08. THE GC AND CRISIS MANAGEMENT: THE ...az9194.vo.msecnd.net/pdfs/110101/08_handout.pdfHarvard...

The National Association of College and University Attorneys 1

08. THE GC AND CRISIS MANAGEMENT: THE PLAYBOOK FOR STAYING COOL WHEN THINGS GET HOT

January 28 – 29, 2011

José Padilla, Moderator DePaul University

Patrick Collins Perkins Coie

Lawrence DiNardo Jones Day

Suzanne Halpin Rubenstein Communications, Inc.

RISQUÉ BUSINESS

You are General Counsel of Hudson University, a mid-sized, private university located in a city of 100,000 people. Last night, a body was discovered in a wooded area located five miles from Hudson’s campus. Police state that the body is in such a condition that it cannot be identified, but you fear it may belong to Selina Kyle. In the prior few months, the following involved Selina:

Selina was a second-year medical student at Hudson. During her first year, Selina was sanctioned by Professor John Frink for cheating on a quiz. Since then, Selina has had difficulty in other classes, and her attendance has been uneven.

Last semester, Selina requested an accommodation for a learning disability, but her request was denied. Later that term, Selina was accused of plagiarism by another professor, Charles Xavier. Since then, Hudson University’s Academic Sanction Committee has held a hearing on the matter, at which Selina argued that the violation would not have occurred if she had been given the accommodation she deserved.

Unbeknownst to any faculty or staff at Hudson University, Selina has also been working as a dancer at a local club called “Gentlemen Only”.

One night, Hank Moody, a well-liked, tenured professor in Hudson University’s English department, attended the bachelor party of a friend. Around 11:00 p.m., the bachelor party made its way to Gentlemen Only.

What happened next is disputed. According to Moody, he gave Selina (unaware that she was a Hudson University student) $200 to meet him and his group back at a rented hotel suite to dance for them as the bachelor party continued into the wee hours. Moody claims that Selina took the $200 and agreed to meet them, but never showed up.

On the other hand, according to Selina, Moody offered her $200 to perform a sex act on


him. When she refused, Selina says, Moody assaulted her. Moody’s group of friends is of no help sorting out what happened, because they were all too drunk to remember much of the evening.

The next day, Selina went to the police and reported that Moody assaulted her.

Later that week, the local newspaper reported the allegation in their crime beat. Nearly instantaneously, the university was beset by inquiries. One particularly widely-read medical school blog, “Under the Knife”, contacted Moody for comment. The interview cast Moody as unapologetic, though Moody asserts he was quoted out of context. Worse, the article made public the fact that Moody had a sexual harassment claim brought against him two years ago by a different student. The article implied that Hudson University swept the charge under the rug; in reality, however, the complaint was withdrawn before the University’s investigation was completed.

The “Under the Knife” article immediately forced the University to field questions and comments from all sides. While many people called for Moody’s resignation, an equal number expressed support for him.

Meanwhile, Hudson University’s Academic Sanction Committee finally finished its investigation and deliberation about Selina’s plagiarism case. Due to the seriousness of the infraction, and in light of the fact that it was her second academic integrity violation, the Committee recommended that Selina be dismissed from her program.

Selina responded by claiming that Hudson University’s sanctions were being imposed in retaliation against her for reporting a popular professor to the police. Furthermore, she argued that she was being unlawfully discriminated against because of her learning disability. In no time at all, Selina’s accusations spread through the press and blogosphere.

The furor seemed to briefly abate, but soon it became clear that no one had heard from Selina in over a week. Police asserted that Selina was not yet considered missing. They pointed out that Selina is an adult, and that she was being dismissed from her program. They said it was likely that Selina left of her own free will. However, Hudson’s medical school staff, familiar with Selina’s situation, were concerned that something might be seriously wrong.

The body was discovered nearly two weeks since the last time anyone had heard from Selina. You are besieged by questions from the Provost, Academic Affairs, Student Affairs, and other members of University faculty and staff. In addition, Hudson’s Office of Public Relations needs your advice in dealing with the innumerable calls and emails it is receiving from concerned students, parents, and press.

Meanwhile, police will neither confirm nor deny whether or not the body belongs to Selina. In addition, they will not reveal whether or not the death appears to be murder, suicide, or accident. However, Harvey Dent, the local district attorney who is up for re-election, has subpoenaed Selina’s student records, Moody’s employment file, and both Selina’s and Moody’s emails. Dent has leaked to the press that he has done so.

What do you do?


CRISIS AT FAIRFAX UNIVERSITY You are General Counsel of Fairfax University, a public research university on the west side

of Chicago with an enrollment of 17,000 students. It has a liberal arts and sciences college, as well as schools of engineering, law, business, and medicine. Fairfax is also home to a teaching hospital.

