Investigations by Outside CounselAuthor(s): Jonathan LangSource: Litigation, Vol. 15, No. 1, DISCOVERY (Fall 1988), pp. 31-35, 58-59Published by: American Bar AssociationStable URL: http://www.jstor.org/stable/29759287 .

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Investigations

by Outside Counsel

by Jonathan Lang It used to be that litigators were advocates, plain and simple. A client told them roughly what had happened, they con? ducted discovery to fill in the gaps, and went out to do battle.

But the world has gotten more complicated. More and more, litigators are investigators. The client often is not sure what has happened. It may have heard alarming rumors. It

may have a vague sense of unease. Or it may have a legal duty to get the facts in a neutral, unvarnished form.

Enter the attorney-investigator. It is hard to say why, but the demand for lawyers to conduct business investigations is

increasing. Such inquiries are as familiar as recent headlines: the failure of Penn Square Bank and the resulting demise of Continental Illinois Bank. Alleged check-kiting at E.F. Hut ton. Charges of money laundering by Citibank or unauthor? ized bond trading at Marsh & McLennan.

Though investigations may be a growth industry, they present many problems. Investigations are hard to do prop? erly. They pose complex legal and ethical questions. They require daily decisions on conflicts of interest, privilege, and document retention. In negotiating these obstacles, an inves?

tigating counsel must be careful not to create a mine field of mistakes that may trap him or a subsequent litigator serving the same client.

Understanding these problems requires an appreciation of the situations that can produce a business investigation. Such

inquiries come in many shapes and sizes, but certain circum? stances recur:

? An investigation commissioned by a committee of disinterested directors to determine whether a shareholder demand to commence or pursue a lawsuit is warranted.

? An inquiry into employee misconduct. ? An investigation into prior business operations after a

company has filed for bankruptcy. ? An investigation of losses caused by outside forces

such as the market or accidents. ? Investigations under an SEC consent decree or under

the SEC's voluntary disclosure program.

Mr. Lang is a partner in the New York City firm of Yeager & Lang.

Finally, in a somewhat different category, there are inves?

tigations commissioned by insurance companies into losses or claims made under insurance policies. These can be par? ticularly tricky, because counsel to the carrier is often in a

position to defeat coverage for the insured.

Despite the growing frequency of outside investigations, some corporate executives react with?to put it mildly? skepticism when such inquiries are proposed. "Why do we need this?" or "Not more lawyers," they grouse.

Such reactions are understandable. There is a natural ten?

dency to minimize problems. In-house counsel, more famil? iar with the workings of the company, are seen as better able to deal with the situation. There may be reluctance to have outsiders rummaging through the files and interviewing employees. Finally, there is money: Outside investigations can be very expensive. Do-it-yourself, in-house inquiries are much better for the immediate bottom line.

With such plausible reasons for doing it yourself, why ever use an outside firm?

In many cases, there is no choice. For example, when a committee of independent directors needs to evaluate the wisdom of a derivative suit, it must reach its conclusions

independently. This means that the management of the com?

pany, including in-house counsel, may not be involved.

Similarly, investigations conducted under SEC consent de? crees are supervised by special review committees, whose members cannot have been involved in the alleged wrongdo? ing. This too prevents the use of in-house counsel. Even if inside lawyers could properly conduct an inquiry,

it may still be wise to go outside for help. Problems big enough for an investigation often involve many layers of

management, including the legal department. Even if the inside lawyers had nothing to do with improper behavior, they may still be defensive about the failure to detect the

difficulty earlier. The scope of the problem is also a factor. If a situation is

messy enough to warrant an inquiry, neutrality and detach? ment are essential. When an outside lawyer is called in, someone usually has determined that something is very wrong: The auditors have found a shortage. A product has

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blown up. A power plant has melted down. This probably means that the incident causing the investigation is material

(in all senses: generic; SEC; and accounting) and is too big for those inside the company. Even if it is a first-rate, good faith job, the conclusions of an internal investigation may be

inherently suspect to outsiders. It comes down to this: The main reasons that outside in?

