Critics assail the nature of Michigan State University (MSU)’s engagement last year of prominent former prosecutor, Patrick Fitzgerald, in connection with the misconduct of MSU’s former employee, serial gymnastics molester Larry Nassar. These detractors protest that Fitzgerald’s sole purpose is really to shield the university from liability rather than to conduct an independent investigation with a report detailing how this travesty could have happened and how MSU will protect its student-athletes going forward. But MSU is in the midst of a crisis of public confidence as well as defending itself in more than a hundred lawsuits commenced by many of Nassar’s victims. No doubt the institution decided, on advice of counsel, that a truly “independent” investigation was not the way to go when it hired Fitzgerald. When a business is faced with claims of sexual misconduct, sexual harassment, or, for that matter, most other civil claims not involving regulatory compliance and self-reporting situations, there are times when an independent investigation is the best path forward. But there also are times when it is absolutely not. (This article does not cover instances where an internal investigation by an independent counsel is required by law, such as those set forth within §§301, 302, and 307 of the Sarbanes-Oxley Act (15 U.S.C. §78j-1), or where such an investigation is necessary pursuant to voluntary disclosure programs used as enforcement mechanisms by the SEC and the DOJ in the calculus of cooperation credit determining damages or penalties.)
An internal claim of workplace misconduct, such as sexual harassment by a senior company officer, that arises out of the blue and catches management by surprise is likely a circumstance best suited for an internal investigation by independent counsel. This is because no matter what the outcome of the investigation, the fact that an unbiased counsel wholly independent from the company was hired to investigate the facts will best defend against any attack that the investigation process and its findings were predisposed in favor of the company and is therefore unreliable. Although a corporate client and its in-house counsel may feel more comfortable keeping the review in-house, or having its regular outside counsel conducting the internal review, that sentiment must take a back seat to sound strategy. Any time an adversary’s compelling argument can be neutralized, it is in the best interest of the client to ensure that it is. Furthermore, if a troubling pattern or disturbing set of facts unexpectedly emerges from the investigation, the client is no worse off by having the investigation performed by qualified independent counsel. Indeed, any resultant course of action can still involve advice from regular counsel. But since one side or the other will likely be unsatisfied with the outcome, any challenge to the investigation process that it was unfair and predisposed is best met with an independent counsel. Under any scenario, the investigator should maintain the company’s right to its attorney-client and work product privileges by invoking the Upjohn warnings before the interview of each employee witness. These warnings state: that the attorney-client relationship, and any attorney-client privilege, is actually between the lawyer and the company and does not include the individual; that it is the company that has the right to decide whether it will waive the privilege and disclose anything said by the individual during that interview to a third party; and that the individual is required to keep anything said in that interview confidential. Upjohn Co. v. United States, 449 U.S. 383 (1981). Any report from the investigation and any documents created that are related to the report, unless disclosed by the client or counsel, should also be safeguarded and covered by the privilege and work product doctrine. See Johnson v. J. Walter Thompson U.S.A., No. 16 Civ. 1805 (JPO) (JCF), 2017 U.S. Dist. LEXIS 126185 (S.D.N.Y. Aug. 9, 2017). Importantly, as if to prove the above point, in the J. Walter Thompson action, the law firm investigating a sexual harassment claim against the advertising firm’s CEO was hired as an independent outside counsel. Id. Its final report, drafts, and documents created as a result of the investigation were upheld as privileged by the court, which specifically acknowledged that the company also had its regular outside counsel advising at every step. Id. Evidently, by proceeding with an independent counsel to neutralize the bias argument, a company is best postured to release—or not release—its findings and to take appropriate action without opening the client up to the claim that the lawyers are solely out to protect the company.
There are times, however, that the hiring of a law firm to conduct an independent investigation and to generate a report of findings is not the best course of action when a claim is first raised. Whenever a claim of misconduct in the workplace has enough credibility to cause immediate concern of serious liability, or certainly in a case like at MSU where the claims are so egregious that it has reached a point of crisis for the institution, the internal investigation should be undertaken by a law firm hired specifically to analyze the evidence and prepare the appropriate defenses. Whether the investigating firm has a long-lasting attorney-client relationship with the company, or, like Fitzgerald, the attorney is engaged specifically for his expertise in the field, independence of the investigation is not the issue. Rather, the point is to expertly discover the evidence that will need to be understood, to develop a strategy to deal with the results in the short-term, while simultaneously preparing to meet it intelligently in the lawsuits down the line. Upjohn warnings and privilege maintenance will be of paramount concern in the investigation. Counsel must be careful in assessing how to share, if at all, privileged material so as to avoid waiver of the privilege as to materials and perhaps as to subject matter. A written report, moreover, is unlikely—and probably ill-advised—because if any challenge to the safeguarding of the privileges proves successful, it could become a gold mine for the adversary in litigation to the detriment of the client. As such, it is not surprising that Fitzgerald did not prepare any report of his findings to MSU, nor did the engagement agreement of his law firm make any mention of a report. Indeed, in these matters, defense is the primary objective.
Whether the workplace claim sounds in discrimination, sexual harassment, or some other civil claim involving management, the analysis of whether to hire outside counsel to conduct an internal investigation must be made in short order at the outset. The pros and cons as to whether an independent outside counsel is in the client’s best interest will vary as befits the known facts. Under most circumstances, independence is likely the best path forward. But where the evidence demonstrates that a powder keg is lit, as it was at MSU, the appointment of a strong defense counsel is the primary concern, outweighing independence. Given the position it was in, Michigan State University was not wrong to concentrate on defending itself in the manner that it has. This allowed the institution to benefit from an understanding of the facts as uncovered by Fitzgerald, and to plan a course of conduct in the short term, while preparing for the worst in the litigations to come. Indeed, MSU recently hired the investigations company Kroll, Inc. “to serve as an independent third party to help investigate complaints filed under MSU’s Title IX Relationship violence and Sexual Misconduct.” (http://msutoday.msu.edu/news/2018/msu-hires-firm-to-help-promptly-investigate-reports-of-sexual-assault-harassment/). It appears that having had the benefit of Fitzgerald’s work to date, the short term course of conduct is unfolding, while a resolution of litigation is still to come. Bill Moran is a Director in the Commercial & Criminal Litigation Department of Gibbons P.C. in New York focusing on Crisis Management, Internal Investigations, and Litigation.