Friday, September 29, 2006

Attorney's Fees and the Fifth Amendment Privilege

It is not every day that a company's most recent general counsel and corporate ethics officer assert their Fifth Amendment privilege at the same hearing, but that's what happened at the hearing before the House Energy & Commerce Subcommittee investigating Hewlett-Packard's internal investigation that involved "pretexting" to obtain personal records.  Ann Baskins, the general counsel during the investigation who the company announced was leaving her position just hours before the hearing, and Kevin Hunsaker both refused to answer questions.  Asserting the Fifth Amendment is often a ground for being terminated, particularly when the person is the general counsel, and having the company cut you off from receiving any future benefits.  Moreover, the Thompson Memo (here) states that one factor in determining whether to charge a company with a crime is "whether the corporation appears to be protecting its culpable employees and agents," which can include "the advancing of attorneys fees."  The recent district court decision in U.S. v. Stein, involving former partners and employees of KPMG, held that the Thompson Memo's position on the payment of attorney's fees is unconstitutional. 

The Stein decision may have an effect on whether the government views Baskins' separation agreement (here) with H-P as an indication of a lack of cooperation by the company.  In addition to receiving unvested stock options that will be worth $1 million, the agreement contains the following language:

To the extent doing so is consistent with the exercise of my rights under the federal and state Constitutions, I agree that I will cooperate with the Company in connection with any internal investigation, and the defense or prosecution of any claim that may be made against or by the Company (with the exception of any claims that may be asserted by the Company against me), or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company, including any proceeding, civil or criminal, before any arbitral, administrative, judicial, legislative, or other body or agency, including testifying in or in connection with any proceeding, to the extent such claims, investigations or proceedings relate to services performed or required to be performed by me, pertinent knowledge possessed by me, or any act or omission by me.

The key to this provisions is that an assertion of the Fifth Amendment by Baskins does not mean she has failed to cooperate with the company in connection with any investigations.  The agreement further provides that "[t]he Company agrees to indemnify me to the fullest extent permitted by the Company‚Äôs bylaws and applicable law to include but not limited to Section 2802 of the California Labor Code," and that "the Company agrees to advance Expenses actually and reasonably incurred by me in connection with any Proceeding  provided I acted in good faith and in a manner I reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, I had reasonable cause to believe my conduct was lawful."  Baskins' right to receive attorney's fees permits her to assert the Fifth Amendment and still be viewed as acting in good faith, so her invocation of the privilege against self-incrimination at the Subcommittee hearing will not affect her right to have H-P pay the cost of her lawyers, which could be considerable over the next few months.

The Stein decision took dead aim at the Thompson Memo's statement regarding attorney's fees, and it may be that the U.S. Attorney's Office does not want to pick this fight again, at least not while the district court's decision is on appeal.  The government's credibility on Capitol Hill is not all that high at the moment, so it may not want to raise the issue of attorney's fees at this time.  It will be interesting to see if the two other former H-P executives, Hunsaker and security chief Anthony Gentilucci, who asserted the Fifth Amendment have similar agreements with the company.  If so, then the government could raise the issue of cooperation with H-P, although I don't think it is a particularly strong basis on which to judge whether a company is being cooperative. (ph)

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