Tuesday, July 19, 2005
It is axiomatic that the client holds the attorney-client privilege and controls its waiver, but things get much more complicated when a corporation is the client and its attorneys interview employees as part of an internal investigation of wrongdoing. Employees are likely to view the company's lawyer as their own attorney, and corporate counsel has to be careful that the limits of representation are conveyed to the employee without dissuading the person from talking -- corporate cooperation rules the day in the post-Enron world. An interesting case from the Fourth Circuit, In re: Grand Jury Subpoena (Under Seal) (here -- now that's a catchy title that's easy to distinguish from the 99 other Grand Jury cases), analyzes whether attorneys for AOL who conducted an internal investigation also represented the individual employees. As part of its investigation of AOL's accounting for transactions with PurchasePro Inc., the grand jury subpoenaed AOL for notes of interviews of three employees taken by corporate counsel: Kent Wakeford (who was indicted in January 2005 along with five others for conspiracy, securities fraud, and false statements -- indictment here), and two employees identified as John Doe I and II. Each received the same "warning" from the company's lawyers: "We represent the company. These conversations are privileged, but the privilege belongs to the company and the company decides whether to waive it. If there is a conflict, the attorney-client privilege belongs to the company." Importantly, the lawyer went on to tell each, "We can represent [you] until such time as there appears to be a conflict of interest, [but] . . . the attorney-client privilege belongs to AOL and AOL can decide whether to keep it or waive it." This last statement is wrong to the extent that in a joint representation each client holds the privilege and one side cannot waive it unilaterally. After completing its investigation, AOL waived the protections of the attorney-client privilege and work product doctrine and turned over the results to the government, thereby enabling it to enter into a deferred prosecution agreement -- no great surprise there.
In resisting the grand jury subpoenas for their statements to counsel, the witnesses argued that the latter statement by the lawyer led them to believe they had entered into an attorney-client relationship with corporate counsel, so that AOL's waiver of the privilege did not affect their personal right to keep the interview notes confidential. The Fourth Circuit rejected the argument and enforced the subpoena, holding that the statement that the corporate lawyers "can" represent the employees is not the same as representing them:
[A]ppellants could not have reasonably believed that the investigating attorneys represented them personally during the time frame covered by the subpoena. First, there is no evidence that the investigating attorneys told the appellants that they represented them, nor is there evidence that the appellants asked the investigating attorneys to represent them. To the contrary, there is evidence that the investigating attorneys relayed to Wakeford the company’s offer to retain personal counsel for him at the company’s expense, and that they told John Doe 1 that he was free to retain personal counsel. Second, there is no evidence that the appellants ever sought personal legal advice from the investigating attorneys, nor is there any evidence that the investigating attorneys rendered personal legal advice. Third, when the appellants spoke with the investigating attorneys, they were fully apprised that the information they were giving could be disclosed at the company’s discretion. Under these circumstances, appellants could not have reasonably believed that the investigating attorneys represented them personally. Therefore, the district court’s finding that appellants had no attorney-client relationship with the investigating attorneys is not clearly erroneous.
The court also rejected Wakeford's argument that a subsequent joint defense agreement he entered into with the company protects his statements in the internal investigation because that agreement came after the interviews, and therefore the only party with a privilege (and work product) claim is AOL, which has happily waived those protections.
In the pressure of an investigation, when the invocation of the Fifth Amendment likely means termination from the company, and even refusal to accept voluntary service of an SEC subpoena can cost a person his job (see earlier post here), employees will likely respond to questioning by the company's lawyers, not necessarily thinking about the consequences of that cooperation. In this case, the government will use Wakeford's statements to corporate counsel as substantive proof of his knowledge and intent regarding the transactions at issue, so that his own words may force him to take the witness stand to explain what he meant when he spoke with AOL's lawyers. The corporate attorney-client privilege is a trap for the unwary these days. (ph)