vestigative counsel are hired are impartiality and critical ana?

lytic ability. In many cases, outside counsel acts almost like a

judge, sifting the facts and analyzing the law. The first thing an investigator must determine is what his

job is. Even if well defined, the assignment will rarely be

simple. Think about the problems confronting an attorney looking into the leak of a pollutant into a waterway. It may be

easy to determine the cause: Maybe a valve was defective; maybe it was negligently opened; or maybe an employee intentionally ordered the discharge. But determining such facts may just be the beginning. Conscientious counsel should also determine the legal ramifications of the event and recommend a course of action.

Determine the Court's Goals To do this, the lawyer must determine his client's goals.

Are they defensive, offensive, or both? Is the client trying to

prevent a lawsuit by identifying and settling with claimants?

Or, resigned to litigation, is it seeking sources of recovery from negligent employees, suppliers, or their insurers?

Think about these possibilities in the pollution example. The leak could lead to civil and criminal liability under various antipollution laws. It could also spawn personal injury and property damage tort claims. But that is not all. If

damage claims are significant, or if big fines or penalties are

imposed, a shareholder derivative action might be filed. And there is still more: If the stock price of a publicly traded

company falls because of all these problems, actions under the securities laws are almost inevitable. Unless outside counsel addresses all these issues, the company will not know its full exposure.

Outside counsel are not, however, restricted to bringing bad news. They must also be alert to potential sources of

recovery for the company, whether from insurance or third

parties. In the pollution case, such sources would include

comprehensive general liability insurance, directors' and officers' liability insurance, the directors and officers them?

selves, and the manufacturer and installer of the faulty valve. Once an investigating lawyer knows what she is after, she

must plan the investigation. The grist for the investigation mill is documents and witnesses. What should come out of the mill is a report?not necessarily a written one?telling the client how the investigation was conducted; what hap? pened; who is legally responsible; what the company can do to reduce its exposure; and where the company can seek

recovery to offset any losses.

Coming up with a report is a journey of many steps. But almost all investigations require the following:

? Learn how the company works; ? Identify people with information inside the company;

? Identify people or entities outside the company who

may have useful information (government agencies, in? surance agents, consultants, accountants, suppliers, etc.);

? Review and digest documents; ? Interview witnesses;

? Review additional documents that come to light dur?

ing the interviews; ? Reinterview any witnesses (or interview new wit?

nesses) based on previously obtained information; ? After digesting and distilling all this information,

prepare or present a report.

What do each of these steps involve?

First, getting prepared. If lawyers have not previously worked for the company, they must immediately learn its business. They should review annual reports and public rela? tions materials. Financial statements and SEC filings should be consulted; unusual footnotes in the financials should be

carefully considered. Serious ongoing litigation should be reviewed. Trade publications that discuss the company can be doubly useful: They provide information about the com?

pany itself and background on its industry. Familiarization, however, goes beyond generally available

publications. The lawyers in charge of the investigation should meet with upper management at the company's of? fices. Take a tour of company facilities, especially in investi?

gations where a manufacturing process is central to the prob? lem. Establish lines of communication with management; this may require a directive telling lower level managers and

employees to cooperate with counsel. In doing this, consider

carefully who you should report to. In many cases, it may be wise for outside counsel to answer directly to the board of

directors; this avoids having information diluted or filtered

by inside managers who may become targets of the investi?

gation. Before you start talking, or reporting, to anyone, there is

one fact everyone must get straight: You represent the com?

pany and not individual employees or officers. In fact, this

point should probably be made in initial management direc? tives or memoranda to all employees. At the same time,

management must decide quickly whether it will provide counsel for individuals, and, if so, who will get them. The indemnification provisions in the company's bylaws and certificate of incorporation should be reviewed to determine

any obligation to do this.

