Internal Investigations Blog

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GM Investigation Misses Chance to Size Up Milliken for Haircut

Because analysts can never get enough . . .

After the initial General Motors post in this corner, a loyal reader and former GC-type expressed a bit of disappointment that it did not tear into the General Counsel’s office like Mr. Plow on a snow-drifted highway. While it’s not the aim of this forum to take scalps, they do occasionally appear as a by-product of commentary on the targets, methodologies, and scopes of internal probes.  This post takes the initial review of the GM internal investigation to the next step and gives a closer haircut to Michael Milliken without deviating from the purpose of this space.

The premise behind The Most Disturbing Facet of GM’s Ignitiongate was that it is inconceivable that worker bees, supervisors, and senior executives in any silo at GM – research and development, product testing, customer service, legal – could know that consumers had perished in their vehicles because of unknown causes and not considered whatever the issue was a safety risk.  This especially includes the Law Department.

Recall that, according to Page 103 of the Valukas Report, awareness of the fatalities associated with the ignition switch failures hit GM legal when wrongful death litigation landed on its desks in 2006.  At Page 104, it is made known that the lawyers in charge of safety issues and those tasked with product litigation both had reporting tie-ins at the General Counsel of GM North America.   These divisions of labor were headed by top-notch in-house attorneys with a crossover of information to ensure that safety lawyers knew of litigation developments and that litigators knew of issues coming down the safety pike.

When it came to resolving lawsuits, GM had three tiers of settlement approval as described on Page 106, et seq. Cases valued at less than $100,000 could be settled on the authority of product liability staff attorneys.  Those from $100,000 to $1.5 million (later $2 million) had to be approved by “The Roundtable”, a group of GM lawyers that was led by its Litigation Practice Area Manager.  Settlement of cases valued between $2 million and $5 million had to be approved by the Settlement Review Committee, another group of GM lawyers that included the GC of North America and GM’s Counsel for Global Engineering Organization.  Various ignition defect cases passed through each of these levels of review.

That’s a lot of supposedly smart people – lawyers – at Ground Zero and yet nobody sought or felt compelled to ring the alarm that an obvious safety issue of some sort was involved when GM customers were dying in GM vehicles under questionable Or at least to pass it up the chain of command to a C-suite that should know to do the right thing.

As the loyal reader referenced above so eloquently pointed out:

“GC 101: A general counsel that claims “I never knew” has failed, miserably.  As a GC, you make it clear to your people that not sharing critical information will shorten their careers dramatically.  In addition, you develop redundant sources so that if one of your subordinates does not follow Dictate #1 above, you find out anyway.  And then you find out why you weren’t told.  I understand that there has been a lot going on at GM, but not knowing information of this magnitude is simply inexcusable.  You either address the span of control or bandwidth or “tell me the bad news or else” issue, whatever you want to call it, or you need more or different warm bodies”.

Dale Buss over at Forbes detailed others seeing it the same way in “Barra is Protecting GM Top Lawyer Milliken – But Should She Be?” where he wrote:

“Mary Barra may have developed a blind spot with her resolute defense of General Motors chief legal counsel in the wake of Michael Millikin’s suspect role in the company’s handling of safety recalls as GM’s approach became sclerotic and even irresponsible over the years.

That’s the view of some expert observers with legal and GM backgrounds. They believe Barra should be nudging Millikin to fall on his sword — into resignation or “retirement” — instead of stoutly defending a performance by her 65-year-old chief counsel that, at best, suggested awful things happening on his watch and, at worst, may have made him at least negligent  in some of the most inexcusable aspects of the company’s continuing recall crisis.

                                     *                                   *                                   *                                   *

And Sen. Dean Heller (R., Nev.) told The Wall Street Journal: “I was surprised at the bear hug that [Barra] gave Millikin in that hearing. Even if he didn’t know, he had an obligation to know.” Sen. Richard Blumenthal (D., Conn.) told the newspaper that Barra has “a blind spot” in regard to Millikin.

                                     *                                   *                                   *                                   *

[An] attorney with long ties to GM, added that “it looks like the secretive nature of the legal department played a big role in the delay. Even if [Millikin] didn’t know, he should have known. He was in charge of a department that screwed up.”

And that’s but one of a number or avenues that this internal investigation should have driven down to its very end:  What did Michael Milliken know and when did he know it?  Or, if he didn’t know anything about the mystery crashes and mystery deaths, why not?

[Thanks, BW.]

Guest Post with Thoughts on “GM’s Ignitiongate”

Like the child of a parent wary of strangers, the IIB has never been allowed to wander off with a guest post.  But Lisa McClennon, a global enforcement and compliance executive with a large, multi-national organization and an impressive resume from the trenches, penned a swift response to  “The Most Disturbing Facet of GM’s Ignitiongate” that pulled together some excellent thoughts that are surely equal to anything that has previously appeared in this space.  Gratefully, here they are:

When General Motors began its internal review of the issue, there was likely much pressure felt by the review team.  Typically, any company that manufacturers products that pose a consumer health or safety risk must prove that the products work before final installation approval for retail use is given.  It sounds like there was a paradigm shift when the engineers were sent out on this inquiry.  They may have also been placed under tremendous pressure to make sure GM didn’t do anything wrong.  I am curious to know it they were told to duplicate the problem and prove that the part doesn’t work. In their testing, the switch probably functioned as designed exponentially more times than not, allowing someone to explain away the problem as “customer convenience.”

