As we head into the holidays, all eyes are on the Republican tax bill and the backlash from the FCC’s net neutrality vote. But there’s plenty going on beyond D.C. In this week’s edition, Uber has made headlines yet again due to a letter filled with damning accusations against the company, including attorney-client privilege abuse. Also, a look at what it means for legal departments when companies combine and the roles in-house counsel play in IPOs.
Welcome to another edition of Inside Track, where we’re covering key issues for in-house lawyers, answering your pressing questions and keeping you in the know about what your colleagues are up to. I’m Jennifer Williams-Alvarez, covering in-house lawyering from New York City. If you have questions or something to share, you can email me at email@example.com or find me on Twitter at @jenkayw.
Just a note: We’ll be on vacation next week— and so will Inside Track. But don’t worry, we’ll be back in 2018.
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What’s happening –
ABUSE VERSUS DUE DILIGENCE. A 37-page letter accusing Uber of everything from allegedly stealing trade secrets to illegally recording phone calls was made public last week in the company’s battle with Waymo. One allegation that caught my eye is that former in-house attorney Craig Clark, who was ousted last month behind the ride-hailing company’s breach announcement, abused attorney-client privilege.
So I asked: Where’s the line between an in-house attorney doing due diligence and actually misusing privilege?
➤ Back up. What’s the deal? Clark allegedly developed training on how to use attorney-client privilege that included coaching employees to address all emails on sensitive intelligence collection to him and to mark them as “attorney-client privileged and confidential.” He allegedly told them to “specifically ask a question or request legal advice on some issue—even if no legal advice was needed or warranted.” Clark’s lawyers have calledthe letter’s allegations “sensational and patently false.”
➤ So where’s the line? “I think the line is drawn at the truth. And maybe the line is drawn at good-faith,” said Todd Presnell, a partner at Bradley Arant Boult Cummings, who blogs about privilege issues. “Does the employee doing the communicating have a good-faith basis to believe the communication is privileged, that they are actually seeking legal advice?” Presnell said training on privilege is fine, “but where [Clark] was allegedly crossing the line was when he was telling employees to put the privilege on every communication.”
GROWING PAINS. Mergers and acquisitions are in the air. There’s AT&T’s planned merger with Time Warner, Walt Disney’s deal with Twenty-First Century Fox and Target’s intended acquisition of online same-day delivery platform Shipt, to name a few. When companies combine, what can the legal department expect? Juliette Hirt, assistant GC at Sierra Club, weighs in.
➤ Right off the bat. “Most immediately, leading up into the deal, there is a tremendous amount of pressure to negotiate the acquisition documents, and manage and slog your way through the diligence process,” said Hirt, who experienced an acquisition as GC for online digital library ebrary. She called deals a “balancing act” for in-house counsel. “Either the acquisition or the ongoing business would be a full time job, but you’ve got to do both, and do them well. If you let your regular deals languish, the whole company may fail to meet acquisition milestones. But if you don’t keep pushing forward with diligence and the acquisition documents, you run into another set of problems.”
➤ Rollercoaster. “And remember that no deal is guaranteed to go through, so there can also be a bit of an emotional rollercoaster,” Hirt said. “Am I about to have a new title, new boss, new job duties, and new employer? Or be out of work? Or is the deal going to fall through tomorrow and everything goes back to ‘normal?’”
My colleague Stephanie Forshee looked at companies thought to be planning an IPO soon and analyzed the backgrounds of the in-house attorneys expected to lead their respective companies through the process. Here’s what she found: ➤First time? Many potential IPO leaders will be involved in the process for the first time in their careers, Stephanie discovered. For instance, Tony West at Uber and Kristin Sverchek at Lyft.
➤ Does it matter? Apttus chief legal officer Margo Smith told Stephanie that while having IPO experience is helpful, it’s by no means necessary. “An IPO is a financing transaction for the company,” she said. “What is far more important is having a general counsel with public company experience, who knows the ins and outs of life as a public company. And it goes without saying that being a problem-solver and good business partner is paramount.”
➤A little help, here. According to Adam Rosman, general counsel for First Data, selecting the right outside counsel is key. “You need a firm that has a bunch of [IPOs] under their belt, because it’s so important to get everything right,” Rosman said.
SO LONG, ARBITRATION CLAUSES. Microsoft on Tuesday voiced supportfor federal legislation that would prevent companies from using forced arbitration for sexual harassment claims and also announced its own policy change. In a company blog post, Microsoft chief legal officer Brad Smith wrote, “effective immediately, we are waiving the contractual requirement for arbitration of sexual harassment claims in our own arbitration agreements for the limited number of employees who have this requirement.”