Getting prepared also means getting your own house in order. Those working on the investigation should be given their assignments in logical components. In the pollution case, lawyers could be separately assigned to review docu? ments from each of the company's departments: purchasing; maintenance; sales; personnel; training; and so on. Or law?

yers could be assigned to look into particular issues. The

important thing is that each attorney has a role that fits logi? cally into the overall investigation.

Equally important, all lawyers involved should know what is happening in the entire investigation. An attorney who is

supposed to learn about a faulty valve will do that better if he understands the steps in the manufacturing process that pre? ceded and followed the valve, the nature of the pollutant, and what it can do to people and property. Those in charge of the

investigation should understand everything that happened. Once preparations are completed, it is time to gather infor?

mation. In doing this, investigative counsel climbs along a narrow ridge. If he veers to one side, he risks missing rele? vant information. If he veers to the other, he risks a breach of ethics or disqualification.

In any complex business investigation, document review can be?and usually is?boring. It is, however, essential and

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is usually the first order of business. Here are the main steps to take with documents:

First, try to determine where the paper is located. Is it all in one building? Is it in a number of cities? A number of countries?

You will almost never be able to answer these questions completely at the outset. It is kind of a chicken and egg problem: You cannot know where the paper is until you understand the case. But you cannot fully understand the case without peeing all the documents. Your first try at locat?

ing documents will not be your last. While trying to find documents, you must also review the

company's document retention policy, if there is one. If the

company has a document destruction policy, it should be

suspended, especially if litigation has produced any out?

standing discovery requests or subpoenas. There are many reasons for such a document freeze. One is

obvious: You want to get the most complete picture possible. In addition, you do not want innocent or routine document

disposal now to create embarrassment or adverse inferences later. Freezing documents can help you in another way: If, despite your efforts, there are missing documents covered by the document retention period, be suspicious. Once documents are located, they must be sought and

obtained. That is obvious, but not always simple. In an internal investigation, you do not have compulsory process. Employees implicated in the investigation may be reluctant to disclose all their papers. Some documents may inexplica? bly disappear.

To minimize such difficulties, counsel should establish with management a way to verify that all documents are

being provided. This should include a review of the files of all employees involved in the events under investigation. This review should encompass even apparently redundant files, such as "chron" files, secretaries' files, steno books and

tapes, associates' files, and the like. Documents showing "cc's" to other employees should be traced back to their sources and to all recipients to see if the others have provided the documents as well. If some have not, the rest of their document production should be carefully scrutinized.

If a lot of paper is involved, it should be sent to a central location, duplicated, and, unless it might be improperly dis?

posed of, returned to its original location. The duplicated

documents can then be numbered, indexed, and reviewed.

Though it can be difficult to uncover documents, and it is

usually boring to review them, those are not the biggest documentary difficulties in internal investigations. Instead, the real problems do not arise until you find that most ancient of legal cliches: the smoking gun.

You bring the offending document to senior management. It glows white hot with illegality. After studying it in sober or stunned silence, your clients look at you and say, "Can't we just lose this?" Or, more subtly, they say, "Just leave this with us." Your trained investigative instincts tell you that

they are unlikely to frame the document and hang it on the wall or return it to the files.

Can You Destroy a Document? What do you do? It is important to know, because here, in

theory anyway, is where lawyers can get disbarred and go to

jail. See e.g., In re Perkins, 69 A.D.2d 160, 419 N.Y.S.2d 1 (1st Dep't 1979). The guidelines are pretty clear if there is an

outstanding subpoena or discovery request for the docu? ments. In that case, responsive documents must be pre? served; otherwise the attorney and the client are exposed to a list of civil and criminal liabilities ranging from obstruction of justice, to criminal contempt, to Rule 37 sanctions. See 18 U.S.C. ? 1505; In Re Perkins; William T. Thompson Co. v. General Nutrition Corp., 104 F.R.D. 119 (D.C. Cal. 1985).

But what if, as often happens in the early stages of an

investigation, there are no subpoenas or discovery requests? What if there is no litigation?