It is a shame that more was not learned from the Challenger disaster where NASA placed its contractor in the same adjusted-perspective position. Then, contrast that event to the Tylenol tampering situation of a few years ago.  NASA reversed the paradigm on its contractor and demanded proof that the O-rings would fail, while Johnson & Johnson foreswore cost concerns and immediately chose consumer health and safety with few questions. NASA experienced a catastrophic failure that caused seven people to die in a 71-second event that no one has forgotten. J&J saw seven people die in a week and ordered a total recall of all 31 billion bottles of its children’s caplets, an event that hardly anyone remembers.

A pre-production discovery of the defect, an admission that “a business decision” was made to make cars available on the retail market, and six fatalities later, and GM labeled the situation a “customer convenience” issue. As a result, GM will justly pay to make this situation as right as can be for a long time; a short and long term hit to their bottom line and reputation. An ethics or optics review would have made a difference. If the company had unnecessarily required an evidence examination or an impact study, its outcome would not have changed the review results. This is a common occurrence in companies that have a “to market at all cost”, “everything is blissful with blinders on”, or “the duck that quacks gets shot” culture.

Choosing optics over evidence can be a very conservative approach at times but is almost always beneficial to the organization. In this type of situation, companies are sometimes blinded by the benefit of the transaction and unable to see the risks to the relationships. Unfortunately, the cost/benefit analysis was measured against the bottom line in an environment where there was likely strong institutional inertia for GM to just be right. A risk assessment of the potential consumer health and safety concerns through the lens of the just and righteous thing to do to prevent loss of life may have pinched in the moment but likely would have lessened any long term bottom line impact.  In those instances, it is up to the legal department and those with a conscience to get the attention of someone who can make a change and a difference.

 

 

The Most Disturbing Facet of GM’s Ignitiongate

There are a number of posts that will likely be inspired by General Motors’ Ignitiongate probe led by Anton Valukas of Jenner Block.  But the one that just keeps bubbling to the forefront is this:  that the ignition malfunctions at the heart of this matter were not deemed safety issues by the auto giant and that the investigation report does not run down and document – or explain why it hasn’t – a fatal decision that delayed the eventual implementation of a long-overdue recall.

For those who have been in a coma for the past six months, the Ignitiongate problem arose in 2002, when a GM engineer approved and ignition switch that fell below the company’s own performance standards for the part.  Essentially, the ignition switches on the steering column of the Chevrolet Cobalt and other GM models that shared this common part were loose enough so as to allow the switch to move out of the “run” position and shut the car off while still in motion.

While admittedly only from a former shade-tree mechanic’s vantage point, think of it like this:

In almost every vehicle, a key goes into the ignition switch and is turned forward in order to start the car or truck.  Normally, there is a small amount of resistance built into the switch (presumably to defeat accidental starts) that has to be overcome by pushing the switch plate inward and forward at the same time in order to get the key into the “run” position.  In order to turn the vehicle off, a similar amount of resistance must be overcome (presumably to defeat accidental shut-offs).

The critical problem for GM in this instance was that the original ignition switch put into the vehicle models now subject to recall did not meet the tolerance level that would prevent accidental shutoffs.  In other words, the switches could slide from the “run” position into the “off” without overcoming the normal amount of resistance.  This shutting off of the vehicle – termed a “moving stall” by company engineers – could and did occur in a number of instances such as when a vehicle hit bumps in the road; when a driver’s leg bumped his or her keys while they were in the ignition; or even when the weight of a keychain jangled it out of position.

Characteristic of moving stalls was the loss of power to, and control of, some of the most critical systems of the vehicle.  It doesn’t take a mechanical engineering degree to comprehend that if and when a vehicle’s engine is shut down, not only is the power train affected.  The other vehicle systems that depend upon the engine to provide their power through the its belt configuration also lose functionality.  As one might expect, this would include the power steering and braking systems which transition from being operated with ease to requiring the strength of Hercules within seconds of shut-off.  Post-mortem investigations of crashed vehicles indicated that the air-bag system also shut down or off when moving stalls occurred.

In the wake of two moving stalls being reported in Summer/Fall, 2004, GM assigned engineers and quality assurance committees to look into the problem.  At that juncture, its people had to prioritize the nature of the problem on a scale of one (most serious) to four (least serious).  They called the moving stalls problem a “customer convenience issue” and not a safety issue and place it squarely at level three on the severity scale referenced above.  Had it been designated a safety issue, this would have triggered a reporting of the problem to the National Transportation Highway Safety Administration pursuant to the Transportation Recall, Enhancement, Accountability, and Documentation Act, 49 U.S.C. 30101-30170, and perhaps a recall of vehicle containing the faulty ignition switch.  This would have certainly lit a fire under GM to find and fix the problem or be hit hard in the pocketbook.  It also would have likely pulled defective cars off the road before fatalities started being seen.

As can be seen throughout the Valukas Report, the “customer convenience” label and low priority score dogged the ignition switch problem for an intolerable amount of time.  It also slowed to a crawl the solving of its riddle and the generation of a recall until early 2014.

The glaring question in all of this is:

What GM employee or committee in a sane and rational state of mind would label its unexpected shut-off while in motion a CONVENIENCE issue?  Which of them can – with a straight face – picture themselves driving down I-75 at 70 miles per hour only to lose steering, braking, the defroster’s blower motor, and the air bags, only to think, “Well, that’s inconvenient!”

Except it isn’t; it’s life and death and that makes it a SAFETY issue.

And this is certainly one place where the Valukas Report falls short.  With multiple individuals, committees, and departments dealing with deaths resulting from crashes involving Cobalts and defective ignition switches, it is inconceivable that there was not discussion of the problem among all of these personnel.  It is equally inconceivable that there was no discussion of the “convenience” versus “safety” determination in advance of it being made and in retrospect, particularly as people were dying in the wake of moving stalls.

