General counsel face few responsibilities more sensitive and less comfortable than managing an internal investigation. In the fundamental interest of protecting the corporate entity, full cooperation with regulators and prosecutors is often the best course. But given the government’s growing proclivity to levy charges against individuals, full cooperation may not be in the best interest of the employees and executives involved.
“That particular tension is one of the most difficult things that any in-house counsel can manage,” says Christopher Madel, a white-collar partner at Robins, Kaplan, Miller & Ciresi. “It’s never a black-and-white issue.”
Since 1981, corporate counsel have relied on the Upjohn warning–the so-called corporate Miranda warning–to inform individuals that counsel represent only the company, and that any statements made in the course of the investigation may be passed on to the government. But Upjohn warnings also come in shades of gray–there are always temptations to smooth corners in order to better gather information or even preserve client relationships.
U.S. v. Ruehle, a tangent of the ongoing backdating drama at Broadcom Corp., spotlights some of the thorniest aspects of internal investigations and suggests common sense best practices for counsel interviewing internal personnel.
The 9th Circuit’s October ruling in Ruehle overturned a controversial federal district court decision out of California that challenged conventional wisdom about internal investigations and led to much consternation in the white-collar bar.
The case grew out of statements that former Broadcom CFO William J. Ruehle made to outside counsel from the firm Irell & Manella during an investigation of the company’s options-granting practices. At the same time, Irell & Manella was personally representing Ruehle in a related shareholder suit. Ruehle argued that he was not given an Upjohn warning, that he had a reasonable expectation that the firm was acting on his behalf and, therefore, that he was entitled to attorney-client privilege.
Relying on state law, the U.S. District Court for the Central District of California agreed, and suppressed the statements. The 9th Circuit, however, found the ruling at odds with the stricter boundaries of privilege under federal common law and reversed and remanded the matter for trial.
While the 9th Circuit decision is an effective return to the status quo, the case underscores the need for clarity and consistency when administering Upjohn warnings.
“This case is really a reminder to counsel who conduct investigations that some of the issues we sometimes relegate to checklist items or formalities can have enormous consequences if we don’t do things the right way,” says MaryJeanette Dee, a partner at Richards Kibbe & Orbe. “It’s a wake-up call that you must give the right warnings and clearly document the steps that you’ve taken so that there’s no confusion about whom you represent.”
The 9th Circuit did not overrule the lower court on the determination of whether an appropriate Upjohn warning had been issued to Ruehle, leaving open the question of just how explicit such admonitions should be.
Although Irell maintained it properly advised Ruehle about its reporting responsibilities, a lack of documentation prevented a solid finding of fact.
“There will be a good bit of discussion among the white collar defense bar on how you phrase the Upjohn warnings,” says Robert Hauberg, a shareholder at Baker Donelson. “Do you in fact need a written acknowledgment with all the bells and whistles?”
In practice, Upjohn warnings can take many forms. On one end of the spectrum are offhand oral warnings geared to make the subject comfortable and talkative. On the other end is ironclad documentation with a full list of parties to whom the interview may be disclosed. One extreme is legally dubious; the other likely unproductive.
“The thing that’s always most frustrating about the Upjohn warning is entering a meeting where you’re trying to get employees to be forthcoming and candid–to provide you with full disclosure about what happened–and you basically start that meeting with ‘Anything you say can and will be used against you,’” Dee says. “It’s not a pleasant way to start the information-gathering process.”
For that reason, Dee favors reading a standard script to interview subjects, much like an actual Miranda warning, and recording in the attorney’s notes that the warning has been issued and understood so there is a uniform record across the investigation. The more ubiquitous the warning, the less chance for subjects to be confused or misled about privilege and disclosure.
“It’s not just a matter of checking off a box,” Dee says. “It’s essential that you’re clear and there’s no confusion about who you’re representing.”
The Ruehle case also highlights issues raised by a corporation’s choice of outside counsel for internal investigations, even at the earliest stages. In this case, Irell represented Broadcom in many contexts, including several facets of the backdating scandal, which clouded the privilege issue.
“Very often it is the practice to hire your regular outside counsel to at least conduct the initial review,” Hauberg says. “Yet there is an issue about how credible the internal investigation will be in the eyes of prosecutors, who may not view regular outside counsel as being as thorough or as challenging.”
This is not a cut-and-dried issue. A law firm that knows the company well can move faster and more efficiently in the critical early stages of an investigation. That intimacy, however, can also give rise to blind spots and conflicts of interest–problems that escalate the higher a subject is on the org chart.
“I’ve never done an internal investigation in a company where we had some sort of long-term relationship because of just this issue,” Madel says. “I see it, frankly, as a potentially huge malpractice problem. You may have conflicts there that you don’t even know about. At the end of the day I want to talk to a prosecutor and say, ‘We’re entirely independent.’ I think that carries a lot of weight.”
The bottom line, Madel says, is to err on the side of caution and transparency. It looks better to prosecutors, and it ultimately makes investigation subjects easier to deal with.
“People like that kind of honesty up front when you’re interviewing them,” he says. “Of course, I’ve still had people lie to me, but I think if you are up front with people, they’re a lot straighter with you later on, and frankly, their lawyers are too.”