Your client's customary document practices may some? times answer the question. Think about a large sports anti? trust case. It involves a number of parties: the league; the

agents who represented the players; and a sponsor of the

competition. The league and the player-agents kept papers from day one, enough to fill a large file room. But the

sponsor was a foreign company with a simple document retention system: It didn't keep any. When all the other

parties produced more than 50,000 pieces of paper, the spon? sor produced less than 100. An internal investigation of this party would have been largely a matter of oral history; few

documentary problems would have arisen in the first place. But what if the company has dutifully kept all its business

records since the very day it opened shop to make bullets for the Union Army? With such clients, and in the absence of

litigation, a lawyer often faces an ethical dilemma for which there is not yet a perfect answer.

Clear, and fairly stringent, answers have been proposed: A 1980 draft of the ABA Model Rules of Professional Conduct

would have prohibited a lawyer from counseling destruction if "the lawyer reasonably should know that the material is relevant to a pending proceeding or one that is clearly fore? seeable." (emphasis added) But the Model Rules did not

ultimately contain that provision. As adopted, the Model Rules merely provide that "a lawyer shall not unlawfully obstruct another party's access to evidence or unlawfully alter, destroy or conceal a document or other material having potential evidentiary value." Model Rules of Conduct, Rule 3.4 (1987). (emphasis added)

This language means that unless local law prohibits docu? ment destruction, it is not unethical to counsel such disposal absent pending litigation or a formal outstanding request (such as a subpoena) for the documents.

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But please do not regard this as an endorsement of aggres? sive document disposal. Counseling destruction of docu?

ments may, in fact, violate state law. See Del. Code Ann. tit.

f 1269(2)(1987); Smith v. Superior Court, 151 Cal. App.3d 491, 198 Cal. Rptr. 829 (1984). In addition, various laws

require preservation of specific categories of documents for

prescribed periods of time. An example is the requirement in some antidiscrimination statutes that personnel files be held for a set period. Those contracting with government agencies may have a similar obligation as to contract-related records.

And remember, many things are unwise even when they are not illegal. As a practical matter, advising document destruction is almost always a bad idea, for at least two reasons.

First, even if destruction is legal at the time, the absence of a destroyed document can bite in later litigation. Courts have entered default judgments against parties shown to have

destroyed crucial evidence. Carlucci v. Piper Aircraft Corp., 102 F.R.D. 472 (S.D. Ha. 1984) (random document "purge" conducted by company prior to suit). There are also cases

holding that, when a party destroys evidence, the court may "draw inferences unfavorable to the spoliation." See e.g., Bird Provision Co. v. Owens Country Sausage, Inc., 379 F.

Supp. 744, 751 (N.D. Tex. 1974), affd, 568 F.2d 369 (5th Cir. 1978). Usually this result can be avoided by showing that the absent document perished in an organized, uniform document destruction program and not a random or selective one. See INA Aviation Corp. v. United States, 468 F. Supp. 595 (E.D.N.Y. 1979), affd, 610 F.2d 806 (2d Cir. 1979). Still, the message is clear. If you destroy a document, its absence may make you worse off than its presence would have.

A second, more practical, consideration is that lawyers can never be sure that all copies of a document will be destroyed. This is the era of the copying machine. Documents multiply like fruit flies. And, of course, you can never be sure that someone will not testify about a destroyed document. Think about how you would feel as a defense lawyer after this

snappy exchange:

Q. Did anyone ever tell you that the valve might be defective?

A. Yes.

Q. How did you learn of this? A. In a memorandum.

Q. What happened to the memorandum? A. It was destroyed. Q. Who told you to do that? A. Our lawyers.

Testimony like this by a former associate general counsel of A.H. Robins led to evidence of the company's cover-up of the potential dangers of the Dalkon Shield. Given all these

perils, it usually is just good sense not to counsel destruction of a critical document, even if such advice does not techni?

cally violate legal or ethical standards. After the initial wrestling with documents is over, most

investigations move into an interview phase. This is not the place to give pointers on interview tech?

niques. Such advice can be found in a hundred other articles. Such skill can be developed only by practice and experience.

