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August 2016
Insights/Corporate Spies Must Toe the Line

Corporate Spies Must Toe the Line

By Daniel Nardello

Private investigators don’t do what Hollywood would have you think they do. Not legally, at least. They can’t smack people around, like Sam Spade did in The Maltese Falcon, or sneak into crime scenes, like Philip Marlowe did in the Big Sleep. As a grateful “dame” remarked to Dashiell Hammett’s hardboiled gumshoe, the Continental Op, he was seen as “A monster. A nice one, an especially nice one to have around when you’re in trouble, but a monster just the same.” Hammett and Chandler make for far more entertaining reading than the dry statutes and standards that licensed private investigators are obliged to abide by, and so maybe it shouldn’t be so surprising when someone in the business acts as if they were in a pulp novel.

In recent months, the online transportation network Uber has found itself the target of concerns over the employment of improper investigative techniques. A class action suit filed against its CEO, Travis Kalanick—but not the company itself—claimed that its fare-setting algorithm amounted to a price-fixing scheme, in violation of federal antitrust laws. Uber – apparently without informing outside counsel – retained a firm called Ergo to provide litigation support. Among other tactics, one of Ergo’s investigators called colleagues of one of the plaintiff’s attorneys to ask questions about him, ostensibly for an article about “up-and-coming labor lawyers.” Initially, Uber denied any knowledge of who was behind the calls. Later, it admitted that someone at Ergo was responsible, though maintaining that the actions were undertaken without Uber’s knowledge or consent. It was also revealed that Ergo was operating without a private investigators’ license, which is a Class B misdemeanor in New York state. US District Judge Jed Rakoff, who presided over the case, barred Uber and Kalanick from using any of the information obtained by Ergo in any manner in the litigation and also enjoined them from conducting further investigation using false pretenses, unlicensed investigators and illegal, fraudulent or unethical techniques. Judge Rakoff was quick to note that “…Ergo, in investigating plaintiff, was engaged in fraudulent and arguably criminal conduct”, and that Uber’s lawyers were required by the Rules of Professional Conduct to adequately supervise Uber’s work.

Corporates and their law firms need to abide by laws, applicable regulations and codes when hiring an investigator. For example, according to the ABA’s Model Rules of Professional Conduct, lawyers can’t engage anyone (including a licensed investigator) to do anything that’s prohibited by the ABA’s conduct rules. Lawyers should be sure that their investigators are licensed, as in most jurisdictions, such as New York, it is a crime to operate as a private investigator without a license. That being said, there is a great deal that investigators can do which is not prohibited. Investigators can do surveillance (while respecting the right to a reasonable expectation of privacy). They can search public records. They can conduct interviews. However, investigators working on behalf of counsel are generally prohibited by the ethical rules from lying, except in a few well-defined circumstances where it has been found that a compelling public interest is at stake—posing as a shopper at a store where counterfeit goods are for sale, say, or as a renter to test if a real estate agency is racially discriminatory.

What possibly was to be gained by Ergo’s approach? Lawyers have resumes and records that can be found within minutes of Internet searching, and reputations can be confirmed with a few phone calls. It’s easy enough, and it’s completely above-board. Why cross the line to troll his colleagues for a fictional tribute as a “top labor lawyer?” What sort of dirt do you expect to dig up when you ask someone’s friends to offer quotes for a puff piece? Many moral and legal transgressions can be understood, given the hoped-for reward. Here, the putative gain—some remote possibility of tactical advantage—is obscure.

Not dissimilar to Uber was Hewlett Packard’s headline-dominating pretexting scandal. The chair of Hewlett-Packard suspected that someone on the board was disclosing damaging information to the press. She ordered her general counsel to find out who was behind the leak. Private investigators were given the personal information of board members, including Social Security numbers, so that they could impersonate them to obtain call logs from phone companies. Relatives and reporters—at the Wall Street Journal, among others—were similarly targeted. Hewlett-Packard indeed found out who was talking out of turn, but at great expense. Their illegal actions spurred state and federal investigations that led to numerous indictments for fraud, conspiracy, and identity theft. The reputational hit that HP took was at least as significant as the financial damage, and took years to repair.

Can you keep your hands clean when you’re digging for dirt? The short answer is “Yes.” The longer one is “Yes, yes, yes!” For one thing, all dirt isn’t created equal. There is never a democracy of facts or findings when conducting an investigation. Findings from legally conducted investigations routinely yield results that are actionable and admissible, as opposed to punishable. The notion of conducting “ethical investigations” is not oxymoronic. Following the law and ethical rules will shield companies from the very bumpy ride Uber is now on.

Contact

Daniel Nardello

Founder & Chief Executive Officer

565 Fifth Avenue
Suite 2200
New York, NY 10017
T: +1 212 537 5300
F: +1 212 537 5333
dnardello@nardelloandco.com

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