You just received a call from Gerald Westhoven, Chairman of the Board of Trustees at Fairfax. Chairman Westhoven is an alumnus of Fairfax, and is President and Chief Executive Officer of Clover Venture Capital, a company he created a few years after returning to Chicago from Harvard Business School. He is a multi-millionaire and philanthropist, stretched thin by all of his business and other commitments. Gerald related to you the following information:

Yesterday, Gerald received an anonymous email to his private office email account. The email came from [email protected], and said:

“Gerry:

So when are you going to wake up and smell the coffee? Your President of good old Fairfax U has been cavorting around for the last year with Ron Dahlberg. Haven’t you noticed that she and Dahlberg were making a lot of overnight “business” trips to Washington. Funny how those trips so often came at the end of the week. Makes for nice long extended weekends. Dahlberg’s still making those trips since he left Fairfax. Did you know he’s got a contract with Fairfax for a year? For $20K a month? He’ll need it since his wife’s filed for divorce.

Where have you guys been? I thought you guys were supposed to be watching the President’s expenses. Has your chairman of the Audit Committee gone AWOL? It figures if he did since he’s such a crooked sleezeball.

Well, I can only worry about one tragedy at a time. And it’s happening to my beloved Fairfax. Your beloved Fairfax that made you who you are. South side kids like you usually don’t strike it that big without some major help like we gave you at Fairfax. I had such hopes for you when you graduated and went off to Harvard. I was so proud when they named you Chairman of our Board even though I detest how you’ve been making your money. I’m going to get another drink so I don’t have think about this anymore. But I’m going to pray first that you get wise real quick.

St. Stephen”

President of Fairfax University, Dolores Kujawa, has been President for the last three years (you report to her). She is married and has two children: one in high school, and another attending Dunston College, located an hour outside of Washington, D.C.

Ron Dahlberg used to be Fairfax’s Vice President of Government Affairs, and was responsible for developing lobbying strategies to get more federal and state funding for Fairfax. Dahlberg was very good at what he did, obtaining $1 million in appropriations for Fairfax last year. In his role, Dahlberg traveled extensively to Washington and Springfield. He also took President Kujawa to Washington and Springfield for meetings with legislators. Dahlberg recently left Fairfax to start his own lobbying practice. Although he made a salary of $175,000 at Fairfax, he told fellow employees that he needed to make even more money to support his four children, including twins two years away from college. You reviewed Dahlberg’s lobbying contract before Kujawa signed it, but that the contract at that time was


only for $10,000 a month, not $20,000. (It is indeed for $20,000 a month.)

Upon receiving the email from “St. Stephen,” Chairman Westhoven contacted Frank Uptight, a litigation partner at Craven, Heart and Freeze, and Chair of the Audit Committee of Fairfax’s Board. President Kujawa was instrumental in bringing Uptight to the Board and in having him made Chair of the Audit Committee. (Over your objections, Kujawa made you hire Uptight’s law firm to do bond and corporate work for the University’s hospital, although you already had an affordable law firm with which you were happy. Uptight’s law firm billed Fairfax $128,000.00 last year for its hospital work.) Westhoven asked Uptight if the Audit Committee had seen anything unusual in the President’s expenses. Uptight said that he had personally reviewed the expenses and had not seen anything unusual. Uptight dismissed the email as the drunken ramblings of a malcontented employee, and said the matter was not worth pursuing.

Nevertheless, Westhoven felt obliged to meet with President Kujawa immediately and share the email with her. Frank Uptight asked to attend the meeting and Westhoven agreed. At the meeting, Kujawa vehemently denied the accusations in the email. Kujawa admitted to the lobbying contract, but claimed that Dahlberg was well worth it. In addition, Kujawa admitted to knowing about Dahlberg’s pending divorce. Like Uptight, she speculated the email’s author was a malcontented employee.

President Kujawa then started speculating on who could have written the email. She concluded that it was written by Norman Truckow, a much beloved and longtime faculty member at Fairfax. Truckow had been Provost at Fairfax and had lost out to Kujawa for the presidency. She knew that Truckow still had many supporters within the University, and still had access to a lot of information, such as the lobbying contract with Ron Dahlberg and Westhoven’s private email address.

In front of Westhoven, President Kujawa and Frank Uptight started plotting how to confirm their suspicions about Truckow. Uptight suggested that Westhoven respond to the email and offer to meet with “St. Stephen.” Uptight also suggested that they start monitoring Truckow’s emails and hire an investigator to pose as Truckow to gain access to information about any Yahoo email accounts or usernames that Truckow may have.

Chairman Westhoven told Kujawa and Uptight that he would have to think about their plan. He asked them to wait to hear from him first before acting on it.

