YourABA July 2011 Masthead

Tips on navigating the ethical pitfalls of corporate internal investigations

Corporate employees interviewed in connection with internal investigations can pose significant ethical risks to corporate counsel, say Craig Margolis and Lindsey Vaala in “Charting a Clear Course in Corporate Internal Investigations,” their article from the winter 2011 edition of Proof , a publication of the Section of Litigation. “If the employee can demonstrate an objectively reasonable basis for asserting the existence of an attorney-client relationship with corporate counsel, that counsel could face the prospect of disqualification from the representation, further ethical sanction and resultant prejudice to the corporate client.”

Margolis and Vaala warn that advising a corporate employee about whether to obtain counsel may be considered legal advice.

To help lawyers navigate the potential ethical pitfalls inherent in conducting internal investigations for corporate clients, particularly in dealing with company employees, Margolis and Vaala offer seven tips:

Clearly identify the corporate client – Because a company’s legal interests may diverge from the interests of its employees and officers, Margolis and Vaala urge lawyers to make clear at the outset of the engagement that they represent only the company, as outlined in Model Rule 1.13. “A corporation can act only through its authorized constituents, such as officers, directors and employees, but the corporate counsel typically does not represent any of these individuals,” explain the authors.

Give an Upjohn warning – Before an interview with a corporate employee, lawyers should issue an “Upjohn” or “corporate Miranda” warning indicating that they are not the employee’s legal representative. This minimizes the risk of misunderstanding and decreases the chance that the employee will be able to demonstrate a basis for asserting that corporate counsel acted as her personal representative, advise Margolis and Vaala.

Put the Upjohn warning in writing – Margolis and Vaala suggest committing the warning in writing to produce a written waiver if the employee tries to claim a personal privilege to block the company’s disclosure of his interview to the government or other third party. The authors acknowledge that a formal written document may have a chilling effect on the employee’s candor with corporate counsel, and advise counsel to use their own discretion. Alternately, lawyers may consider using scripted verbal warnings. Regardless of method, “any pertinent details regarding the issuance of a warning should be memorialized in counsel’s notes.”

Don’t give the employee legal advice – After receiving the Upjohn waning, the employee may ask counsel if he should obtain legal representation. Margolis and Vaala warn that advising a corporate employee about whether to obtain counsel may be considered legal advice, creating a reasonable belief in the employee that counsel is acting as the employee’s attorney. It may be permissible to tell a witness to seek counsel, but corporate counsel should refrain from offering opinions that may constitute a limited form of representation, say the authors.

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Determine if employees will review relevant documents – “Failing to permit a witness to refresh her recollection by reviewing documents prior to or during an interview may result in failures of memory being misconstrued as intentional falsehood,” caution Margolis and Vaala, pointing out that such falsehood—even in an internal investigation—can have consequences such as prosecution for obstruction of justice.

Determine the corporation’s position on legal fees – Many companies, either by corporate policy or pursuant to state law, allow for the advancement of legal fees to employees who retain counsel in connection with a government investigation. However, Margolis and Vaala write that current guidelines under the United States Attorneys’ Manual discourage corporations’ payment of legal fees to employees under investigation, authorizing advancement only in “special situations.” “As these new guidelines remain virtually untested, it is not clear how rigorously the ‘special situations’ standard will be applied.”

Corporate counsel could be “deputized” – When the government is involved with the investigation, corporate lawyers may find themselves serving as intermediaries between prosecutors and the company. “Under such circumstances, corporate counsel arguably become de facto state actors, a condition that may jeopardize the constitutional rights of the individual employees being interviewed,” note the authors. “By simply marching along to the government’s drum, corporate counsel may end up unwittingly helping the government to achieve ends that it would be prohibited from obtaining on its own.”

“As the law in this area continues to be developed, it behooves counsel who conduct investigations to stay current with recent developments and best practices to avoid potential pitfalls,” conclude Margolis and Vaala.

Proof is the journal of the Trial Evidence Committee of the Section of Litigation.

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