Avoiding Traps in Internal Investigations H. Lee Barfield II Bass, Berry and Sims PLC November 5, 2010

2 Key Decisions for General Counsel When? 1.When should an internal investigation occur? Who? 2.Who should conduct the investigation? Initiation 3.How should the investigation be initiated? Structure 4.How should the investigation be structured? Report 5.How should the results be reported?

3 Decision #1 When Should an Internal Investigation Occur? Credible violation of law or established company policy Material Substantial injury to organization “Hotlines” or “ombudsmen” Internal audits Outside auditors Press reports Exit interviews of former employees “Whistleblowers” Grand jury investigations MR 1.13(b) trigger

4 MR 1.13(b) Trigger (b) If a lawyer for an organization knows that an officer, employee or other person associated with the organization is engaged in action, intends to act or refuses to act in a matter related to the representation that is a violation of a legal obligation to the organization, or a violation of law that reasonably might be imputed to the organization, and that is likely to result in substantial injury to the organization, then the lawyer shall proceed as is reasonably necessary in the best interest of the organization.

5 MR 1.13(b) Mandatory Report “Up” (b) Unless the lawyer reasonably believes that it is not necessary in the best interest of the organization to do so, the lawyer shall refer the matter to higher authority in the organization, including, if warranted by the circumstances to the highest authority that can act on behalf of the organization as determined by applicable law.

6 Reports “In,” “Up” and “Out” – MR 1.13 Corporation Board of Directors Audit Committee QLCC CEO CLO/GC Outside Counsel Special Counsel for Internal Investigation Regulatory Authorities and Others “Report Up” “Report In” “Report Out”

7 Reports “Out” – “Permissive Limited Disclosures Out” (PLDO) – MR 1.13 (C) (c) Except as provided in paragraph (d), if (1) despite the lawyer’s efforts in accordance with paragraph (b) the highest authority that can act on behalf of the organization insists upon or fails to address in a timely and appropriate manner an action, or a refusal to act, that is clearly a violation of law, and (2) the lawyer reasonably believes that the violation is reasonably certain to result in substantial injury to the organization,

8 Reports “Out” – “Permissive Limited Disclosures Out” (PLDO) – MR 1.13 (C) …then the lawyer may reveal information relating to the representation whether or not Rule 1.6 permits such disclosure, but only if and to the extent the lawyer reasonably believes necessary to prevent substantial injury to the organization.

9 PLDO Exclusions – MR 1.13(d) Lawyers engaged in the internal investigation Lawyers engaged to defend the organization Officers, employees or other constituents defending against a claim arising out of the alleged violation of law

10 Discharged Lawyer’s Duty to Inform Highest Authority of Discharge – MR 1.13(e) (e) A lawyer who reasonably believes that he or she has been discharged because of the lawyer’s actions taken pursuant to paragraphs (b) or (c), or who withdraws under circumstances that require or permit the lawyer to take action under either of those paragraphs, shall proceed as the lawyer reasonably believes necessary to assure that the organization’s highest authority is informed of the lawyer’s discharge or withdrawal.

11 Lawyer’s Duty to Disclose Client Identity to Persons with Adverse Interests – MR 1.13(f) (f) In dealing with an organization’s directors, officers, employees, members, shareholders or other constituents, a lawyer shall explain the identity of the client when the lawyer knows or reasonably should know that the organization’s interests are adverse to those of the constituents with whom the lawyer is dealing.

12 Decision #2 Who should conduct the investigation? Lawyers who can protect confidentiality and privilege –House counsel –Regular outside counsel –Special independent outside counsel –Combination of the above

13 Decision #3 Initiation of Investigation “Upjohn” letter Engagement letter Manager’s directive to employees

14 Decision #4 Structuring the Investigation Assembling the team The Investigation Plan –Objectives –Communications with management –Communications outside the corporation Government Third Parties – Auditors –Employee interviews

15 Decision #5 Reports Oral briefings Written reports that are confidential Disclosure to government Remedial actions to mitigate damage Corrective actions to prevent recurrence