When he returned to his office, Chairman Westhoven received a call from Nancy Brightsmile, Fairfax’s Vice President for Public Affairs, who told him that “St. Stephen” had also forwarded his email to many in the university and to the education beat reporters for the Chicago Moon and the NBC affiliate in town.

Westhoven asked for your advice on what he should do about all of this. You told him that you would get back to him in the morning. You did not share with him the fact that, earlier that day, you received a grand jury subpoena from the U.S. Attorney’s office asking for legal bills and other records on Frank Uptight’s work for Fairfax. The subpoena instructed you not to disclose its existence to Uptight or his law firm.

What do you do?


INTERNAL INVESTIGATIONS: LEGAL, ETHICAL AND STRATEGIC ISSUES Nuts and Bolts of Internal Investigations1

January 28–29, 2010

Lawrence C. DiNardo Mariette Farag

Jones Day Chicago, IL

I.

A. Internal investigations have become essential tools for universities faced with evidence of faculty or staff wrongdoing or government inquiries. An appropriately conceived and properly conducted investigation can help a university learn the facts and formulate an effective strategy to deal with the government, private plaintiffs, and the public. Set forth below is a brief outline of many of the key issues that inevitably emerge during an internal investigation.

Introduction

B. Because there is frequently a need for great speed in internal investigations and because many things are influenced by how the investigation is initially conceived, early decisions on the nature, scope, structure and organization of an internal investigation are critically important. Therefore, thinking through the various decision points in advance of what is often an emergency need for an internal investigation is a very good idea.

II. When To Do An Internal Investigation:

A. University may learn of alleged misconduct through:

1. Receipt of subpoena or regulatory inquiry

2. Execution of search warrant

3. Media inquiries and reports

4. Faculty, staff employee or student complaint/hotline

5. Whistleblower

6. Audit results- Internal and External

B. When put on notice of a possible problem with credible information, in light of today’s enforcement environment, a university rarely has any choice but to investigate the claim so it can formulate a proper response.

1 Adapted from Nuts and Bolts, in PRACTICING LAW INSTITUTE: INTERNAL INVESTIGATIONS 2007 (June 2007 Program) by Daniel E. Reidy, Jones Day, Partner-In-Charge Chicago.


C. Areas of Potential Misconduct

1. Research and grant misconduct

2. Financial misconduct

3. Student misconduct

4. Conflicts of Interest

5. Accounting and auditing Matters

6. Athletics

7. Data privacy

III.

A. What aspect of the university is leading the investigation and directing the lawyers’ actions?

Who Should Conduct The Investigation

1. Administration

2. General counsel

3. The board of trustees or a committee thereof

a. The Audit Committee

b. Another duty-specific committee

c. A “Special Committee” of the board

4. Factors which influence where the responsibility for the investigation should reside

a. Nature of the allegations

(1) Is top administration directly involved?

(2) Can top administration be accused of negligence?

b. Type and history of the university

(1) Is it a public university?

(2) Has the university been involved in previous criminal or regulatory matters of note?

B. In-house counsel or outside counsel?

1. Depends on university faculty; nature of problem

2. Experienced in-house counsel may be able to conduct an effective investigation, and many, because of their familiarity with the faculty, administration, and electronic


systems, are in a particularly strong position to obtain and analyze the necessary facts and make appropriate findings.

3. Possible violations of employment laws or internal faculty/staff policies and self dealing by university individuals are examples of matters which in-house counsel often handle.

C. Evaluation of the factors to consider in deciding on counsel

1. The closer the investigation gets to the senior administration, the wiser it generally is to retain outside counsel who will be viewed as at least somewhat more independent to conduct the investigation. Retaining a law firm that is not regular, university counsel can enhance the credibility of the investigation.

2. Indeed, in some cases, regular university counsel will have been involved, at least tangentially, in the events which are at the center of an investigation. For example, regular outside counsel may have rendered an opinion on some aspect of the university involved in the matter. In cases involving accounting treatments or audit issues the regular outside counsel may already have been involved in some way. Thus, the firm’s roles as possible witness and as regular counsel (and, therefore, as likely close to senior administration), may make regular counsel a difficult choice for some investigations.

3. On the other hand, there are risks to the university in retaining a firm with no experience with the university, as the investigation could take longer and the scope could be broader than necessary under the situation.

4. If the matter is already under investigation by regulators, being scrutinized by the media, or will be made public, outside counsel is generally very much preferable. Indeed, the announcement of an outside investigation can send the message that the problem is being addressed and may reduce media attention.

5. In a derivative action setting, when the directors have decided to investigate possible claims, outside counsel’s investigation may help to establish that the university properly exercised its business judgment.

6. Use of outside counsel can be helpful in creating a presumption that the investigation is being performed for a purpose primarily related to providing legal advice. Because in-house counsel is often consulted on both university and legal matters, the privilege that presumably would otherwise attach to the notes and reports that are generated from an investigation may be more difficult to preserve.

