Corporate Compliance

Fact-Finder or Legal Shield? Internal Probe a Tough Gig for In-House Counsel

In-house counsel are in a tough position when they oversee an internal corporate investigation. On the one hand, the company needs to understand the facts to make appropriate determinations. But, on the other hand, the facts may establish liability to third parties for any corporate wrongdoing.

That essentially was the situation that the legal department for the Tennessee Valley Authority faced when it brought in a consultant to determine what caused a massive coal ash spill at one of its power plants last year. Andthe TVA’s inspector general now says that the legal department overseeing the study, in an attempt to limit liability, asked consultants for too narrow of an assessment of what caused the spill, Corporate Counsel reports.

It “predetermined the choice that would be made between accountability and litigation strategy,” writes IG Richard Moore in his report about the probe at the Kingston Fossil Plant in eastern Tennessee.

“Obviously the more narrow the scope, the better for those entrusted with defending TVA in court,” he states, contending that the spill might have been avoided if the TVA had paid more attention to concerns raised by its employees and consultants in 1985 and 2004.

Meanwhile, attorney Gordon Ball of Ball & Scott in Knoxville describes the IG’s exposition of the facts in the case as a “Christmas present” to the plaintiff he is representing in a damage claim against the TVA’s Kingston facility.

Of course, outside counsel overseeing an internal investigation can be criticized, too, if the probe is determined after the fact to have been inadequate.

As a federal corporation set up under an act of Congress, the TVA also is protected from liability to a greater extent than private companies. However, the discretionary function doctrine that the TVA asserted as a defense to resident litigation over the coal ash spill has been held not to apply to a commercial power-generating operation.

Related earlier coverage: “K&L Gates Missed ‘Massive Fraud’; Its Probe of Co. a ‘Stunning Failure,’ Suit Says”

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