Saturday, December 15, 2007
A new bill (available below) introduced by Senate Judiciary Committee Chairman Patrick Leahy and cosponsored by Senator Arlen Specter, the Committee's ranking member, would add a new Rule 502 to the Federal Rules of Evidence to deal with waiver of the attorney-client privilege and work product protection when a litigant discloses such information to a federal office or agency or in federal litigation. Companies are often reluctant to disclose the results of internal investigations to the government because giving protected information to an adversary means the privilege and work product claims are waived for all other cases, and it may be difficult to determine in advance how broadly the waiver will be construed. The new legislation seeks to give a measure of protection by limiting waiver to those materials actually disclosed unless the party intended the waiver to reach undisclosed information or communications. The new rule also addresses inadvertent disclosures in the same way.
An earlier proposal to add a provision to the FRE to allow for "selective waiver" of protected information appears to have been dropped, so this new legislation is taking a different tack. Rather than an across-the-board rule allowing such a waiver, the proposed rule would put the issue in the hands of a federal judge when the disclosure occurs in litigation. The bill, S. 2450, provides: "A Federal court may order that the privilege or protection is not waived by disclosure connected with the litigation pending before the court — in which event the disclosure is also not a waiver in any other Federal or State proceeding." Importantly, the new rule also overrides state provisions that would construe the waiver in one proceeding as applying in others, so that the protection afforded by a federal court order will also apply in state court litigation. This is an important protection for companies disclosing internal investigations because they are subject to shareholder derivative suits in state court, so if adopted new Rule 502 will apply uniformly.
The legislation is new, and there have not been any hearings on it at this point. But the sponsors are the leaders of the Judiciary Committee, so it's likely to get a favorable reception. (ph)
Sunday, December 2, 2007
Wednesday, October 31, 2007
The grant of immunity by State Department investigators to the Blackwater guards involved in a firefight in Iraq on September 16 that killed a number of civilians is raising a furor on Capitol Hill about who authorized the immunity and whether it was cleared through the Department of Justice. ABC News reports (here) the language of the immunity grant to each guard who made a statement: "I understand this statement is being given in furtherance of an official administrative inquiry . . . I further understand that neither my statements nor any information or evidence gained by reason of my statements can be used against me in a criminal proceeding, except that if I knowingly and willfully provide false statements or information, I may be criminally prosecuted for that action under 18 United States Code, Section 1001." This appears to be the common "use/fruits" immunity (see earlier post here) given to a person to obtain testimony over an assertion of the Fifth Amendment privilege. Department of Justice approval is required before any authorized grant of immunity can be made, which appears to be missing here. That does not mean the immunity is invalid, however, and the guards are protected regardless of whether the legal requirements were followed.
Foreign Relations Committee chairman Senator Joseph Biden and House Oversight and Government Reform Committee chairman Representative Henry Waxman sent letters to Secretary of State Rice asking for further information about the immunity grants. Senator Biden's letter (here) asks, "Press reports today indicate that DS agents offered grants of immunity to Blackwater employees after the September 16 shooting incident in Baghdad. Are these reports accurate? If so, who authorized these grants of immunity? Was there consultation with the Department of Justice prior to such grants of immunity?" Representative Waxman's letter (here) states, "This rash grant of immunity was an egregious misjudgment. It raises serious questions about who conferred the immunity, who approved it at the State Department, and what their motives were."
One justification offered for giving this type of immunity is that it does not preclude a subsequent criminal prosecution of the immunized witness, unlike "transactional immunity" that prohibits prosecution for any crime discussed by the witness. Of course, arguing that an even greater protection could have been given is a bit like claiming "I could have caused a lot more damage than I did to the investigation" -- small comfort at best. Nevertheless, government spokespersons have asserted that criminal prosecutions will still be pursued. For example, Dana Perino at the White House stated (here) that "Secretary Rice has made it very clear that she takes the situation very seriously. It is under review. She said that anyone who has engaged in criminal behavior will be prosecuted." A State Department spokesman took the same approach, stating (here) "[t]he kinds of, quote, 'immunity' that I've seen reported in the press would not preclude a successful criminal prosecution." Perhaps there was a Dr. Evil moment in putting quotation marks around "immunity" because the term is quite clear.