7. Where independent directors are involved in initiating or directing the investigation (such as the Audit Committee), outside counsel who are not the university’s regular lawyers should normally be retained so that the directors maintain their distance and independence from university administration.


D. Role of counsel: advocate or neutral fact-gatherer?

1. Is the investigation being conducted to turn over evidence to the government or to prepare a defense?

2. How is that decision made?

E. To whom does counsel report?

1. President; General Counsel; Audit Committee;

2. Depends in part on who is being investigated. Note that this may need to change as facts develop.

IV. Scope Of The Investigation

A. The underlying nature of the matter triggering the investigation will likely determine the scope of the investigation. If there is a pending government investigation, the internal investigation will generally mirror it in scope, unless there is a good reason to make it broader.

B. It is important to define the scope at the outset; not every allegation warrants a full soup-to-nuts investigation. But, an inadequate investigation can lead to inaccurate disclosures to government or a sense that university is attempting to hide wrongdoing.

C. It is important to revisit the scope of the investigation from time to time as facts are gathered. Often it is necessary to expand into new areas based on facts uncovered during the investigation.

V. Document Retention Issues

A. Once the scope of the investigation is defined, the universe of relevant documents must be identified and preserved. IT specialists should be immediately consulted concerning servers, archives, back-up tapes, hard-drives, etc.

B. Missteps with document retention, gathering, etc. often cause other problems (e.g., Andersen; Quattrone). Indeed, problems with retaining documents can create criminal or civil liability even when the underlying actions amount to nothing. Importantly, these newly created problems may reside in the general counsel’s office or elsewhere in the administration, while the original allegations came no where near there.

C. The steps to obtain all pertinent documents (or those covered by a subpoena) should include:

1. An instruction not to destroy any documents should be given to all faculty and administrative staff who potentially possess relevant documents. Simple and direct instructions should be sent to all affected faculty and administrative staff setting forth the documents requested. The notice should make clear that the individual is expected to turn over all arguably responsive documents, and should not make independent judgments as to relevance or the potential for misinterpretation.


Individuals should be told that documents include things like computer files, emails and tapes. Individuals should also be instructed that the notice applies to all documents in their possession or control, whether in the office, or elsewhere. Decisions must be made in advance as to the treatment of “original” documents. Finally, the directions should make clear that the university requires the full cooperation of all faculty and administrative staff in the process.

2. The faculty and administrative staff should also be directed to a specific contact person if they find any ambiguities in the document requests.

3. Faculty and administrative staff may be told that a certification as to the completeness and integrity of the search and production may be required by the government.

4. The document production process must be carefully monitored. A method of tracking who has and has not responded to document requests must be established. Each interview with faculty/staff member should also include a discussion of the document search the individual undertook and the possibility that other documents may exist.

5. An appropriate document processing system should be established. All documents should be coded and organized to facilitate their use in the particular matter – by witness, transaction, issue, event or location of the document. A working set of documents should be created so that the originals are preserved. The coding should clearly show the origin of the document, the people who have received it, and the topics covered. This will facilitate the later creation of “witness” and “issue” folders.

6. University should seriously consider whether to retain an outside vendor to assist in the collection and production of electronic documents. Outside vendors generally have more experience in collecting electronic documents in ways that are acceptable to the government and often can provide tools and systems to facilitate the review of documents.

VI.

A. What is protected? This topic will not be covered extensively but one cannot talk meaningfully about the structure of an internal investigation at its outset without touching upon privilege issues.

Privilege

1. Attorney-client privilege – generally protects communications between a lawyer and client for the purpose of enabling the lawyer to render legal advice.

2. Work product doctrine – protects against the disclosure of a lawyer’s mental impressions, conclusions, opinions or legal theories – applies only to materials created in anticipation of litigation. Codified in Federal Rule 26(b)(3).

B. Protecting privilege in university investigations – Upjohn v. U.S. is applicable.

1. Upjohn – articulated factors supporting privilege claims in connection with


employee interviews, and is also applicable in university setting:

a. At the direction of the senior administration;

b. There was a communication with a faculty or staff member of the university who was aware of the legal implications of the communication;

c. To general counsel acting in his capacity as such;

d. Concerning matters within the scope of the faculty or staff member’s duties;

e. Concerning information not available from upper-echelon administration;

f. Which information was necessary to permit the university to receive legal advice;

g. In circumstances where the communications were understood to be confidential when made; and

h. Where the communication had not been disclosed.

