General Publications July 29, 2015

“Managing a Company’s Internal Environmental Investigation,” Law360, July 29, 2015.

Extracted from Law360

A company’s internal investigation into alleged environmental violations is fraught with risk, particularly for allegations involving harm to human health or the environment or involving knowing conduct. In the early stages, it is often not clear whether the U.S. Environmental Protection Agency or a state agency is aware of the violation and whether they may be doing their own investigation. Employees having the most knowledge of events may either be whistleblowers or the supervisor of a whistleblower, both of whom may bring their own agenda to the investigation. Company policy may require or favor transparency in disclosing the results of an investigation to a government agency, in which case use of the attorney-client privilege may not always be an option.

Given these potential pitfalls, we provide the following guidance for environmental managers and in-house counsel faced with conducting an internal investigation into serious environmental violations. Following these tips will help a company minimize risks during the course of the investigation and in any follow-up interaction with the EPA or state agencies.

Treat the Whistleblower’s Allegations Seriously

The temptation to immediately discredit a whistleblower’s allegations can be strong. Often there is a supervisor who may be aware of the allegations and has already started a discrediting campaign. In smaller companies, corporate counsel may even have some knowledge of the whistleblower because of past employment problems. Failure to conduct a thorough investigation into a whistleblower’s allegations because of perceived lack of credibility is a critical mistake. This is particularly true if the whistleblower has reported the violation through a company hotline or other established self-reporting procedure. Whistleblowers often report violations not only to the company, but also to outside sources.

A wise policy is to assume that the EPA or a state agency may have learned about the violation at the same time as the company and that the authorities will not only investigate the alleged violation, but also the adequacy of the company’s response to the allegation. Often the government’s evaluation of a company’s response will be biased toward the whistleblower since it may only know his or her side of the story. Conducting the investigation as if you have an EPA investigator looking over your shoulder will go a long way toward demonstrating that the company’s response to the allegation was robust and responsive. This is not to suggest that a whistleblower’s allegations be given any more credit than they deserve, only that a proper investigation using proper protocols should be conducted.

Don’t Personalize the Investigation

Tension within the corporate ranks may run high during the initial phase of an internal investigation. This is understandable as employees face potential termination if they are found to be accountable for the alleged violation. In-house or outside counsel conducting internal investigations should do so as dispassionately as possible. The more an attorney attempts to mollify an employee’s concerns by downplaying the potential consequences, the greater the chances of having to contradict those assurances in the future.

The better course is not to speak specifically about the potential consequences of the investigation until decisions are reached. The failure to provide assurances to employees who are the subject of the investigation, be they a whistleblower or manager, may lead to attacks on the investigative team. Counsel should do their best not to take the criticism personally and continue to investigate the matter in a dispassionate manner. This may be difficult, but the company, its employees and the outside agencies will appreciate the objectiveness of your investigation in the long run and will be more trusting of any future investigations or reporting you undertake.

Navigating Corporate Oversight of the Investigation by Those Involved in the Conduct

There are few things more difficult to manage than a company officer or officers who were involved in an alleged violation and who also hold a corporate position that allows for oversight of outside counsel or general counsel conducting the internal investigation. As one can imagine, the officers involved stand to suffer severe adverse consequences from the investigation and may take steps to thwart the investigation or keep the violation from being uncovered. This situation puts outside counsel in a very precarious situation. In some instances, for example with a small company, it may be unavoidable but to have the company president or general counsel who may have had involvement also be in the internal investigation reporting chain. That is a dynamic that creates ethical and legal dilemmas that even the most experienced attorneys have difficulty navigating.

In our experience, it is better to set the parameters of the corporate oversight and reporting chain for purposes of the internal investigation early on and ask questions that might help you make decisions about who to remove from the onset. It may not always be evident who in the reporting chain had involvement at the start of an investigation, but once that is learned, then an effort must be made to have that person removed from oversight of the investigation.

In one case involving the authors, an attorney for the company who had been advising the company on environmental compliance in areas where the violations occurred was also involved in overseeing the investigation and was present during outside counsel’s progress reports on the investigation. Until that attorney was removed from the reporting chain, outside counsel had a very difficult time reporting to the company on facts where the attorney was involved. In that matter, the attorney was never charged or disciplined for the violation, but his presence in the meetings made for a difficult dynamic that hampered the company’s ability to timely and fully respond to the allegations.