Can the government still pursue a criminal prosecution of any of the guards? Leaving aside thorny issues regarding jurisdiction, the grant of use/fruits immunity makes a subsequent criminal prosecution very difficult, at best. Under the Supreme Court's decision in Kastigar v. United States, 406 U.S. 441 (1972), the government has the "heavy burden" in any prosecution of an immunized witness of meeting "the affirmative duty to prove that the evidence it proposes to use is derived from a legitimate source wholly independent of the compelled testimony." (Italics added) Perhaps the most chilling term a prosecutor ever hears is "Kastigar hearing" because the proof requirements -- especially when immunity is granted early in an investigation -- are so onerous.
What is more striking about the immunity given to the Blackwater guards is the manner of granting the protection appears to violate two of the basic precepts in securing testimony in the face of a Fifth Amendment claim. First, it does not appear that the investigators had any idea what the guards would say, not even a proffer from them, so it was a blind grant of immunity. The common adage is that prosecutors should not buy a "pig in a poke" (see earlier post here on the meaning of that phrase), i.e. check the value of the goods before the transaction is completed. Indeed, it is not clear whether any of the guards ever asserted the Fifth Amendment, so it's possible the immunity grant was unnecessary for some. Second, even if you do have to buy a pig in a poke, you don't buy it from everyone. Immunity grants are usually given parsimoniously, and only to those on the lower level or on the outside ring of the investigation. A blanket grant of immunity to all participants likely means that no one can be prosecuted because separating out the information in a Kastigar hearing would be impossible -- remember Col. Oliver North. Handing out immunity like Halloween candy is not the way to pursue an investigation if a criminal prosecution is viewed as a possibility, although if the expectation was that no charges would be filed then this would be the best means to ensure that result. (ph)
Friday, October 26, 2007
Speaking as the keynote luncheon speaker at the ABA Second Annual Securities Fraud Institute, Former Deputy Attorney General Paul J. McNulty defended his DOJ McNulty Memo. Referencing Senator Specter's recent Wall Street Journal commentary titled, "A Question for Mr. Mukasey," McNulty was not happy having his efforts called a "swing and a miss." It's at least "a standup double" he said. And then McNulty proceeded to be on the offensive, taking on Senator Specter's proposed legislation.
McNulty may believe that companies will waive because it is in their best interest to do so, but there are still many folks out there who believe that it is important to make certain that DOJ attorneys are not making requests for attorney-client waivers and that the best way to accomplish this is via legislation. The ABA Section of Administrative Law and Regulatory Practice has a program today called, "Corporate Deferred Prosecution Agreements: Issues in Hybrid Enforcement," at the Press Club in DC. starting at 3:45 P.M. I am confident (I am one of the speakers) that there will be responses provided to McNulty's comments. The question will be whether the response(s) will send him back to dugout. Stay tuned.
Thursday, October 25, 2007
The grand jury investigations of I. Lewis Libby and Barry Bonds involved subpoenas to reporters for their communications with sources who had been promised confidentiality. The federal courts unfailingly found that the demand for information trumped the media's confidentiality claims, with reporters being threatened with civil contempt and jail for refusing to respond to the subpoenas. The House passed the "Free Flow of Information Act of 2007" (H.R. 2102 here) on October 16, and the Senate Judiciary Committee passed a similar bill on October 4 (S. 2035 here), to create a federal journalists privilege for communications with sources. Senator Patrick Leahy, the Judiciary Committee chairman, has had the House bill placed on the Senate calendar to expedite consideration of the two legislative proposals. According to a Judiciary Committee press release (here), the legislation would:
- Establish a federal qualified reporters’ privilege to protect and encourage the free flow of information between journalists and sources;
- Reconcile a reporter’s need to maintain confidentiality -- in order to ensure that sources will speak openly and freely -- with the public’s right to effective law enforcement and fair trials;
- Balance the public interest in combating crime and protecting national security and the public interest in ensuring a free and vibrant press by providing that a federal court can only force a journalist to reveal confidential source information when the information is truly essential or crucial to a case or investigation;
- Provide exceptions to the privilege for those situations where information sharing is critical.