2. Applies to both in-house and outside counsel

3. Upjohn

4. Giving “

warnings – must be given to faculty and staff member at outset of an interview to maintain university privilege – the individual must be told that: (i) interview is privileged but privilege belongs to university and can be waived only by university; (ii) interviewers are seeking information from faculty and staff that is necessary to enable counsel to provide legal advise to university; and (iii) substance of interview should be kept confidential.

Upjohn warnings” to faculty and staff has ethical implications – See, e.g.

5. If university’s interests may differ, lawyer must explain that he/she is lawyer for university,

, DR5-109.

not

6. Issue for faculty and staff is more difficult now in light of government’s view that lying to counsel investigating on behalf of organization may result in charges against individual.

for its constituents.

VII. The Interview Process

A. At least two lawyers or others from the investigative team should be present at most interviews so one person can take notes while the other person asks the questions. Those notes should be protected as work product. A second person also reduces the chance that an interviewee can successfully contend that the interviewer misrepresented something during the interview. Deciding whether to have a lawyer and an investigator, rather than two lawyers, do the interviews will be influenced by many factors, including: whether the waiver of the privilege is likely, so that it is distinctly possible that the interviewers could end up as government witnesses.


B. The interview notes should reflect the warnings given to the faculty and staff with respect to counsel and counsel’s role.

C. Some universities and their counsel have been slower to create comprehensive memoranda of sensitive interviews since waivers of the privilege have become more common. There are, however, potential downsides to not having memoranda, as well as potential upsiders.

VIII. Representation – Should Faculty/Staff Have Separate Counsel?

A. When counsel is conducting an internal investigation on behalf of the university, representation of both the university and its faculty and/or staff can have certain advantages: greater control over the matter and the ability to track the investigation more efficiently. While this type of multiple representation is not per se impermissible, it does raise certain legal, ethical and practical issues, particularly in the preliminary states of an internal investigation. Counsel must continually evaluate the potential conflicts of interest presented, and ensure that the applicable ethical considerations are not breached.

B. Risks of Multiple Representation.

1. Multiple representation can create the appearance of impropriety. Moreover, if a conflict does exist, the government may seek to disqualify counsel from representing all parties. As a threshold matter, except perhaps for individuals who clearly have no exposure to criminal or enforcement actions, how does university counsel answer, without conflict, the questions of an individual faculty/staff member, “Should I have my own lawyer? Should I do an interview?”

2. Should the university later waive its privilege, Counsel may have very complex issues as to what it can (e.g., initial interview with Upjohn

3. the government after a waiver). Indeed, such joint representation may vastly complicate the conflict issues that can lead to possible disqualification.

warnings) and cannot (interviews when counsel took on the representation of the individual(s) disclose to

C. Wisdom of Using One or Two Lawyers to Represent All Non-Target Faculty

1. It can help avoid many of the problems associated with university counsel representing individuals as well.

2. This has great value in the efficiencies it can produce.

3. It can comfort government investigators who balk at having counsel for the university represent many of the individuals as well.

D. Joint Defense Agreements

1. University and individual faculty/staff members may be able to share privileged information pursuant to a joint defense or common interest privilege.

2. Before entering into a joint defense agreement, the university must consider the


restraints that are placed on it by such an agreement. A university that seeks to cooperate with the government and provide information to the government may be prevented from doing so by a joint defense agreement.

3. The government generally looks disfavorably at joint defense agreements.

IX. Particular Considerations At The Outset Of An Internal Investigation

A. Retention and Use of Forensic Investigative Services

1. Is special, non-legal expertise required to complete the investigation? Getting the right expert assistance can be critical to a successful investigation.

a. What type (e.g.

b. What role?

, accounting, private investigation resources, university specific expertise)? In some cases, a single large consulting/accounting firm can afford “one-stop shopping” for multiple competencies.

(1) Do you want non-lawyers participating in interviews, memoranda writing, document review, etc.)? In addition to ameliorating various lawyer-aswitness problems when a waiver of privilege is given, it can sometimes be very helpful to have at the key interviews an expert in the substantive issues involved in the investigation.

(2) Set it up to preserve the potential application of the attorney-client privilege to the work of the investigators.

B. Care and Feeding of the University’s Auditors.

1. In many cases of investigations of universities, the external auditors are very important factor in the handling of an internal investigation.

2. Early notice/involvement of the auditors should be considered.

a. Keeps them from becoming skittish. Auditors understandably do not like surprises.

b. May allow you to get their sometimes valuable “take” on the matter, particularly if it involves accounting issues.

c. May want their advice on the retention of forensic accounting resources for the investigation (it will not be the university’s auditor’s forensic ARM).

d. It is generally advantageous to the university to set up reporting and working protocols with the auditors at the beginning of the investigative process.

e. Where a university may wish to keep the attorney-client privilege with respect to an investigation, there can be tension between that goal and the goal of involving the auditors.


(1) Disclosure to auditors is, in the view of some courts, a waiver of privilege.