What is important here is to highlight the special problems of

dealing with witnesses in an investigation.

The first of these is recognizing the awkward and ambigu? ous situation in which investigating attorneys find them? selves. For company employees unconnected with the prob? lem, you are an outsider, an interloper, thrust upon them by the legal department or the board of directors. The time they have to spend talking to you is time they cannot spend doing their jobs. To possible wrongdoers, you are a threat and an

opponent, but one they must seem to cooperate with. Almost

everyone in the company may view the investigating team as an army of occupation. You cannot interview effectively unless you are wary and aware of such crosscurrents.

A related problem comes from the circumscribed attorney client relationship into which outside counsel are propelled. In all but insurance company investigations, outside counsel

represent a business entity (usually a corporation) or a group of persons affiliated with that entity (usually independent "outside" directors). Sometimes the client list is short: just the company. In that case, individual directors, officers, or

employees of the company are not clients. But since much of the information in an outside investigation can only be ob? tained from those very people, investigating lawyers are

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potentially at odds with the people they must interview.

Confusing employees with the client can lead to disqualifica? tion and other troubles later on. The same problem exists if a lawyer is retained by a group

of directors. This usually happens when management ap? points a committee of disinterested directors to investigate shareholder demands, or when a special review committee is set up under an SEC consent decree. The directors, in turn, hire counsel. Here again, the lawyer does not represent the individuals being investigated or interviewed.

In all these cases, you must be aware of Ethical Considera? tion 5-18 of the Model Code. It is long and wordy, but

important: A lawyer employed or retained by a corporation ... owes his allegiance to the ... [corporation] and not to a stockholder, director, officer, employee, represen? tative, or other person connected with... [it].... Occa?

sionally a lawyer ... is requested by a stockholder, director, officer, employee, representative, or other

person connected with the . . . [corporation] to repre? sent him in an individual capacity; in such case the

lawyer may serve the individual only if the lawyer is convinced that differing interests are not present.

The newer Model Rules deal with this issue in even greater detail. On the question of potential conflicts of interest, Rules 1.13(d) and (e) provide:

(d) In dealing with an organization's directors, offi? cers, employees, members, shareholders or other con?

stituents, a lawyer shall explain the identity of the client when it is apparent that the organization's inter? ests are adverse to those of the constituents with whom the lawyer is dealing. (e) A lawyer representing an organization may also

represent any of its directors, officers, employees, members, shareholders or other constituents, subject to the provisions of Rule 1.7 [conflicts of interest]. If the organization's consent to the dual representation is

required by Rule 1.7, the consent shall be given by an

appropriate official of the organization other than the individual who is to be represented, or by the share? holders.

These strictures, and common sense, mean investigative lawyers must proceed cautiously with all employees, even

very senior managers and officers. At any moment in the

investigation, you may learn that the person you are inter?

viewing is part of the problem, and not just a friendly source of information.

The nature of the attorney-client relationship in investiga? tions puts you in a potential bind with everyone you inter? view. There are two contradictory considerations: First, you want to get the whole truth, but, second, you are obliged to tell a witness that the information he provides will be used

only for the company's benefit and may be used against him. When employee misconduct may be at the heart of the

problem, there are a number of reasons for giving each witness a standard set of warnings. These reasons are

grounded both in courtesy and case law. The imperatives of

courtesy should be obvious. Those that arise under case law are more subtle.

One concern in the cases is the rights of witnesses. The Ninth Circuit, for example, has said that "in some instances,

a special counsel's investigation may potentially infringe on the constitutional rights of the persons being investigated unless safeguards are required." Handler v. SEC, 610 F.2d 656, 660 n.l (9th Cir. 1979).