Among the exceptions to the privilege in a criminal case is when the court finds that "the testimony or document sought is critical to the investigation or prosecution, or to the defense against the prosecution." The statute does not explain what constitutes "critical" testimony or documents. The use of that term rather than a more commonly used evidentiary term in criminal cases like "material" likely means that the courts will favor the privilege absent exceptional circumstances.
If the legislation passes, it will certainly make subpoenas to members of the media less common, if not almost extinct, because the threshold for obtaining the information will be so much greater that prosecutors may well not even want to pick the fight because it is an almost sure loser. Whether that result is good or bad remains to be seen, but the legislation is certainly something for journalists to cheer. (ph)
Saturday, September 29, 2007
A federal grand jury investigating Capitol Hill corruption subpoenaed California Representative John Doolittle and five of his aides for a number of documents created over the past eleven years. The Congressman has been under investigation for over a year, including a search of his Virginia home, related to dealings with former superlobbyist Jack Abramoff, who is serving a six year sentence in federal prison and has been cooperating in the Department of Justice's continuing inquiry into corruption in Congress. Two of Doolittle's aide reportedly testified before the grand jury recently. According to a story in The Hill (here), Representative Doolittle's lawyer asserts that the subpoenas cover "“virtually every record including legislative records," and the Congressman plans to fight them on the ground that the records are protected by the Speech or Debate Clause.
Article I, Section 6 of the Constitution provides that "for any Speech or Debate in either House, [members of Congress] shall not be questioned in any other Place." The two leading Supreme Court cases on the scope of the Speech or Debate Clause are United States v. Brewster, 408 U.S. 501 (1972), and United States v. Helstoski, 442 U.S. 477 (1979). In Brewster, the Court stated, "[A] Member of Congress may be prosecuted under a criminal statute provided that the Government's case does not rely on legislative acts or the motivation for legislative acts. A legislative act has consistently been defined as an act generally done in Congress in relation to the business before it. In sum, the Speech or Debate Clause prohibits inquiry only into those things generally said or done in the House or the Senate in the performance of official duties and into the motivation for those acts." [Italics added] In Helstoski, the Court explained, "Likewise, a promise to introduce a bill is not a legislative act. As to what restrictions the Clause places on the admission of evidence, our concern is not with the ‘specificity’ of the reference. Instead, our concern is whether there is mention of a legislative act. To effectuate the intent of the Clause, the Court has construed it to protect other ‘legislative acts’ such as utterances in committee hearings and reports. But it is clear from the language of the Clause that protection extends only to an act that has already been performed. A promise to deliver a speech, to vote, or to solicit other votes at some future date is not a legislative act." The government will have to walk a fine line in seeking materials that do not come within the definition of "legislative act."
The D.C. Circuit's recent decision related to the search for records in the office of Louisiana Representative William Jefferson will likely be a favorable precedent for Representative Doolittle because the court held that the Executive branch cannot view legislative materials protected by the Speech or Debate Clause. The government is seeking rehearing en banc to clarify the scope of the privilege afforded members of Congress by the Constitution (see earlier post here). The number of investigations of Capitol Hill corruption, and the link to official acts of Congress, likely means this issue will arise with some regularity in the near future. If the D.C. Circuit does not grant review by the full court, look for the Department of Justice to seek Supreme Court review of the issue. (ph)
Monday, September 24, 2007
Both the New York Times here and the ABAJrl.com here are reporting that prosecutors in the KPMG related case are trying to conflict-out two defense counsel. The prosecutors are claiming that the two defense counsel may have provided legal advice to David Amir Makov, who is now cooperating with the government. Interestingly, the ABAJrl.com states that the lawyers for Makov do not see the problem alleged by the government. If the witness has his own lawyer, and that lawyer doesn't see the issue, why is the government claiming one exists?