(2) Auditors have been sanctioned for not requiring the disclosure of materials turned up during an internal investigation.

(3) Great care has to be taken to accommodate the competing interests of the attorney-client privilege and proper audit disclosures.

C. If Special Outside Counsel Is Used for the Investigation Only, What About the Lawyers Who Will Actually Represent the University?

1. The university cannot forget that it may need a powerful, well informed advocate, as well as an investigator.

2. Both the investigating firm and the defending firm need real time access to facts – documents, interviews and expert input.

a. Joint interviews – plusses and minuses

(1) Awkwardness is filling the room.

(2) Who takes the lead?

(3) Can the investigating firm be part of an eventually waived privilege while the defending firm preserves all aspects of the privilege?

b. Parallel investigations by investigating and defending counsel.

X. Employment Issues

A. University is under pressure from the government to cooperate – what about faculty and administrative staff?

B. Faculty and administrative staff have a duty to university to cooperate with university’s investigation.

1. Right to counsel?

a. Unless contract, by-laws or indemnification provisions provide otherwise (and many now do), university need not provide “pay as you go” indemnification.

b. In fact, faculty and staff member can be compelled to participate in interview by university counsel without his or her own counsel or face loss of his or her job.

c. However, universities may find it useful to encourage faculty/staff to retain separate counsel:

(1) A senior or valued faculty member may also expect separate counsel and needless animosity may be created if none is offered.

(2) The need for separate counsel for faculty member at the outset of an


investigation may be desirable when the government’s investigation is also taking place and where the time for preparation is short.

C. Termination or discipline of wrongdoers during investigation.

1. University must immediately stop any arguably improper conduct.

2. The need to take action against faculty/staff may pose difficult choices. Suspension or termination removes a faculty/staff member from a position in which he can further damage the university. But, that action may be seen as an admission of the individual’s misconduct.

3. Any cooperation needed from faculty/staff member will be much more difficult to obtain after disciplinary action is taken. Efforts to obtain information should be made before action is taken

D. Indemnification and advancement of fees - KPMG Stein decision.

1. In Stein

2. In the

, Judge Kaplan of the Southern District of New York held that the portion of the Department of Justice’s (“DOJ”) 2003 Thompson Memo that can be read as discouraging companies, which are seeking leniency from the DOJ from advancing legal fees to its employees and former employees, is unconstitutional.

Stein

3. The Court agreed with KPMG’s former partners and employees, finding that the government “held the proverbial gun to [KPMG’s] head” to force KPMG to stop paying defendants’ legal expenses. The Court determined that “KPMG’s decision to cut off all payments of legal fees and expenses to anyone who was indicted and to limit and to condition such payments prior to indictment upon cooperation with the government was the direct consequence of the pressure applied by the Thompson Memorandum.

case, the court believed, despite KPMG’s and the prosecutors’ statements to the contrary, that these concerns had caused KPMG to withhold attorney’s fees from its employees and former employees (and partners) who were subjects of a wide-ranging government investigation into certain tax shelters. These individuals, following their indictment, claimed that the government violated their constitutional rights by pressuring KPMG to deviate from its claimed “normal” practice of advancing legal fees to its employees and former employees.

4. In light of those findings, the Court concluded that the government policy embodied in the Thompson Memo’s fee advancement provision violated the Due Process Clause and effectively deprived the individual defendants of the Sixth Amendment right to counsel.

5. The Second Circuit Court of Appeals affirmed Judge Stein’s decision.

E. Defamation/libel/slander risks.

1. University may be liable if it has published an unprivileged false statement about a faculty member or staff member to third parties.


XI.

A. Deciding whether, when and how to disclose the problem to the government.

Disclosure

1. Some investigations will not reveal a problem worthy of disclosure to the government.

2. In some cases, the university will have choices about to whom to make disclosure.

a. The DOJ

(1) Which department, (e.g.

(2) Which locale (

, Fraud Section, Antitrust, Public Corruption)

e.g.

b. State or local prosecutors.

, Washington or local field office; in some cases multiple U.S. Attorneys’ Offices may have jurisdiction)

c. Other federal or state agencies (e.g.

B. How Does Possible Waiver Influence Early Investigative Decisions?

, SEC, EPA, CFTC)

1. Why report results to government?

2. Organizations rarely refuse requests to produce investigatory results to government.

3. Need to cooperate with government investigations.

4. McNulty Memo.

a. Issued by DOJ in December 2006 to update guidelines on factors it will consider in determining whether to prosecute an organization.

b. The factors include, among other things:

(1) the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents;

(2) the existence and adequacy of the corporation’s pre-existing compliance program;

(3) the corporation’s remedial actions, including any efforts to implement an effective corporate compliance program, to replace responsible management, to discipline or terminate wrongdoers, to pay restitution, and to cooperate with the government.

