How To Prepare For Congressional Investigations In 2021

Law360 (November 30, 2020, 4:33 PM EST) --
Peter Spivack
Peter Spivack
Michael Bell
Michael Bell
Ari Fridman
Ari Fridman
The 2020 elections have resulted in a Democratic White House, Democratic-controlled U.S. House of Representatives, and, pending the outcome of the two runoff elections in Georgia, either a narrow U.S. Senate majority for Republicans or a razor-thin majority for Democrats.

Regardless of the outcome, we anticipate a highly partisan environment during the 117th Congress. Speaker Nancy Pelosi, D-Calif., will lead the House with a narrower majority as the House Republicans look to retake control in 2022.

In the Senate, we expect Republican leader Mitch McConnell of Kentucky to repeat his determined opposition during the Obama years in order to thwart President-elect Joe Biden's legislative agenda, seeking to turn him into a one-term president.

How Biden Will Govern

With nearly five decades in politics, Biden surely recognizes that he does not have a clear mandate for fulfilling campaign-style promises. He will likely forego the kind of bold, progressive agenda whose enactment would require sizable majorities in both chambers. Rather, he is likely to govern by attempting to seek bipartisan compromise. Nevertheless, we anticipate that the pattern of the last three presidencies, during which partisanship increased, will continue.

The reality is that the country is deeply divided. Even a terrible pandemic has failed to bring elected officials together. There is no bipartisanship a la former President Ronald Reagan and former House Speaker Tip O'Neill in the offing.

Biden will likely choose to embrace a unilateral course of action on certain elements of his domestic agenda. To be sure, the inherent limitations to executive action will prevent Biden from achieving the kind of fundamental change that can only be enacted by statute.

Partisanship Means Less Legislating and More Investigating

Despite Biden's best efforts, we are skeptical that the 117th Congress will be successful in confronting the nation's greatest challenges. Philosophical disagreements on spending, the size and role of the federal government, and social and cultural values remain deeply intractable.

Regardless of the outcome of the Georgia Senate races, the most far-reaching pillars of the president-elect's campaign platform have been rendered inoperative, including an expansion of the Affordable Care Act that includes a public option, and the Green New Deal.

This is not to say that the 117th Congress will be a do-nothing Congress. It is conceivable that Republicans and Democrats could pass modest legislation in areas where there are political incentives for compromise, such as economic stimulus in response to the pandemic, infrastructure, energy innovation and criminal justice reform.

We expect that one significant byproduct of the limited potential for bipartisan compromise in Congress will be an intensification of congressional investigations in certain sectors.

Standing committees in the Democratic House are likely to focus on investigating companies in the health care, financial services, technology and fossil fuel industries, including their conduct during the COVID-19 pandemic.

One of the rare bipartisan issues, all of the major players in the health care industry deemed responsible for the high cost of prescription drugs, especially pharmaceutical companies and insurance companies, are likely to remain the subject of sustained congressional scrutiny.

As it relates to the financial services industry and oversight of funding under the Coronavirus Aid, Relief and Economic Security Act, we expect there to be significant congressional scrutiny of fraudulent lending activity. Indeed, lenders that participated in the small-business-focused Paycheck Protection Program could be the main target.

A Republican-controlled Senate is expected to focus on the health care and technology industries, while a Democratic-controlled Senate will largely adopt the oversight agenda of the Democratic-controlled House.

Preparing for Congress to Come Calling

For general counsel, there is little to no time to gear up when a congressional committee issues a press release about a letter it just sent to your company's CEO or board chairman. Fortunately, companies that may be targets of such inquiries can take steps to successfully navigate the process well before an inquiry has begun.

We recommend the following steps:

Establish a privileged incident response team.

Through counsel, establish a core incident response team to respond to congressional investigations and document the privileged nature of its work. The group should include members of the communications, government affairs and legal teams.

The role of the team includes preparing for and responding to congressional inquiries and related regulatory action or litigation, and preparing a communications strategy for the press, investors and lawmakers. This creates the organizational structure in advance, rather than trying to create it on the fly.

Gather opposition research and prepare key response points for expected areas of inquiry.

Committee staff largely base the topics of their investigations on public sources. Congressional request letters routinely cite news articles as justification for the investigation itself and to request information.

Outside counsel should rely on their research staff to comb through the public sources with an eye toward the issues most likely to attract committee attention, based on knowledge of the committee's priorities and jurisdiction. The company should then work with legal, communications, government relations and business stakeholders to prepare factual responses and key messages for each expected area of inquiry.

Prepare executives to testify before Congress with a mock hearing.

A murder board or mock congressional hearing is an essential exercise for any executive who is likely to be called to testify before Congress. Testifying before Congress requires a unique skill set: responding calmly to grandstanding or theatrics by members of Congress and staying accurate and on message in response to politically calculated questions — all while a CNN news camera is framed on your face, recording your every reaction.