Transparency with Government vs. Preservation of Privilege

In most instances, company senior management will want the internal investigation conducted under the corporation’s attorney-client privilege. Recent case law supports the use of the privilege even in circumstances where the company was required to undertake the investigation pursuant to corporate governance policy. The D.C. Circuit held that if one of the significant purposes of the internal investigation is to obtain or provide legal advice, the privilege applies. In re Kellogg Brown & Root, 756 F.3d 754, 760 (D.C. Cir. 2014). The mere fact that the investigation was required by corporate governance policy does not prevent in-house counsel from invoking the privilege when conducting the investigation. Id. In contrast to this ruling, a growing number of international corporations, particularly those with headquarters in Europe, have corporate policy favoring transparency over privilege. In such cases, in-house and outside counsel may experience difficulty seeking corporate authority to conduct an internal investigation under a privilege.

Unless the corporate policy is absolute, in-house counsel should advocate for use of the privilege when conducting U.S.-based internal investigations. A company can always choose to waive the privilege if it decides to disclose its finding to the government, but it loses that option if it never invokes the privilege in the first place. Where the privilege cannot be invoked, it is best to minimize the amount of paperwork generated as part of the investigation and where possible to invoke the work-product privilege for documents created by counsel. The more that can be accomplished through verbal communication and the work-product privilege, the less paperwork will be produced that can become potentially subject to disclosure. On the other hand, attempts to conduct an internal investigation without generating any paperwork can hamstring the investigation and lead to counsel having a less than clear record of what witnesses said. There may be smaller investigations where no paperwork need be generated, but as a rule the better practice is to minimize rather than completely eliminate.

If Self-Disclosure Is Required, Carefully Consider to Whom the Company Will Self-Disclose

If a decision is made to self-disclose a violation, a major consideration is to which entity or entities the disclosure should be made. In some instances, this will be an easy decision. For example, under the EPA’s new eDisclosure policy set to take effect this fall, disclosures of most Emergency Planning and Community Right-to-Know Act violations (known as Tier 1 violations under the policy) will result in automatically generated electronic notices of determination that the agency has resolved the violation without civil penalty. In other situations, the statute will dictate the reporting entity. Spills subject to the Comprehensive Environmental Response, Compensation, and Liability Act must be reported to the National Response Center. See 42 U.S.C. § 9603(a). More often, however, the spill or event that may be the subject of the violation will have occurred in the past and not be ongoing, and a company will have more discretion about where to report a violation.

For nonegregious violations, if the EPA has delegated compliance of a particular program to a state agency, your best option will be to report to that state agency. For example, if a decision is made to self-report a historic Clean Water Act discharge that occurred in a delegated state, you should report to the state agency. This may seem counterintuitive, as eligibility under the EPA’s self-disclosure policy requires disclosure to the EPA. However, our experience has been that the EPA will simply choose to allow the state agency to handle the disclosure, and the company will never face any federal enforcement.

This strategy may not apply as the nature of the violation becomes more egregious. The more serious the violation, the more likely it will draw attention from federal authorities and the EPA. If you can anticipate some federal involvement as a result of the self-disclosure, the better practice is to make a simultaneous disclosure to federal, state and any appropriate local authorities. This will avoid the situation of having to “back into” the self-disclosure with agencies that were not originally notified.

There is no hard-and-fast rule as to when a violation becomes serious enough to require simultaneous self-reporting to state and federal authorities. Certainly any violations that involved intentional criminal conduct or had a significant potential to harm human health or the environment would warrant simultaneous reporting. In contrast, paperwork violations should be disclosed to a delegated state agency in programs where the state has been delegated authority. The range of violations in the middle must be evaluated on a case-by-case basis, preferably with input from counsel who have experience with self-disclosing violations.

Meet the Authors
Media Contact
Alex Wolfe
Communications Director

This website uses cookies to improve functionality and performance. For more information, see our Privacy Statement. Additional details for California consumers can be found here.