under Federal Rule of Evidence 801(d)(2)

• r Section 90.803(18), Florida Statutes.

Such disadvantages are avoided by orally

• recent years is to provide the decision-

making body with a PowerPoint presenta- tion so it can follow the main points in an

• ral presentation.

11

Counsel should include a succinct and

• issue(s) on which the client seeks legal

advice in that investigation. To the extent the precise issues may expand or other- wise shift over time, the document should

• sure the attorney-client privilege continues

to attach to every stage of the investiga- tion by communicating the investigation’s legal purpose, as discussed above.

12

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communication under Section 90.502(c), Florida Statutes, there can be no disclosure of the communication to third

• parties. Disclosing summaries of attorney work product
• r legal advice would likely waive any applicable privilege

and protection.

13

The investigation may also assist the corporate com- pliance department determine if the company’s internal compliance policies and procedures align with the govern- ment’s standards. These standards were most recently updated in February 2017 and can be found at https://

• load.

14

Most notably, in April 2016, the Foreign Corrupt Practices Act Unit under the Fraud Section of the Department of Justice (“DOJ”) introduced a year-long Pilot Program of-

• reduction off the bottom end of the Sentencing Guidelines’
• program’s standard of: (i) voluntary self-disclosure; (ii) full

co-operation; and (iii) timely and appropriate remediation. The Fraud Section’s Foreign Corrupt Practices Act En- forcement Plan and Guidance, 3 (April 5, 2016), available

• download. The Program followed up on, and incorporated,

a September 2015 DOJ memorandum, informally known as the “Yates Memo,” which prioritized the prosecution

• cooperation credit. The Yates Memo contains guidance to

prosecutors that they must consider “culpable individuals at all levels in corporate cases” and that companies must provide “all relevant facts” related to individual culpability in order to receive any cooperation credit. Sally Quillian Yates, U.S. Dep’t of Justice, Individual Account- ability for Corporate Wrongdoing (2015), available at

• load.

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