So where are the e-mails referencing this critical decision and the undoubted revisiting of this issue at later dates and when the bodies began to pile up?

The Report concentrates heavily on GM’s lawyers and what they did do, could have done, and should do in the future.  Lawyers worth their salt are worrisome little creatures that ask a lot of questions and muse about “what ifs” ad nauseum.  In 2012, one of GM’s in-house attorneys wondered if this weren’t a safety issue and that a recall might be the solution.  Odds are others voiced the same concerns throughout the years – not just in Legal, but elsewhere – and that there are e-mails, memoranda, and correspondence to this effect somewhere in the halls or on the servers of GM.

The “convenience” over “safety” call was not only critical, but ultimately fatal to some GM customers.  Unless the automaker employed zombies, people within the company had to have talked about it and revisited that topic for years.  The investigators owed it to Mary Barra and the Board to determine who made that call, who knew about it and when – in Engineering, in Legal, in the business unit, and in the C-suite – and to produce documentary evidence to that effect or explain why there was none.

Bridgegate and the Work Product Doctrine

The ink was not yet dry on Gibson Dunn’s Bridgegate report, when New Jersey Senate Democrats began demanding access to the law firm’s file on the matter. The preceding sentence should have raised eyebrows among readers and had them uttering the term “work product” in exited tones. Thus, despite being out of the news cycle for some time now, the Bridgegate investigation presents a teachable moment in understanding why that protection might or might not apply.

In the immediate aftermath of the report’s release – whose 360 pages were quickly dismissed by state Democrats as “a whitewash – a top New Jersey legislator vowed to subpoena Governor Chris Christie’s office or Gibson Dunn if documents that supported the review were not handed over in short order. Assemblyman John Wisniewski, the co-chairman of the investigative committee, said at the time that the panel’s attorney, Reid Schar, was in active talks to obtain transcripts or recordings of the 70 interviews conducted by Gibson Dunn as part of its investigation.

As reported by capitalnewyork.com:

“Wisniewski said it was crucial the legislative committee know what was said in those interviews, which Mastro used to support much of the narrative presented in his report.

‘Those 70 individuals are not footnoted, nor are any summaries, transcripts, or documents related to those interviews made available,’ the Democratic lawmaker said of the report during a press conference in Trenton, where he was joined by the other chair, Democrat state senator Loretta Weinberg. ‘We’ve instructed our counsel to seek them out, either from Gibson Dunn or the governor’s office. We also gave a firm deadline, after which we will avail ourselves of the methods we have assigned to us by the resolution to compel production.’”

Toward that same end, Reuters reported that

“’We instructed our counsel to seek them out from either Gibson Dunn or the governor’s office,’ Wisniewski told reporters after a closed-door hearing on the matter by the committee leading the probe. ‘The ultimate tool the committee has is the subpoena authority which would compel the production of documents.’

In both the capitalnewyork and Reuters stories, as well as one that ran in the ABA Journal, the materials that lawmakers sought were described as “transcripts” and whether or not that is what they actually are will be critical to resolving the issue of legislators gaining or not gaining access to them.

At a very basic level, the “work product doctrine” protects the thoughts, notes, impressions, and strategies of attorneys as they work up a case for trial or other dispute resolution or administrative alternatives. It is safeguarded so as to keep lawyers from being compelled to tip their hands and show their plans of attack to opposing counsel.

“Transcripts” are not these types of materials. Rather, they are documentary evidence that, however created, are discoverable by opposing and outside parties. It matters not that they were created after the trigger event to which they speak or that they were created by or at the direction of lawyers. Nor does it matter if they were committed to videotape, audiotape, or simple paper. They are witness statements and as such are expectedly subject to discovery, subpoena, and other means of access.

It is interesting that the ABA Journal reported:

“Wisniewksi told Bloomberg that ‘whatever is in the notes should be fair game.’

If Gibson Dunn claims the notes are privileged communications or attorney work product, Weinberg told Bloomberg, ‘then the public cannot draw any conclusions that this report was done objectively’”

If what is sought by New Jersey legislators actually turns out to be Gibson Dunn notes – summaries of what witnesses said, descriptions of how they said it, and/or the related thoughts and ideas of the lawyers conducting the Bridgegate interviews – then the Wisniewski quote about these materials being fair game is likely wrong. They would customarily be considered as work product and protected, as described above.

Most current and former federal and many current and former state law enforcement officers have been trained to take annotated notes of the statements witnesses make and not transcribe what they say, precisely to avoid intentionally or unintentionally creating new documentary evidence. And although an internal investigation client can specify to the contrary and request transcription of witness statements, many – if not most – do not, in order to avail themselves of the protection offered by the work-product doctrine.

Patton Boggs with Chance to Set Self-Examination Trend

Law giant Patton Boggs took it on the chin at the end of last week, when word leaked out that it struck a deal to settle fraud claims brought against it by Chevron at the price of $15 million. As determined by a federal judge in New York, the firm picked the wrong Ecuadoran horse to hitch its wagon to and will pay the price for that. Patton Boggs – whose services include government investigations and white collar defense – might want to think about turning that practice group loose on the larger firm, in order to get out in front of any disciplinary inquiry that might be in the offing somewhere.