The lawyer's future work may also be at stake. If an

investigating attorney does not explain the investigation and his role in it, he may be disqualified from representing the company in later litigation against the wrongdoers. The no? tion is that an attorney cannot act like someone's lawyer, pump him for information, and then use it against him. This is especially true when employees are led to believe that their communications are confidential and the interviewing lawyer's interests are consistent with theirs. See Chase Man? hattan Bank v. Higgerson, Memorandum Order, Index No. 17864/84 (N.Y. Sup.Ct. Oct. 11, 1984). All this means that for any witness reasonably suspected

of wrongdoing, the wise course is to give a speech with these elements:

? I represent the company (or directors), and not you. ? You are entitled to get your own lawyer in connection

with the investigation. ? The investigation concerns the following: ? The information I secure will be used for the benefit

of the company; it may be used against you and others.

Of course, giving such "civil Miranda warnings" can be

tricky. At a minimum, they may well scare the witness out of any discussion. An interview that begins with "You have the

right to remain silent..." is not likely to elicit much infor? mation. Some have even suggested that the warning be on an index card and read in the same way each time, a practice that could deepen the chilling effect. A deft personal style

may minimize this effect, but remember that if the interview becomes too relaxed, cases like Higgerson may come into

play. The disqualification there was based partly on the

An interview that begins with "You have the right to remain silent..." will not elieit mueh information.

court's finding that easygoing interviews led the witnesses to believe that counsel was not adverse to them.

Unfortunately, not much can be done to make a civil Mi? randa warning inviting. It may be possible not to give it?or to give it in abbreviated form?to functionaries and others

likely uninvolved in the wrongdoing. And, if you are worried about scaring off useful information, remember that wit? nesses who are under suspicion probably know they are; they will at least be uneasy about what they have done. Their own

past conduct alone may make them hesitant to talk. The added deterrent effect of a civil Miranda warning may not be

very great. Therefore, when in doubt, give the full warning: That friendly middle manager you are chatting with may be the spider in the web.

If you give a warning, and an employee takes it seriously and retains a lawyer, respect that choice: Remember the ethi

(please turn to page 58)

Litigation Fall 1988 Volume 15 Number 1

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text under the photo read: "Senator Frank Church, (D)

- Idaho, who yester?

day stated ..." Church, of course,

served in the upper house with great distinction. Perhaps the fact that Idaho had a population of only 500,000 helped in part to explain his meteoric rise?that, and whatever incremental

wisdom he may have derived from our discussions.

Fifteen years later I returned to Boise. Almost everything had changed. I couldn't recognize a thing. But?and this is the wonderful part of nature? the sunsets were as beautiful as ever. G

No

Discovery (continued from page 40)

not the work of huge minds, which are often baffled by them? selves, but the labor of ordinary

minds that understand most com?

plex cases because all cases are reducible to the simplest of sto? ries.

Spence, "How to Make a Complex Case Come Alive for a Jury," 72 ABA

Journal, 72 (April 1986). Discovery, in the hands of very bright and eager law?

yers, may obscure the simple story. In a

multiparty suit, strive not to lose your story in full discovery. A stubborn doubting Thomas may

still say, "But I would feel a lot more comfortable if I served interrogatories and got the answers before trial." Per?

haps; perhaps not. It all depends upon the interrogatories and the factual situ? ation. Anyone who thinks that just a few interrogatories could not hurt should consider how a defendant, the

Buffalo Evening News, shot itself in the foot with its own set of interrogatories.

The Courier Express, a Buffalo

morning paper, filed an antitrust action

against the Buffalo Evening News be? cause the News had the temerity to en? ter the Courier's private domain with its own Sunday newspaper. This seemed a perfect suit for detailed inter?

rogatories. The list of possible ques? tions was limitless?circulation fig? ures, home deliveries, newsstand sales,

sales by geographic areas, maximum

sales, minimum sales, number of edi? tions, and then more for advertising and for profits. When finally drafted, ed? ited, and re-edited, the News' interroga? tories formed a tapestry of intricate

beauty covering every aspect of the Courier's business. One could only stand in awe and exclaim, "Brilliant. This will make the bastards sweat. Wait 'til they try to answer these interrogato? ries." It was enough to make the crusti? est litigator weep in admiration.

