D.C. District Judge enforces administrative subpoena in fraud investigation

by Ben Vernia | November 27th, 2012

On November 21, in U.S. v. ISS Marine Services, Inc., D.C. District Judge Beryl A. Howell granted the government’s petition to enforce an administrative subpoena issued by the Department of Defense to a British marine services company.

The firm had conducted an internal audit after two employees visiting company facilities in Dubai and Bahrain had made observations that raised concerns about potential liability for fraudulent conduct. A company executive approached its outside counsel, but the firm ultimately decided to perform the internal audit itself (although company witnesses differed in the outside firm’s role).

The government subpoenaed documents relating to the issues, and petitioned to enforce its subpoena when the company claimed privilege over the internal audit. Judge Howell reviewed the company’s claims for both attorney-client privilege and attorney work product, and found both insufficient.

With respect to the attorney-client privilege, Judge Howell wrote:

At bottom, the respondent’s claim to privilege appears to be premised on a gimmick: exclude counsel from conducting the internal investigation but retain them in a watered-down capacity to “consult” on the investigation in order to cloak the investigation with privilege. Unfortunately for the respondent, this sort of “consultation lite” does not qualify the Audit Report for the protections of the attorney-client privilege.

Overall, she concluded that the company had failed to carry its burden to establish that it intended to seek legal advice.

Judge Howell likewise rejected the company’s claim for attorney work product. Again, she noted that the company’s minimal involvement of counsel jeopardized its claims that the documents were prepared in anticipation of litigation:

In light of these two factual considerations—the obvious business purpose for the document and the minimal involvement of counsel in supervising the preparation of the document—the respondent’s burden becomes more arduous. Indeed, the respondent finds itself in a position where it must present evidence that persuasively explains how the Audit Report could have genuinely been prepared in anticipation of litigation despite the fact that the attorneys’ role was intentionally minimized in the internal investigation, and the company had an obvious non-litigation reason for conducting the investigation. Although it might be possible for a corporation to come forth with evidence sufficient to overcome this importunate factual predicate, it suffices to conclude that the respondent has wholly failed to do so here.

Judge Howell also found that, even assuming the report was protected by the work product doctrine, the government had established its substantial need for it.

Leave a Reply

Recent Posts

Recent Comments