The term "secret defense agreement" as used in the article may make what occurred here sound somewhat nefarious. In reality, joint defense agreements are quite common today. Multiple defendants will enter into these agreements for the purpose of exchanging information yet maintaining the attorney-client privilege. They also allow the multiple defendants to cut costs by perhaps hiring one accountant, investigator, or other expert. With the costs placed upon defendants facing white collar charges, this is understandable. These agreements, however, can become a problem when one defendant who is a party to the agreement decides to testify for the government.
Thursday, September 20, 2007
Senator Arlen Specter's bill, the Attorney Client Privilege Protection Act of 2007 (S.186 here), was the subject of a Senate Judiciary Committee hearing on September 18. The five witnesses (statements available here) included two who strongly support the bill, former Attorney General Dick Thornburgh and Andrew Weissman, who headed the Enron Task Force before entering private practice. Two academics, Professors Dan Richman of Columbia and Michael Seigel of Florida, oppose the bill, as did Karen Immergut, the U.S. Attorney for the District of Oregon who is the chair of the White Collar Subcommittee for the Attorney General's Advisory Committee. Specter has been pushing legislation to limit demands on corporations to waive the attorney-client privilege since 2006, but it's not clear whether the bill will clear the Senate Judiciary Committee any time soon. Specter is the only sponsor of the legislation, and Judiciary Committee Chairman Patrick Leahy has not yet announced his position on the bill. According to an article in The Deal (available on Law.com here), Specter wants a quick vote on the legislation, without waiting to raise the issue in the hearings on the nomination of Michael Mukasey to be the next Attorney General. Whether Leahy and others will go along with that, or postpone any action on the bill until they can get Mukasey's views remains to be seen. (ph)
Tuesday, September 11, 2007
Thursday, August 30, 2007
The United States District Court for Rhode Island issued a Memorandum Order finding that "requested documents [were] protected by the work product privilege." The court denied the government's petition for enforcement of an IRS summons served on Textron Inc. and its subsidiaries "in connection with the IRS's examination of Textron's tax liability for tax years 1998-2001. Textron had "refused to provide the requested documents on the grounds that (1) the summons was not issued for a legitimate purpose and (2) the tax accrual workpapers are privileged." The court rejected Textron's arguments of attorney-client privilege and tax practitioner privilege. Judge Torres, however, did accept the work product privilege as a legitimate argument since the IRS "failed to carry the burden of demonstrating a 'substantial need' for ordinary work product, let alone the heightened burden applicable to Textron's tax accrual workpapers, which constitute opinion work product."
(esp) (w/ a hat tip to Stephanie Martz)
Sunday, July 15, 2007
Initially it was Senator Arlen Specter's bill (S 186) in the Senate that stood alone, asking to provide additional protection to the attorney-client privilege. But as of last week, the House also has a similar bill circulating. There is bi-partisan support on the bill authorship, with the new bill being introduced by Representatives Bobby Scott (D-VA) and Randy Forbes (R-VA). The house version matches the proposed legislation in the Senate. In commenting on this new bill, ABA President Karen Mathis stated,
In so doing, it strikes the proper balance between the legitimate needs of prosecutors and regulators and the constitutional and fundamental legal rights of individuals and organizations. The American Bar Association strongly urges Congress to approve this critical legislation as soon as possible.
Many support the house bill (see NACDL).
Sunday, July 8, 2007
The White House has been fighting the release of information related to the DOJ "firings" with claims of executive privilege. Peter Baker has a wonderful article in the Washington Post that outlines the issue of executive privilege. And as noted in this piece, the executive may be successful on some of these issues. Yahoo News reports here that the Senate Judiciary Committee subpoenaed Sara Taylor, a former White House political director, and the question will be whether the White House will object to her providing this testimony on July 11th. But the White House objection may present a problem in this scenario- as the emails in question were on an e-mail account at the Republican National Committee. A court may be hard pressed to find that the executive privilege extends to the political arena.