In 2010, Patton Boggs jumped onto a train of lawyers, law firms, and litigation funding groups that were involved in litigation in Ecuador against oil giant Chevron. In so doing, it joined forces with New York lawyer Steven Donziger, who spearheaded a case on behalf of Ecuadorans from the country’s Lago Agrio region that claimed they were affected by toxic sludge produced by Chevron. In 2011, the plaintiffs won a widely-reported $9.5 billion verdict against the oil producer in an Ecuadoran court.

Patton Boggs’ role was to help the plaintiffs draft a post-trial brief on the effects of Chevron’s toxic remains and to advise plaintiffs on their efforts to enforce the immense judgment in various parts of the world. It was later learned that the law firm’s compensation package for its services included up to a five percent (5%) stake – potentially as much as $475 million – in the judgment. The problem was that Chevron did not take the verdict laying down and immediately began to fight to overturn the verdict or otherwise check its collectability.

About the same time as Patton Boggs had come on board with Donziger and the Ecuadorans, the oil company hired a Gibson, Dunn & Crutcher team that knew how to ferret out bad actors. It was led by Randy Mastro, who was last seen in this corner captaining the “Bridgegate” investigation of the New Jersey governor, Chris Christie.

In 2011, Chevron commenced litigation against Patton Boggs sounding in fraud and simultaneously asserted racketeering claims against Donziger. The crux of these cases was that the $9.5 billion Ecuadoran judgment was obtained through bribery, collusion, and misrepresentations to Ecuadoran judges.

In reaching a decision on that issue, CNNMoney reported that:

“[Southern District of New York] Judge Lewis Kaplan ruled in March that Donziger had committed extortion, mail fraud, wire fraud, bribery, obstruction of justice, witness tampering, money laundering, and Foreign Corrupt Practices Act violations in the course of winning the $9.5 billion judgment, and that the entire 188-page Ecuadorian (sic) judgment had been secretly ghostwritten by the plaintiffs team – an accommodation achieved by its having promised the presiding judge $500,000 from any eventual recovery. Kaplan issued an order barring Donziger and his associates from attempting to profit from the case in any way.”

The New York Law Journal reported it this way:

“’The decision in the Lago Agrio case was obtained by corrupt means,’ the judge said.

Kaplan documented the global litigation strategy employed by Donziger and the entry of Patton Boggs into the case both as Donziger’s counterweight to Gibson Dunn and as a means for Donziger to obtain litigation funding.

Patton Boggs, led by [partner James E.] Tyrrell, [Jr.], authored the so-called ‘Invictus’ memo, which laid out a strategy of maximum pressure on Chevron by filing attachment actions in amenable jurisdictions, including those countries where the powerhouse lobbying firm could use its extensive contacts to work its influence.

In a separate lawsuit in 2012, Patton Boggs sued Chevron for execution of a $21.8 million bond, attorney fees, malicious prosecution and unjust enrichment for claims Chevron made against the firm.

In that lawsuit, Kaplan allowed Chevron in late March 2014 to pursue counterclaims against the firm that its lawyers made misrepresentations to Ecuadorian (sic) judges and engaged in other misconduct while attempting to enforce the $9.5 billion environmental judgment.

Shortly afterward, Patton Boggs retained Elkan Abramowitz, a partner at Morvillo Abramowitz Grand Iason & Anello. In late April, Kaplan dismissed all of Patton Boggs’ claims against Chevron.”

Seemingly reading the handwriting on the wall, Patton Boggs elected to settle with Chevron. In the settlement agreement that was made public last Wednesday, the firm agreed to withdraw as counsel in any litigation against Chevron related to the Ecuadoran case; pay the oil giant $15 million and assign to Chevron any money to which it would be entitled from representing the Ecuadorans; and help Chevron with discovery in continuing litigation against other parties. Additionally and in a rare move, Patton Boggs also publicly admitted regret for its role in the case. In turn, Chevron agreed to release any claims against the legal heavyweight and to a dismissal of the litigation in the Southern District.

Is this ugly episode over for Patton Boggs? One would think not. With domestic offices in five states and the District of Columbia, there ought to be one or more disciplinary inquiries are in the pipeline for individual attorneys involved in the Ecuadoran litigation or the firm as a whole.

Colleagues Donna Boehme and Joe Murphy like to point out that law firms – organizations like any other under the USSG – ought to not only talk the talk, but walk the walk and have their own robust Compliance functions, but frequently don’t. While the Patton Boggs website does not list such a department, it does boast a 54-lawyer strong Government Investigations and White Collar Defense practice group that could help it get bonus points for cooperation in any coming disciplinary inquiry by launching an internal probe of the firm’s involvement in the Ecuadoran litigation. Or it could make the more credible choice of engaging an outside law firm to do so.

A Decent Proposal: Joint Baseball Investigations

Last Thursday, The New York Times reported that Major League Baseball had decided to shake up its in-house investigative unit in the wake of the Alex Rodriguez doping inquiry. It looks as if future league investigations will be by some combination of inside and outside investigators. Here is an additional suggestion that can only add cooperation to their inquiries and confidence in their findings.

First, the back story:

As reported by The New York Times, MLB formed its investigations unit upon the recommendation of former Senator George J. Mitchell, who conducted an investigation that concluded in December 2007 with a report critical of the use of performance-enhancing drugs and blood-doping in baseball. Commissioned in 2008, it was headed by Daniel T. Mullin, a former New York City police officer with 23 years of service on the job, and its first big assignment was a big one.

Spurred by accusations in a weekly South-Florida newspaper, The Miami New Times, that a number of players – including New York Yankee superstar Alex Rodriguez – had taken banned substances provided by an area anti-aging clinic, Biogenesis of America, MLB dispatched its in-house investigators to prove or disprove the rumor. In retrospect, it’s hard not to visualize Chief Hooper seeing the monster fish and deadpanning, “You’re gonna need a bigger boat.”