The News did not have to wait long. Overnight, the same interrogatories reappeared at the offices of the attor?

neys for the News. They had been re?

typed, changing plaintiff to defendant and Courier Express to Buffalo Eve?

ning News. Now it was the News' turn to sweat. It, too, was asked to disgorge every detail of its own operation. Pre?

dictably, evasive answers and objec? tions were all that the News got from the Courier. But the News was power? less to object to the Courier's inter?

rogatories because they were inquiries the News itself had prepared. The newspaper had violated the first

rule of interrogatories: Interrogatories beget interrogatories. Be careful, and consider what not to ask as much as what you will ask. If a doubting Tho? mas must have a security blanket, he should obey the 10 commandments of

interrogatories. They are simple: First, ask only 10 questions with no subques tions; second, ask only 10 questions; the next eight commandments are the same.

Shoot with a rifle. Ask only for what

you must have and what you know you are entitled to receive. The first round of interrogatories should all be bull's

eyes with no stray shots hitting areas where possible objections may lie. Af? ter a perfect score on the first round of 10, a second set, if absolutely neces?

sary, can be considered. A huge broad? side fired all at once, may, as the News found out, only damage your own ship with little harm to the enemy.

Aim Before Firing If documents must be gotten from the

other side, the rule is the same: Shoot with a rifle. But do not shoot at all until

you have been over your own docu?

ments. Document requests, like inter?

rogatories, beget their own kind. If you are not ready to produce documents, you are not ready to request them.

When you have read and categorized

your own documents with care, only then will you know where to aim your document requests. A blind broadside of "all-everything" may produce an avalanche of paper that will threaten to

sweep away, or at least confuse, the case before you can find what you re?

ally need. There will, of course, be some cases

where discovery?and maybe a lot of it?will be needed. But the point is this:

Discovery is a tool at the disposal of

litigators. Like any tool, it is not always useful. Diamond cutters do not use claw hammers. Cabinetmakers do not use chain saws. And lawyers need not

always use no-holds-barred discovery.

Every responsible litigator should pon? der the interrogatories not to ask and the documents not to request. By doing this, preparing thoroughly beforehand, and firing discovery shots in short, well-aimed rounds?if any at all?liti?

gation will become faster, cheaper, and more effective. 10

Outside

Counsel

(continued from page 35) cal proscription against communica? tions with parties who are known to be

represented by counsel (DR-7-104). As soon as you learn that a witness is rep? resented, communicate only through his or her lawyer.

Interviews with company employees raise another question: Does the attor?

ney-client privilege apply and how do

you preserve it?

Upjohn Co. v. United States, 449 U.S. 383 (1981), is the principal source of guidance. In Upjohn, the company learned about a foreign subsidiary's "questionable payments" to foreign government officials. Upjohn's general counsel was asked to investigate the matter with the help of outside counsel.

They sent questionnaires to many Upjohn foreign managers, and con? ducted interviews. Employees were told to treat the investigation as highly confidential. Questionnaire responses were sent directly to one of the lawyers in the general counsel's office. Later, the IRS learned of the internal

investigation. It sought the question

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naires and memoranda. Upjohn refused to produce them, asserting the attorney client privilege and the work-product rule.

In its decision, the Supreme Court did not finally resolve the problem, but it provided an important privilege checklist for investigating lawyers. The Court viewed as significant the fact that the communications in Upjohn were

made by company employees (1) to

lawyers for the company (who were

acting as company counsel), (2) at the direction of corporate superiors, (3) in order to secure legal advice. 449 U.S. at 394. The Court also noted that the communications concerned matters within the scope of the employees' cor?

porate duties; that the employees knew

they were being questioned so Upjohn could get legal advice; and that the communications were considered and

kept confidential. Id. at 394-95. Those conducting an internal investi?

gation should tailor their interviews and other dealings with employees to fit the Upjohn pattern. Corporate man?

agement should tell employees that their discussions should be kept strictly confidential and are conducted for the

purpose of securing legal advice. Out? side counsel must also play their role

properly. This means that interviews should be conducted, and questionnaire responses reviewed, by lawyers only. Employees should be reminded of the

importance of attorney-client confiden?

tiality and should be directed not to disclose to outsiders the substance of the interviews. A final observation about Upjohn:

Though very influential, the case tech?

nically applies in federal actions only. In other situations, state law may apply. Consult such law, because it may be different from Upjohn.