Saturday, May 19, 2007
A recent article by Joshua Berman and Machalagh Proffit-Higgins, from the D.C. office of Sonnenschein Nath & Rosenthal, analyzes the history and development of the Department of Justice's policy memoranda on prosecuting corporations that culminated recently with the issuance of the third in the series, the McNulty Memorandum. The article, "Prosecuting Corporations: The KPMG Case and the Rise and Fall of the Justice Department's 10-Year War on Corporate Fraud" (available below), looks at the earlier versions of the corporate charging policy, the Holder and Thompson Memos, and the decision by U.S. District Judge Lewis Kaplan in the KPMG tax shelter prosecutions that found the application of the Thompson Memo unconstitutional by denying the defendants their rights to due process and counsel. The article, published in the Criminal Law Brief by the Washington College of Law at American University, considers how the district court's opinion in KPMG has shaped the Department of Justice's most recent effort to blunt criticism of its approach to corporate crime investigations that makes waiver of the attorney-client privilege and work product protection a featured part of the case. The article notes that "[i]n the end, the eventual impact of the McNulty Memorandum is likely to depend more on DOJ's incorporation of the Memorandum into their efforts to combat corporate fraud than the actual words on the page." (ph)
Thursday, April 5, 2007
Monica Goodling, the senior counsel to Attorney General Gonzales who has refused to testify about the U.S. Attorney firings by asserting the Fifth Amendment, has rejected a demand from the House Judiciary Committee that she explain why she is asserting the self-incrimination privilege. A letter from her lawyer, Akin Gump's John Dowd (available below), states that, while Goodling is innocent of any wrongdoing, a statement by Deputy Attorney General Paul McNulty that he did not receive complete information that led to him making misstatements to Congress has created a sufficient basis for Goodling to assert the Fifth Amendment, precluding any discussion of the exact basis for her position. Dowd's letter ratchets things up a notch by citing to D.C. Legal Ethics Opinion No. 31 (1977) that states it would violate the spirit of the profession's rules to require a witness to appear before a Congressional committee just to assert the Fifth Amendment when counsel notifies the committee in advance of the witness' decision to refuse to testify.
The House Judiciary Committee's offer to have Goodling meet for a private interview provides her with no protection because the Fifth Amendment is a "use it or lose it" right, meaning that if she were to disclose information to a government official then she could not assert the privilege down the road. Absent a grant of immunity, which is unlikely, Goodling has two options: speak or assert the Fifth Amendment. While Congress may not like the result, that's how the protection works. Dowd's letter may not prevent the Committee from pursuing the unseemly spectacle of demanding Goodling appear to assert the Fifth Amendment in person, as has been done in other situations (e.g. the Hewlett-Packard pretexting hearing in September 2006), to provide the photo opportunity and a forum for Representatives to bemoan the person's assertion of a constitutional right. (ph)
Monday, March 26, 2007
Monica Goodling, senior counselor to AG Gonzalez, plans to take the 5th Amendment when called to testify by the legislature. (see Wall Street Jrl here, N.Y. Times here). Her attorney's letter here explains the reasons for this course of conduct.
Now if this had taken place in a corporation that was under investigation, legal counsel for the corporation would be calling the parties in and asking the employees to answer questions. Either internal or external counsel would be investigating to determine if there was wrongdoing involved in the activities. In all likelihood the individual would have no attorney-client privilege in a world where deferred prosecution agreements allow the corporation to act as mini-prosecutors and turn over evidence of the individuals to the government. And if the individual refused to speak with counsel - the result would be - you're fired. Will that happen here? And perhaps, more importantly, should that happen here?
What it is important to remember here is that we are all entitled to exercise constitutional rights, even those who work at the Department of Justice.
Saturday, March 17, 2007
David Z. Seide has a piece in the Corporate Goverance Advisor (Aspen) that is shared here by himself and his publisher. The title of the article: "Is the Department of Justice's McNulty Memorandum A Cure-All?"