The Miami New Times article claimed to have seen documents purportedly linking various MLB players to Biogenesis and this fast-tracked the league’s inquiry. According to The New York Times article:

“The report sent M.L.B. investigators on a chase to obtain the Biogenesis documents and to get information from Anthony Bosch, the clinic’s director, and the people close to him. Investigators, working for a private organization [MLB], did not have subpoena power to compel the cooperation of witnesses, making their efforts difficult.

Frustrated with the early progress, Selig decided to hire a second team of private investigators, baseball officials told The New York Times for an article published in November. Selig did not tell his in-house team that outside contractors had been hired.

Baseball officials also made other pivotal decisions around that time.

One was to retain Mark J. Sullivan, a former director of the Secret Service, to assist on the case and other matters. Sullivan, who had a 30-year Secret Service career, was in charge of Hillary Rodham Clinton’s security detail when she was first lady.

M.L.B. lawyers also sued Biogenesis, Bosch and a number of people connected to the clinic, using the case to gain leverage over them. Ultimately, Bosch cooperated and helped M.L.B. make its case against Rodriguez and a number of other players.

But in August, when Rodriguez and his lawyers began their [recent] appeal of his 211-game doping suspension, they began making claims about the conduct of M.L.B. investigators, particularly Mullin . . . [.]

A lawyer for a former Biogenesis employee told The Times that her client had become intimate with Mullin during the investigation. Mullin has denied through M.L.B. that he had an inappropriate relationship with the woman. The woman had accepted $100,000 from Rodriguez’s representatives in exchange for supplying evidence in the case.

Mullin, on M.L.B.’s behalf, paid $125,000 cash for documents in the case, meeting a witness at a diner in Florida for the exchange.”

The arbitrator presiding over Rodriguez’s appeal ultimately found the charges of improper conduct to be unfounded and upheld most of the original discipline – suspension for the duration of the 2014 season and postseason – against him. Nevertheless, MLB took action based on the actions of its people in conducting the probe.

Then, the results:

Mullin, his top assistant George Hanna, and investigator Ed Dominguez were let go by the league, although some investigators remain on staff. A spokesman said that Commissioner Bud Selig plans to hire a former prosecutor to oversee what remains of the department and that the league will hire outside contractors to assist in future investigations.

This is a terrific idea if the notion is to blunt allegations from players’ lawyers – and the Major League Baseball Players Association – of bias and heavy-handedness in coming probes. If MLB is committed to using outside firms to conduct future investigations, independence that both sides can agree on would be optimum. So for each incident requiring an investigation, perhaps the league and the union ought to draw outside providers from a common list, as is done for arbitrations and other forms of dispute resolution.

Mechanically, MLB and the MLBPA could have a common list of outside investigations providers. When they ultimately agreed upon a common firm, it would be retained to do the work and whatever its findings, the end product could hardly be complained of as biased. Efficient, independent and economical, it ought to be given a chance.

It’s got better odds than shooting at a scuba tank and making it explode in the mouth of an oncoming shark.

Internal Investigations and Privilege in Wake of Barko v. Halliburton

In some quarters, it has been trumpeted that the sky is falling because of the recent discovery ruling in Barko that touched upon attorney-client privilege and the work-product doctrine. While any inroads into the protections provided by those bastions of confidentiality ought to be tracked, a careful reading of this decision finds its reach to be very limited, indeed, but instructive for organizations embarking on their own internal inquiries.

In a qui tam case brought in the United States District Court for the District of Columbia, Plaintiff-Relator, Harry Barko, sought production of internal investigation reports from KBR relative to subject matter that was the basis of his First Amended Complaint. Defendants filed responses to these discovery requests and later confirmed that seven documents sought by Barko were being withheld pursuant to assertions of attorney-client privilege and the work-product doctrine. In response, he filed a motion to compel the production of them.

After Defendants filed briefs in opposition, the Court ordered KBR to produce the documents that it claimed were protected for in camera review. It was from that in camera review that Judge James S. Gwin issued an Opinion & Order (sic) denying the coverage asserted by Defendants and giving Barko access to the reports. That ruling, however, was heavily fact-driven and limited to this case.

The yields from these reports were termed “eye-openers” by the Court and revolved around reviews of a KBR sub-contractor that:

• paid off KBR employees in order to have them steer business to it;
• was fed competitive intelligence and allowed to submit late bids after proposals from other companies had been      received;
• continually received contracts despite terrible performance and regular attempts at double-billing;
• failed to complete a time-sensitive job on time, but was still paid the full contract price; and,
• while the low bidder on a contract, benefitted from unbid KBR change orders that ballooned costs to its benefit.

The Court noted that in order to prevail on an assertion of the attorney-client privilege, the party invoking it must show the communication is “for the purpose of securing primarily either (i) an
opinion on law or (ii) legal services or (iii) assistance in some legal proceeding.” In order to
determine the primary purpose, the “but for” formulation is used, meaning that “the communication would not have been made ‘but for’ the fact that legal advice was sought.”

In applying this rule to the case at hand, Judge Gwin found that the internal probes in question – conducted pursuant to KBR’s Code of Business Conduct – failed that test:

“KBR fail[ed] to carry its burden to demonstrate that the attorney-client privilege applies to the COBC documents. Most importantly, the Court finds that the COBC investigations were undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.

