Corporate Investigations

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The Federal Trade Commission’s Bureau of Competition and the Department of Justice Antitrust Division released a joint statement reiterating document preservation obligations for companies and individuals that are the subject of government investigations and litigations, emphasizing messaging platforms, such as Slack and Google Chats, that automatically delete communications. Both agencies announced updated language in their standard preservation letters, specifications for “second requests” used in pre-merger review under the Hart-Scott-Rodino Act, voluntary access letters, and grand jury subpoenas, to address these instant messaging platforms. The agencies emphasized that companies’ obligation to preserve information on such platforms is nothing new, explaining their clarification is to prevent companies from feigning ignorance if communications are not preserved after preservation obligations are triggered.

A parent corporation is typically not held liable for the acts of a subsidiary. As such, disregarding the corporate form (i.e., by piercing the corporate veil) and holding the parent liable is an extraordinary remedy. That said, if a parent company exercises enough control over a subsidiary, however, courts may hold the parent liable. Because there is often some degree of overlap between a parent and its subsidiary, a question courts are often faced with is just how much control is enough to justify imposing liability on a parent for its subsidiary’s actions?

In the recent case of Kyla Shipping Co Ltd v Freight Trading Ltd [2022] EWHC 376 (Comm) the English Commercial Court rejected a claim to litigation privilege over preliminary investigations conducted by a party appointed expert on the basis that litigation in respect of the matter being investigated was not in reasonable prospect at the relevant time. However, the court also held that there was no waiver (or a wider collateral waiver) of privilege in respect of documents relating to how the mispricing claim was discovered (including the expert’s investigations) by the claimant’s solicitor having referred to them in a witness statement.

Litigation privilege applies to confidential documents or communications where at the time the communication or document was created litigation was in reasonable prospect; and it was created for the dominant purpose of the litigation.

Corporate boards are subject to a duty of oversight, as part of their duty of loyalty to their company.  As outlined by Delaware’s famously stringent Caremark standard, pleading a violation of that duty is often difficult.  However, the Delaware Court of Chancery has issued several recent opinions addressing duty of oversight claims where they held the plaintiffs successfully met the Caremark standard.  These decisions serve as important reminders for corporate boards to thoughtfully carry out their oversight duties, in order to ensure that their internal controls, reporting systems, and other oversight-related practices are sufficiently comprehensive.

The Second Circuit has recently held that the Government must account for rental income it denied a property owner during a period of illegal seizure even though the Government was able to establish probable cause at a post-seizure hearing.  The appeal stemmed from a decades-long sanctions and civil forfeiture action in which the U.S. Department of Justice has sought to forfeit, among others, a 36-story skyscraper located at 650 Fifth Avenue in Midtown Manhattan co-owned by the Alavi Foundation, an entity accused of laundering money for Iran.