5. Sentencing Guidelines

a. The Organizational Sentencing Guidelines identify certain factors as relevant to determining fine. Consideration of those factors also has tended, in practice, to significantly influence prosecutors’ decisions concerning whether or not to charge an organization with a federal crime. They include:


(1) The nature and seriousness of the offense; whether the organization has a prior history of misconduct, including administrative, civil, or criminal infractions; whether the organization has an effective compliance and ethics program; and whether the organization self-reported the offense and cooperated in the government’s investigation.

(2) The United States Sentencing Commission has deleted language from the Guidelines that required organization to waive attorney-client privilege under some circumstances to obtain cooperation credit.

C. Deciding Whether to Disclose Problem to Public.

1. How big is the problem?

2. How high does it go?

3. Do any past public statements need to be corrected?

4. Are there any other reporting obligations?

5. What form should disclosure take?

D. Changing triggers for disclosures: subpoenas, formal orders of investigation, target letters, etc.

E. Risks of publicly pledging “full cooperation.”

XII. At The Inception Of An Inquiry, Looking Down The Road At The Consequences Of Reporting Investigatory Results To Government

A. Does Disclosure of Results of Investigation Waive Privilege?

1. Courts hold generally that the production of investigatory results leads to waiver.

a. But, a handful of recent District Court cases have held that where materials are produced pursuant to confidentiality agreements, work-product privilege may not necessarily be waived.

b. Recent cases upholding privilege include In re Cardinal Health in the Southern District of New York and McKesson HBOC in the Northern District of California. The McKesson HBOC

c. Attorney-Client Privilege Protection Act of 2009

decision directly conflicts with several other cases involving McKesson in other jurisdictions.

(1) Originally introduced by Senator Arlen Specter in the 2006 and died in the Senate after the DOJ adopted new guidelines. Reintroduced by Senator Arlen Specter in February 2009.


(2) Bill would prohibit prosecutors from asking organizations to produce privileged information.

(3) Bill would also bar prosecutors from considering organization’s decisions to waive privilege, advance fees or enter into joint defense arrangements in determining whether to bring charges.

(4) Organization would be permitted to offer privileged material voluntarily.

d. New Federal Rule of Evidence 502

(1) Signed into law September 19, 2008.

(2) Voluntary disclosure of a communication covered by the attorney-work privilege or work product doctrine would generally result in waiver only of the communication disclosed and would not result in the waiver of all other communications on the same “subject matter” unless the undisclosed communications “ought in fairness to be considered with the disclosed communication.”

(3) Clarifies that inadvertent disclosure does not result in waiver when the holder of the privilege “took reasonable steps to prevent disclosure” and “promptly took reasonable steps to rectify the error.”

(4) Allows parties to enter into an agreement to limit the effect of any disclosure. The agreement is only binding on the parties unless the agreement is included in a court order.

e. If investigatory results are disclosed, the university should try to obtain a confidentiality or non-waiver agreement from the government.

Conducting An Effective Internal InvestigationInvestigation

NACUA General Counsel InstituteNACUA General Counsel InstituteJanuary 28 – 29, 2011

Patrick M. CollinsPerkins Coie LLP

What's at Stake:Why Conduct an InternalWhy Conduct an Internal

Investigation?Id if d li i i l h h Identify and limit reputational harm to the university

Evaluate financial civil and criminal exposureEvaluate financial, civil and criminal exposure Inform timing and scope of appropriate

disclosuresG f Guide nature of remedial measures

Position university in most favorable light with stakeholders public and if necessary

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stakeholders, public and, if necessary, regulators

Events that Prompt an Internal I ti tiInvestigation

E t l E t External Event Subpoena or other governmental action

D l t t th i it Development at another university Media investigative report

I t l E t Internal Event Information from whistleblower

Ti f b f i it it

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Tip from member of university community Allegation from complaining witness

Developing a Game PlanDeveloping a Game Plan What is scope of investigation

Sh ld b f d d li it d Should be focused and limited Must be adjusted based on factual developments

Be mindful of "mission creep" What evidence must be collected What databases need to be searched

P i k d t i t Preserving key documents is paramount Coordinate document review with witness interviews

Who should be interviewed

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Consider whether "element of surprise" is necessary

Developing a Game Plan (cont'd)Developing a Game Plan (cont d)

Who should be/can be notified of investigation Apply "need to know" standard Apply need to know standard Evaluate applicable restrictions (e.g., FERPA) Is this a board or audit committee event

Wh i bli di l i When is public disclosure appropriate When/should matter be disclosed to regulators Is there an obligation to discloseIs there an obligation to disclose Will disclosure help mitigate down side Understand that control will be lost upon disclosure