When the last document is perused and the last witness interrogated, the time comes for conclusions and recom?

mendations. Litigators, accustomed to

briefing everything, may automatically assume that the investigation will be

wrapped up in a written report. Of course, a written report has advantages. It provides a clear and permanent state?

ment of the findings of the investiga? tion. It can be perused and used by the client. Just writing it helps organize the

investigator's thoughts. But it is a big mistake to assume the

report will always be written. As every litigator knows, documents have two

significant characteristics: Get them near copy machines, and they multiply. Get them near curious or disgruntled people, and they leak. Besides, despite your best efforts to follow Upjohn, a written report may have to be provided in discovery. At minimum, a report that gets out

can be a fertile field for criticism and

speculation; no one can write a docu? ment of any length without including ambiguities and raising questions. At worst, a written report can be a road

map to litigation for later, less friendly lawyers.

In some cases, however, a written

report is inevitable. When the investi?

gation is being conducted in connection with a shareholder derivative action, and the conclusions support dismissal of the action, Delaware law (which of? ten controls) requires that a motion to dismiss include a "written record of the

investigation and its findings and recommendations." Zapata Corp. v.

Maldonado, 430 A.2d 779, 788 (Del. 1981) . In fact, in determining whether to dismiss a derivative action, the court

may also require production of the

investigation's back-up material. See

Joy v. North, 692 F.2d 880,893 (2d Cir.

1982) , cert, denied, 460 U.S. 1051. If a report generally favorable to the

company must be in writing and is sub?

ject to public disclosure or later discov?

ery, the principal question is how it should be written, edited, and pre? sented. An uninformative, but accurate, answer is that it must be done carefully. The problem is the extent to which po? tentially damaging information and adverse conclusions?blemishes in an otherwise attractive picture?should be included. Back-up material can also be a problem; if it is attached or becomes

public, even the most carefully written

report cannot be entirely favorable. There are always ambiguous docu? ments and loose ends. The more you say and release, the more gray tones will seep into the pure white image you want to present.

In all of this, there is an inescapable tension. If a written report says very little, outsiders may doubt its thorough? ness and candor. If it says a lot, it will almost certainly have something for critics to leap on. The balance must be struck on a case-by-case basis.

In many instances?if outside counsel's conclusions are unfavorable and need not be disclosed?the report should not be written at all. If an oral

report is made, it should be to a closed session of the board of directors (or to a closed meeting of senior management) with a prior explanation about confi?

dentiality. Materials used at the presen? tation should be marked "confidential" and should be returned to counsel. The directors should not discuss the report with third parties, or even with nondi rector employees. And, of course, law?

yers and staff at the firm doing the in?

vestigation should say nothing to any? one outside the meeting. With a report, the investigation ends.

Sometimes, the corporation takes cor? rective action, and the problem quietly goes away. But often, there is only a brief period of quiet. News reports, outraged letters, and lawsuits rain down. The lawyers take off their inves?

tigative gear, put on their litigation armor, and resume the more familiar role of advocates. 10

The

Discoverers

(continued from page 48) Mr. Reynolds: Yeah. Let's

stay on the record unless some?

body wants to go off the record. Mr. Pendergast: Well what is

it? Mr. Reynolds: Have it your

way. Mr. Pendergast: I will do

whatever anyone wants. Is this off the record? I forgot.

Mr. Reynolds: No, this is on

Litigation Fall 1988 Volume 15 Number 1

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