As companies continue to evaluate – and in some cases, update - their approach to sexual harassment in the workplace, it’ll be interesting to see if others follow in Microsoft’s footsteps.
“Given that the [General Data Protection Regulation] implementation is roughly six months away—not even that—I would think more attention would be going to privacy issues and data security issues.”
- Sterling Miller, general counsel at Marketo Inc., commenting on the second General Counsel Up-At-Night Report from ALM Intelligence and Morrison & Foerster.
Question of the week –
With each edition of the newsletter, we’re answering a question for in-house attorneys by going to top practitioners in those areas. If you have a pressing question you’d like answered, send it my way.
This week’s question:
This week, the Foreign Corrupt Practices Act turned 40. What are the latest developments in FCPA enforcement that in-house lawyers are worrying about?
➤ To self-report or not to self-disclose? The recently announced DOJ FCPA Enforcement Policy provides a presumption of declination for companies that self-disclose, cooperate, and remediate within the meaning of the policy. This presumption, however, does not apply where certain aggravating circumstances are present, including the involvement of executives in the corrupt conduct, the fact that the company made a significant profit from the misconduct, the pervasiveness of the misconduct, and/or the company is a criminal recidivist. Even in the case of these aggravating circumstances (except for certain instances of recidivism), DOJ will recommend a 50% reduction in penalty off the low end of the Sentencing Guidelines range for companies that self-disclose, cooperate, and remediate.
Through the new policy, the DOJ is clearly signaling, to an even greater extent than it did in 2016’s FCPA Pilot Program, the value of self-disclosure, and providing substantial incentives for such self-disclosures. These additional incentives could make the decision to self-disclose easier in some cases, but could result in a much closer call in a matter for which in-house counsel would have not recommended self-disclosure prior to the enactment of the policy.
➤ Does our compliance program pass muster? The FCPA Corporate Enforcement Policy sets forth a number of non-exhaustive criteria for an effective compliance and ethics program for a company to receive remediation credit, including the culture of compliance, resources dedicated to compliance, the quality and experience of compliance professionals and their compensation, promotion, and reporting structure, authority and independence of the compliance function, the effectiveness of the company’s risk assessment and the manner in which the compliance program has been tailored based on it, and auditing of the compliance program.
In addition, in February 2017, the DOJ Fraud Section (of which the FCPA Unit is part) released a document containing common questions considered in evaluating corporate compliance programs. These questions are extensive and span 11 topic areas, ranging from Analysis and Remediation of Underlying Misconduct to Third Party Management. Gone are the days where DOJ’s compliance inquiries began and ended with asking to see relevant policies.
➤ Is there U.S. jurisdiction over foreign-based conduct? If the recent enforcement action against Telia is any indication, DOJ is paying greater attention to the so-called “territorial jurisdiction” provision, noting that at least one executive sent e-mails related to the corrupt scheme while in the United States. It may no longer be enough to evaluate whether conduct extended to a U.S. parent company; internal investigations may need to consider where all participants in potentially corrupt conduct were during all key phases of the scheme.
- Nicolas Bourtin, litigation partner at Sullivan & Cromwell, who is one of the coordinators of the firm’s FCPA and anti-corruption practice group. (Edited for clarity and length.)
Don’t miss –
Friday, January 19 – The New York City Bar Association is hosting an event next year that’s designed to provide in-house counsel with strategies for protecting a company’s trademarks. If you decide to attend, expect to hear from Tiffany counsel Lesley Matty, HBO senior vice president of legal affairs Judy McCool, NBA deputy GC Ayala Deutsch and more.
February 23 – 25 – Later in the new year, law schools, law firms and legal departments will participate in the Global Legal Hackathon. Teams of attendees will work to develop technologies that either provide a benefit to the business and practice of law or provide a public benefit.
On the move –
Mind the Gap. Consumer co-op REI announced late last week that Wilma Wallace has been named general counsel. Wallace, who joined REI in October, said in a press release that she’s “excited by the timelessness of the co-op’s purpose, balanced with the ability to evolve the business to be relevant, inclusive and thriving.” Prior to joining REI, Wallace was interim GC at Enveritas and before that, was in-house at Gap for more than two decades.
Learn to share. In late January, Karen Seymour will join Goldman Sachs Group as co-general counsel and partner, according to an announcementfrom the investment banking firm. With current GC Gregory Palm, Seymour will share responsibility for all legal matters related to the firm’s worldwide operations. Both Palm and Seymour hail from Sullivan & Cromwell.
Longer title, please. Starting January 1, Minnesota-based energy company Otter Tail is adding to general counsel Jennifer Smestad’s responsibilities. Smestad, who joined the company in 2001 and rose through the ranks to be named GC in 2013, will also soon be the company’s vice president and corporate secretary.