United States v. ISS Marine Servs., Inc.

ISS Marine Services, Inc. (ISS) (defendant), an affiliate of Inchcape Shipping Services Holdings, Ltd. (Inchcape), contracted with the United States military to provide services in places, including the Middle East. Inchcape employees who visited the Middle East facilities reported numerous practices that could potentially subject the company to liability for fraud. Larry Cosgriff, an Inchcape executive, raised the issues to a law partner at Arnold and Porter (A & P) who frequently advised Inchcape. A & P offered to conduct an internal investigation. However, Inchcape CEO Clyde Hydalger and ISS executive Simon Tory refused to retain A & P and expressed unhappiness that attorneys were consulted. Hydalger and Tory decided that Tory would head an internal investigation conducted by the company’s internal auditor, and the audit would be used to decide future steps. Cosgriff warned Tory and Hydalger the audit would not be protected by attorney-client privilege, and they stated they understood. Before the investigation began, A & P provided basic legal information about potential liability issues and what kinds of documents would be useful but was otherwise completely uninvolved. The internal auditor interviewed employees without attorneys present, and the employees were not informed their responses could be used to obtain legal advice. After the audit was drafted, Hydalger personally followed up with several employees to verify the information. The final report was not submitted to A & P until almost two months later. Inchcape later came under investigation by the Navy. The audit report was subpoenaed, but ISS did not comply, claiming attorney-client privilege. The government (plaintiff) petitioned to enforce the subpoena.