Sunday, March 11, 2007
Professor J. Kelly Strader (Southwestern) - Guest Blogging - KPMG PART IV -
What lessons can we draw so far from the KPMG case? First, by any measure this is an enormously complex case. In pre-trial discovery, the government has produced over 11 million pages of documents, the transcripts of 335 depositions, and 195 income tax returns. The government has named 68 trial witnesses and identified over five thousand trial exhibits. The trial is estimated to last from four to eight months.
Second, this case has produced an extraordinary amount of pre-trial litigation, even for a complex financial fraud case. As of last summer, well over 1,000 pages of pretrial briefs had been filed, and it’s probably over 2,000 pages by now. (Most recently, the defendants filed a motion to vacate an order granting the government’s request to dismiss the criminal case against KPMG. The court recently denied the motion (see here).
What does all the pre-trial litigation and maneuvering mean? At one point last month, as I watched the mounds of KPMG-related briefs pile up on my desk, I had a nightmare flashback to the time when I was a junior litigation associate at a large New York law firm. One day, I was told that I would be working on the mergers and acquisitions litigation team (otherwise known to junior associates as the hell realm). Such litigation produces furious motion practice that is often more tactical than substantive and that seems to have no end. (The silver lining is that I ended up in a career of white collar criminal defense.)
I wonder whether the issues surrounding the Thompson and McNulty Memorandums is transforming white collar litigation into similarly overly-complicated litigation. So long as the government continues to seek to obtain attorney-client privilege waivers, to exert pressure on entities to decline to pay individuals’ attorneys’ fees, and to deem assertion of the Fifth to be non-cooperation, we are likely to see more KPMGs. This does not bode well either for the efficient use of our resources in fighting white collar crime, or for the functionality and fairness of the criminal justice system.
Saturday, January 6, 2007
An earlier post (here) discussed recent hires into the White House counsel's office of lawyers with experience in white collar crime investigations. Now President Bush's chief legal counsel, erstwhile Supreme Court nominee Harriet Miers, has stepped down amid claims that the White House needs a lawyer with greater experience in dealing with investigations, something outside Miers' experience. A Washington Post story (here), citing the usual anonymous sources (this is Washington DC, where leaking is a contact sport), states that the Democrats takeover of Congress will result in a slew of investigations of the Administration, ranging from the war in Iraq to favoritism in the award of contracts and the like. With the power to subpoena comes the inevitable conflict over issues like Executive privilege and the attorney-client privilege.
The article notes that Senator Leahy, the new chair of the Senate Judiciary Committee, was denied documents related to advice given the President on acceptable interrogation methods related to the CIA's program of secret overseas prisons, with the Department of Justice asserting the memos were confidential legal advice. It will be interesting to see if Congress is as solicitous of the Executive's privilege claims as it is for the attorney-client privilege in the context of government investigations of possible corporate crime. (ph)
Tuesday, January 2, 2007
Yet another voice critiques the McNulty Memo. This time it comes from Kaye Scholer White Collar Litigation and Internal Investigations Group Update. Their take on the memo - Download white_collar_update_jan_2007.pdf like so many others, finds flaws in the latest Justice Department attempt to keep Congress from intervening. Unlike some others, they are not as optimistic on whether Congress will intervene. Other comments can be found here, here, here, and here. One thing is certain, and that is that Larry Thompson owes a thank you to McNulty for taking his name off of the revised Holder Memo.
Monday, December 25, 2006
So far the McNulty Memo has not fared well in the public comments. Many still criticize the DOJ for failing to recognize the importance of the attorney-client privilege. Others contend that the memo does not go far enough in that it still allows prosecutors to procure waivers, albeit now with supervisory consent. Finally some object to the designations used by DOJ in deciding when they will allow the attorney client privilege to be waived. Others are upset that the Memo is an exercise of executive power without judicial oversight. Clearly the Memo fails to address the concerns raised by the ABA in Resolution 302B, a resolution that passed the ABA unanimously.