Department of Defense contracting regulations require contractors to have internal control
systems such as KBR’s COBC program to ‘[f]acilitate timely discovery and disclosure of improper conduct in connection with Government contracts.’ These regulations further require a ‘written code of business ethics,’ ‘internal controls for compliance,’ ‘[a] mechanism, such as a hotline, by which employees may report suspected instances of improper conduct,’ ‘[i]nternal and/or external audits,’ ‘[d]isciplinary action for improper conduct,’ ‘[t]imely reporting to appropriate Government officials,’ and ‘[f]ull cooperation with any Government agencies.’

KBR’s COBC policies merely implement these regulatory requirements. The COBC investigation differs from the investigation conducted in Upjohn. The COBC investigation was a routine corporate, and apparently ongoing, compliance investigation required by regulatory law and corporate policy. In contrast, the Upjohn internal investigation was conducted only after attorneys from the legal department conferred with outside counsel on whether and how to conduct an internal investigation. As such, the COBC investigative materials do not meet the ‘but for’ test because the investigations would have been conducted regardless of whether legal advice were sought. The COBC investigations resulted from the Defendants need to comply with government regulations.

That employees who were interviewed were never informed that the purpose of the interview was to assist KBR in obtaining legal advice further supports that the purpose of the investigation was for business rather than legal advice. The confidentiality agreement employees signed never mentions that the purpose of the investigation is to obtain legal advice. Rather the confidentiality statement emphasizes the ‘sensitive’ nature of the review and warns the employee of the possible adverse business impact unauthorized disclosure could have on KBR’s work in the Middle East Region. Moreover, ‘employees certainly would not have been able to infer the legal nature of the inquiry by virtue of the interviewer, who was a non-attorney.’”

[Footnotes omitted.]

Alternatively and under the work-product doctrine, the results of these investigations would have been protected had they been or contained an attorney’s “mental impressions, conclusions, opinions, or legal theories” prepared in anticipation of litigation. In the D.C. Circuit, this would have required the reports to survive the “because of test” which asks “whether, in light of the nature of the document and the factual situation in the particular case, the document can fairly be said to have been prepared or obtained because of the prospect of litigation.” This requires the subjective belief by an attorney that litigation was a real possibility, and that belief must be objectively reasonable.

Once again, KBR’s argument fell short:

“As the Court already discussed in the application of the attorney-client privilege, KBR conducted this COBC internal investigation in the ordinary course of business irrespective of the prospect of litigation. KBR would not have ‘simply sat on its hands in the face of these allegations’ because ‘any responsible business organization would investigate allegations of fraud, waste, or abuse in its operations.’ Moreover, government regulations required KBR to investigate potential fraud.

The timing of the investigation compared to the actual unsealing of the lawsuit further supports the conclusion that the investigation was not conducted ‘in anticipation of litigation.’ The investigation was conducted from 2004-2006. However, the complaint in this litigation was not unsealed until 2009. Finally, the fact that the investigation was conducted by non-attorney investigators makes it harder for KBR to assert the documents were prepared in anticipation of litigation. While documents produced by non-attorneys can be protected under the work-product doctrine, the fact that non-attorneys are conducting the investigation is another indication that the documents were not prepared in anticipation of litigation.”

[Footnotes omitted.]

Because this ruling was fact-driven and limited to this case, reports of the demise of attorney-client privilege and the work-product doctrine are greatly exaggerated. Still, there is some critical guidance and an important lesson in this ruling. The takeaway is that organizations should differentiate between audits required by regulatory or contractual provisions on one hand and bona fide internal investigations on the other and provide for them accordingly.

The former will be characterized by:

• the periodic, routine, and mandatory nature of those reviews;
• their origination from, and reporting to, someplace other than the law department; and
• the predominance of non-lawyer investigators and lack of direct supervision by attorneys.

The latter will feature:

• individual, fact-triggered investigations of suspected wrongdoing for purposes of securing legal advice and/or in anticipation of litigation;
• the communication of Upjohn warnings to employee-witnesses about the nature and purpose of the inquiry;
• origination with, and reporting back to, in-house or outside counsel; and
• the heavy presence of lawyer-investigators and direction and supervision of the overall internal probe by attorneys.

Where protection of results is at issue, audits or reviews falling into the first group will likely receive the same treatment as KBR’s got, while internal investigations falling into the second one will have a far greater chance of being shielded from disclosure, be it in discovery or elsewhere. Organizations are reminded to scope, plan, and implement their internal inquiries carefully and with this facet of the big picture in mind.

PSU–Altoona Suicide Merits Joint Hazing Probe

It’s not as if a Penn State campus needs another internal investigation, but one in ongoing at Altoona in the wake of a suicide that has fraternity hazing overtures.  And while PSU-Altoona is not on as hot a seat as the Greek organization to which the deceased belonged, a joint internal probe by the school and Phi Sigma Kappa would be a terrific idea, from an operational and strategic front.  Indeed, even the victim’s father would seem to be inclined ensure familial cooperation to the effort.

This regrettable story began long before the death of Marquise Braham, a freshman at PSU-Altoona this year. 

Rich Braham, managing editor at ABC News in New York, described his son as a wonderful, kind soul, who was loved by all who knew him.  His life ended tragically, when he threw himself off a Marriott Hotel on Long Island last week. A freshman majoring in biomedical engineering that had a partial scholarship and was studying to be a resident assistant, Marquise was just 18 years old.