H / h h ld di l b

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How/when should remedial measures be addressed

First "72 hours" of I ti ti M t C iti lInvestigation Most Critical

M t id Must preserve evidence Must establish proactive game plan If public, must establish competence and

thoughtfulness to stakeholdersg

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Developing a Communication Game PlanDeveloping a Communication Game Plan

Prepare early to respond to leak or need for public statement

Craft statement in advance; update as warranted Never get ahead of the facts Must balance factual restraint and legal restriction

while avoiding "bunker mentality"while avoiding bunker mentality Avoid temptation to "feed the beast"

Be mindful of privilege waiver considerations

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Be mindful of privilege waiver considerations when communication personnel are consulted

Nuts and Bolts of Investigation:P i th P T ilPreserving the Paper Trail

Document Hold Notice: Should immediatelyDocument Hold Notice: Should immediately distribute memo to relevant parties instructing them to preserve documents

Hold notice should provide as many specifics as possible without compromising investigation Err on the side of inclusion and update as necessary

Engage IT department to ensure preservation

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Nuts and Bolts of Investigation:P t ti th P i ilProtecting the Privilege

"Upjohn Warnings" at all interviews pj g Consider providing warnings in writing (see United

States v. Ruehle, (C.D. Cal.))

Protect privilege at every stage Courts have recently upheld work product and

tt li t i il i i ti ti t t (attorney-client privileges in investigative context (see Sandra T.E., 600 F.3d 612 (7th Cir. 2010))

Even language of engagement letter is important

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Even language of engagement letter is important

Nuts and Bolts of Investigation: G d R l f I t iGround Rules for Interviews

Upjohn Warnings at the outsetUpjohn Warnings at the outset Counsel represents the university, not the

employeeemployee Privilege is held by the university It is the university's decision alone to waive It is the university s decision alone to waive

the privilege Interview should be kept confidential

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Interview should be kept confidential

Addressing Interviewee's Questions:Do I ha e to talk to o ?Do I have to talk to you?

Potential repercussions of refusing to talk: Does university have "talk or walk" policy

What if interviewee is willing to talk, but wants to delay interview Fairness concern

I t i i i d t ill f h Interviewee says reviewing documents will refresh recollection

Risks of agreeing to delay

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Risks of agreeing to delay Destruction or removal of evidence

Addressing Interviewee's Questions:Do I need a lawyer?

If question asked investigator should: If question asked, investigator should: Make clear that the investigator cannot

provide the interviewee with legal adviceprovide the interviewee with legal advice Whether represented or not, interviewee has

obligation to provide truthful informationobligation to provide truthful information If interviewee requests counsel, investigator

should set appropriate deadlines

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should set appropriate deadlines

Addressing Interviewee's Questions:Will I be prosecuted?

N i b d t i t i i No promises can be made to interviewee in exchange for cooperation

U i it ill k d i i h th t University will make decision whether to provide information to law enforcement Law enforcement will independently decide Law enforcement will independently decide

whether to prosecute Law enforcement will independently decide

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Law enforcement will independently decide what benefit, if any, of cooperation

Privacy Considerations

In university setting, regulatory issues (e g FERPA and FOIA) should be(e.g., FERPA and FOIA) should be evaluated at every juncture Understand that employee privacy laws Understand that employee privacy laws

vary by state Maintain a solid up to date privacy policy Maintain a solid up-to-date privacy policy Consent sometimes required to access

certain employee information

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certain employee information

Considering the Government Di l D i iDisclosure Decision

If statutory or regulatory obligation, no discretionIf statutory or regulatory obligation, no discretion permitted

Conduct risk/reward analysis y Leniency policy or otherwise favorably positioning

with regulator Will regulator otherwise expose violation

Cautionary Note: Once disclosure is made, i it l t l i ti ti

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university no longer controls investigation

Reporting Alleged Misconduct to g gLaw Enforcement

E l l f t di l ill b Early law enforcement disclosure will be welcomed Preserving key evidence prior to

disclosure is a must Government may want to pursue covert

investigation

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g Recorded conversations

Effective Means Cost-EffectiveEffective Means Cost Effective

Investigation must be managed in cost-effective manner University counsel should require detailed

initial and updated budgets If investigation is to expand, rationale for

expansion should be documented If investigation's costs are not managed,

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investigation itself will become an issue

Concluding the InvestigationConcluding the Investigation

Complete the investigation in a prompt mannerp g p p Don't permit perpetual investigative mentality Investigations can sap morale, be expensive and

become a huge distractionbecome a huge distraction Should investigative findings be released What is the potential for follow-on civil litigation

P bli l l d t b t t t Publicly released report may be necessary to protect reputation of university

Address and implement remedial measures

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Put steps in place to avoid future issues Regulators will evaluate these measures closely

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