Honing these skills before the pressure and time crunch of an actual invitation is a critical use of time. Recording the session permits critique of both the substance and manner of the testimony, and can be combined with additional media training to make efficient use of busy executives' time.

Execute a smart records-retention policy.

Congress will request a wide range of business documents and communications. A smart records-retention policy is key to ensuring that business needs are appropriately met while, at the same time, a trove of information is not being stockpiled that would subject the company to onerous and expensive discovery burdens in future litigation or investigations.

A records-retention policy should comply with business needs and all applicable laws, and should be consistent with preservation obligations that attach once litigation or an investigation is reasonably anticipated.

Practice careful email communications.

Committee staff members know from experience that email and other communications can contain potentially damaging internal company statements, and they will often insist on some type of email production for high-profile matters.

All company employees, from the CEO down to interns, need to be educated on proper use of email and other electronic communications. Electronic means are often used as casual, instant communication, but in fact they are permanent. Operate as if anything put in writing could be quoted to the company's CEO at a congressional hearing or put on the front page of The Wall Street Journal.

The Playbook for Responding to Congressional Investigations

When a company receives a congressional inquiry, it is an immediate public relations, legal and government relations priority. Congressional investigations are unlike executive branch investigations; indeed, many of the assumptions that one may be used to in the latter do not apply in the former.

Typically, there is a general playbook for responding to congressional inquiries that counsel can tailor according to the company's unique needs and the political situation.

Companies that receive a congressional inquiry will invariably have to navigate some or all of these elements:

Determine the committee's end game.

Understanding the committee's purpose in issuing the request is vital to positioning the company's response.

Are the members seeking press on a high-profile issue in advance of an upcoming election? Are they seeking support for legislation? Do they plan to hold a hearing with testimony from company representatives or others in the industry? Are they going to publish a written report that could include a discussion of the company's or the industry's practices?

Relationships with committee members and staff can help in providing valuable insight into the committee's goal, which will shape the company's strategy for responding to the request.

Evaluate congressional requests versus congressional subpoenas.

Committees and individual members can issue letter requests to companies. Under most committees' rules, only the chair can decide to issue a subpoena.

As a general matter, a letter from the majority members of a committee should be treated as the functional equivalent of a subpoena; the issuance of a majority letter signifies that the chair agrees with and has endorsed the letter. A letter from some or all of the minority members should be evaluated carefully, and a more targeted response to a minority member letter is often recommended.

A congressional subpoena may signify that the majority members want to send a strong signal to the company or industry, compliance with which can be enforced by the contempt power.

Negotiate scope and timing of the response.

A typical congressional letter contains a dozen requests calling for narrative responses, compiling information and producing all documents relating to the requests in an unrealistic two-week deadline. Narrowing the scope of the company's response and extending the time to respond are the goals in communicating with committee staff.

The committee will often permit the company to provide rolling, iterative responses over a more reasonable time frame, subject to the chair's priorities. Counsel should seek to limit the topics, time frame and custodians of the sought-after documents and communications.

Confidentiality of document production is not assured.

Congress need not guarantee confidentiality for business information and documents. The documents a company turns over to Congress could be posted on the committee's website, used as exhibits at a hearing, or attached to a committee report — and picked up by the news media or potential plaintiffs.

A company should, however, explain to committee staff the business harm that would result if its proprietary documents were released to the public. Committees may, in a limited way, be willing to protect the confidentiality of true trade secrets, but are not willing to shield merely embarrassing documents.

If attorneys develop a positive working relationship with committee staff, staff are more likely to give the company advance notice of any documents that the committee intends to release publicly. Ultimately, it is the committee members who decide whether to release a company's documents.

Consider privilege risks.

The only privileges Congress must recognize are those provided by the U.S. Constitution, such as the Fifth Amendment right against self-incrimination. Because Congress is not a court of law, neither common law privileges nor the Federal Rules of Civil Procedure apply. Thus, attorney-client and work-product privileges are not formally recognized in congressional investigations and are generally treated as a matter for the committee's discretion. Counsel should work with the committee to protect attorney-client privileged material to the fullest extent possible.

Consider collateral risks.

Congressional investigations attract significant press attention. Members of the board of directors, shareholders, lenders, bondholders and equity analysts will pay close attention to the investigation's progress. There are important collateral considerations that one must consider as well.

Is there a law enforcement investigation that can be sparked by the committee's investigation, or an existing investigation that materials produced to Congress will impact?

Are there possible shareholder class action, shareholder derivative, or False Claims Act plaintiffs firms that may be playing a role behind the scenes, or that may use the materials produced to Congress?

Does the company have pending or contemplated transactions or capital raising activities that could be affected?

Each of these, and more, must be considered on the multilevel strategic chessboard.

Peter Spivack and Michael Bell are partners, and Ari Fridman is a senior associate, at Hogan Lovells.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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