His father told The Daily Collegian that his son pledged Phi Sigma Kappa during the fall semester and became a brother in the spring.   Rich Braham and his wife were not thrilled with their son joining a fraternity; they preferred him to concentrate on his studies instead.  As to that Greek life and his son’s death:

“[Although] his son never told him about having trouble with the fraternity, [Rich Braham and his wife] have since read text messages between Marquise and friends about problems regarding hazing.  ‘He never spoke about the hazing process to me very much,’ Braham said. 

He said his son told a friend from high school about hazing, including games where pledges had to drink until they vomited, a process that was repeated multiple times.

Braham said he’s also read in the text messages about other instances of hazing involving cocaine use, smoking marijuana and having to rob a store for a small item like a bag of chips while wearing a ski mask.

There have also been texts the family read that show there were competitions involving drugs and alcohol between other fraternities, Braham said.

Marquise did not show signs of being suicidal while home on winter break, he said. But his father said there are text messages that show Marquise not wanting to have to go back and have to haze others, to become their ‘torturers,’ now that he was a fraternity brother.

On Tuesday, March 11, during spring break, Marquise became intoxicated and tried to jump from the [Long Island Marriott] hotel roof, but passed out and wound up going to the hospital, Braham said. Even hours later, Braham said his son’s blood alcohol level was twice the legal limit and doctors said it could have killed him.

[Mother and father] thought maybe their son had a drinking problem and spoke with him about it, Braham said. Marquise had lunch with his mom that Friday and Braham said they had a ‘wonderful’ lunch, but it was later that night when he again went to the hotel, this time taking his life.

‘He then went back to the Marriott Hotel, and he jumped,’ Braham said. ‘I think he didn’t want to go back to Penn State, and he jumped.’”

In the immediate aftermath of Marquise’s death, the Logan Township Police Department began investigating possible criminal implications and Chief Ron Heller confirmed that his department would also look into any correlation between Marquise’s death and the fraternity.

PSU-Altoona put the fraternity on suspension the following day, after announcing that is possessed “sufficient evidence and information” that the school’s code of conduct had been broken. Spokeswoman Shari Routch also indicated that the university would ‘[support] the authorities as they conduct their investigations into this matter,’ which doesn’t sound like the school is conducting its own inquiry into what occurred and why.

Michael Carey, executive vice president of Phi Sigma Kappa, told CNN.com that the national fraternity was ‘aware of the serious allegations’ against its members; urged those members to cooperate with law enforcement officials, and was also was conducting an internal investigation.  By whom and from where was not made know.

All this said, it would be a very good idea for PSU-Altoona and Phi Sigma Kappa to join forces and conduct a vigorous probe to identify breakdowns –if any – in each of their codes of conduct and then take remedial steps to correct any endemic issues that might permit a tragedy such as this to occur again.  This would maximize cooperation leverage and likely get to some real truths about what happened, how, and why.

Further, it would likely garner voluntary cooperation by those in the circle of Braham family and friends who are not members of the PSU-Altoona and Phi Sigma Kappa students but have valuable evidence in this matter.  Rich Braham’s point in speaking out has been and continues to be in order to get to the truth.  He said, “I’m not just a grieving dad, I’m trying to save lives by going to the public.”

All three of these interested parties working together can get to that truth and benefit all of their causes.

NFL Union’s Freeman and Jackson Investigations Suffer

According to watchers in the media, the National Football League Players Association is behind schedule in completing two investigations that it is pursuing, one involving free agent quarterback Josh Freeman and the other surrounding Washington Redskins receiver DeSean Jackson.  While the former probe does not lack the appropriate subject matter, the latter probably does.  Both suffer from a lack of effectiveness reminiscent of the Bullygate investigation of the Miami Dolphins by the league.

Last September, the NFLPA launched an inquiry into how and from whom ESPN sourced a report that Freeman – then the Tampa Bay Buccaneers signal-caller – was in Stage 1 of the league’s drug treatment program.  The correspondent who reported the same was Chris Mortensen, a fellow who has been around the league for many years and has cultivated sources deep within the NFL and its teams.

The unauthorized disclosure of Freeman’s medical history would violate a number of federal and state privacy statutes; league and team rules; and, likely, the collective bargaining agreement between the NFL and the players’ bargaining unit.  Everyone from the source of the leak on down to Mortensen would have potential criminal or civil liability for every disclosure and re-disclosure that occurred.  This is serious stuff that is not only worthy – but demanding – of an internal investigation.

The DeSean Jackson matter?  Not so much.

In that case, the NFLPA announced last month that it was investigating “misinformation” that was provided to NJ.com regarding the wideout’s alleged ties to the Crips street gang in California.  Other media outlets simultaneously reported that it was LAPD who had notified Jackson’s then-team, the Philadelphia Eagles, that he had been connected to the group.  While such information certainly could be embarrassing to Jackson and costly to him in terms of future contract monies, the dissemination of it – right or wrong – likely violates no law or league or team policy.  And it certainly is not the right grist for the internal investigations mill.

Despite the first probe being on solid subject matter ground while the second one isn’t, neither is going anywhere fast or substantive and that is because – like the NFL in the Dolphins’ matter – the union possesses no leverage to compel cooperation.  It obviously realized this early on, when it formally asked the league to conduct a joint investigation into the Freeman matter.  According to a story at NFL.com:

“According to two union sources, the NFLPA wants a joint investigation for two reasons. First, the union has no power to compel Buccaneers officials to talk, and would like – short of interviewing management itself – to be able to sit in on the interviews to see what questions are being asked. Second, the NFLPA conducted research last week into previous cases of confidentiality breaches and found no evidence of the league having sanctioned a club in such a circumstance, or even having vigorously pursued a case.

Specifically, the union wants to look into the role of Tampa Bay coach Greg Schiano in the leaks. Schiano adamantly has denied playing a part in the information becoming public, and a Buccaneers spokesman said Sunday morning that the team won’t address the situation again until, at least, after the team’s home game against the Eagles. 

According to a union source, the NFLPA has information indicating that Schiano shared confidential information about Freeman with some of Freeman’s teammates. [Emphasis added]”

No power to compel Buccaneers officials to talk.  Exactly.  And the same holds true in the Jackson matter, where the union would also have liked some league help.

The NFLPA can surely compel its own members – Freeman’s then-teammates on the Buccaneers and Jackson’s on the Eagles – to talk to its investigators, but only the league and the teams can make the balance of critical witnesses cooperate in joint probes.  In these two instances, the NFL, Buccaneers, and Eagles have seemingly declined the union’s solicitation of group efforts and – like in the Bullygate case – the internal investigations that were promised become more sizzle than steak.

Law Firm Looks Conflicted in GM Probe

It has been said that even a blind squirrel finds a nut every now and then. Adjusting for the times, it has also been said that if you give laptops to a bunch of monkeys, they will eventually write great novels. So there is a chance that those types in Congress and at the Department of Justice will be able to find the glaring conflict of interest in General Motors’ selection of at least one of its outside internal investigations counsels, even if the company and others apparently cannot.

Staring down House and Senate investigations and a DOJ-initiated criminal probe, GM laudably decided to conduct its own inquiry and retained two well-know, large firms to do so. While they both have outstanding people with tremendous skill sets to do such work, the engagement of Jenner & Block and King & Spalding is confounding from a conflict-of-interest perspective. Especially King & Spalding.

On Monday, Corporate Counsel reported that GM’s in-house and outside counsel were slowly being pulled into the ignition switch scandal, after House and Senate hearings revealed that they apparently played a role in delaying a recall while quietly settling crash lawsuits. In one hearing, Senator Claire McCaskill (D-Mo.), said company’s lead switch engineer lied in a deposition, implying that engineering was trying to hide the defect by replacing a faulty part while not assigning a new part number.

Per the same article:

“GM chief executive Mary Barra on Wednesday tried to explain to the Senate how the legal department could know about defects but failed (sic) to share that information – information that could have saved lives. Barra, at GM for 33 years, was an executive in the manufacturing and engineering division before becoming CEO in January.

‘Within GM there were silos, where information was known in one part of the business, for instance in the legal team, but was not communicated to the engineers,’ Barra said.

Calling the engineer a liar, McCaskill said internal GM documents show the engineer had signed off on the change [that he supposedly denied in his testimony]. GM was represented at the deposition by a lawyer from King & Spalding, McCaskill said, and she demanded to know whom that lawyer reported to (sic).

Barra said she didn’t know, and at one point McCaskill invited her to consult with GM general counsel Michael Millikin, who was sitting behind her at the hearing. She didn’t move, but instead offered the information ‘silos’ answer.

McCaskill wasn’t satisfied. ‘I guarantee you if I’m lawyer at a deposition where this bombshell is dropped … I’m on my cellphone in the lobby saying to GM ‘we have a problem,’ McCaskill said. She insisted again on knowing to whom at GM the lawyer reported.

Barra finally responded, “It would have been the senior legal team.” Several other lawmakers also questioned why GM’s general counsel didn’t immediately alert the CEO about the deposition bombshell. One said at some point Congress might want to speak with GM’s lawyers. [Emphasis added.]”

Legal ethics experts consulted by Corporate Counsel fretted about Jenner & Block’s involvement:

“[The] internal investigation itself has come under question because GM didn’t hire an independent investigator. Instead Barra named Milliken, along with outside counsel Anton Valukas of Jenner & Block, to lead the internal probe.

Millikin, like Barra, is a longtime GM employee, and Valukas is Jenner & Block’s chairman. The law firm has a long-standing relationship with GM. Millikin’s predecessor as GC was Robert Osborne, who came from Jenner & Block and returned there in 2009 after guiding GM through its bankruptcy. Osborne remains of counsel with the law firm in Washington, D.C.

Another former GM general counsel in the 1980s, Elmer Johnson, eventually worked for Jenner & Block after leaving the company. He died in 2008.

The other law firm helping with the internal probe is King & Spalding, which also has a close relationship with GM. It helped guide the auto company through its 2009 bankruptcy and subsequent U.S. bailout.

Critics question how Millikin or those law firms can be objective about their investigation.

‘To me, there’s a conflict of interest,’ Monroe Freedman, a legal ethics expert and law professor at Hofstra University School of Law, told Reuters. ‘A reasonable person might question whether [Jenner & Block] wants to curry favor with GM, so it can maintain a good relationship or obtain future work.’

But GM spokesman Selim Bingol told Reuters there is no conflict of interest, and Valukas ‘has been charged to go where the facts take him and give the company an unvarnished report on what happened. He is the ideal person to do that, given his understanding of our business and his reputation for adhering to the highest standards.’

Richard Painter, a professor at the University of Minnesota Law School, told Reuters that if GM wanted to reassure shareholders, it should hire an independent law firm. ‘But they may want to disclose just enough to keep shareholders informed, and keep other things private to keep legal defenses available to them,’ he added.”

Good points to be sure, but – hello, McFly – doesn’t anyone else see the 800 pound gorilla in the room that is King & Spalding? You know, the firm whose investigation now has to include its role in counseling or at least being cognitive of the strategic or tactical decision of GM’s lawyers not to share information with its engineers that might have saved lives?