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.
Tuesday, December 19, 2006
The McNulty memo, discussed here, here, here, and here, is clearly controversial. Another voice can be added to those proclaiming that the memo is deficient as not going far enough. This time it is William Sullivan of Winston & Strawn. Last March, Sullivan, a former prosecutor, testified before the House. He appeared along with Tom Donahue, former Attorney General Thornburgh, and former Associate Attorney General Robert McCallum. William Sullivan now provides a detailed release Download Untitled.pdf that states is part:
"Ultimately, the Memorandum's piecemeal revisions may in the short term appease some critics and forestall imminent judicial and congressional action, but they do not demonstrate an earnest re-evaluation of Department policies regarding corporate criminal enforcement, and fail to provide meaningful procedural change."
Saturday, December 16, 2006
What have others been saying about the McNulty Memo -
ABA Jrl E- Report here
Alan Childress, Legal Profession Blog here
Business Week Online here
Carrie Johnson, Washington Post here
Dale Oesterle, Business Law blog here
Doug Berman's Sentencing Blog here
Jason McClure, Legal Times here
Linnley Browning, New York Times here
Porter Wright Morris & Arthur here
Wachtell, Lipton, Rosen & Katz here (per the Wall Street Jrl)(John F. Savarese & David B. Anders)
Wednesday, December 13, 2006
Focusing on Four Things -
1. In analyzing the McNulty Memo, there are several interesting points to note within the initial parts of the document. In going from the Holder Memo to the Thompson Memo, Larry Thompson outlined in the initial paragraphs the main reason for revisions - "increased emphasis on and scrutiny of the authenticity of a corporation's cooperation." He also noted that "[f]urther experience with these principles may lead to additional adjustments." These lines are omitted in the McNulty Memo. In its place one finds some interesting language that demonstrates the motivation of DOJ in presenting this revised memo. For example, in Part I of the Memo there are several references to "perception." Clearly the DOJ has been bombarded with criticisms for its actions regarding attorney-client privilege waivers. This recognition of how their actions "impact public perception" is noteworthy. This very long new Memo by DOJ, with clear emphasis on combating corporate crime, is clearly an attempt to keep as much as possible of existing rules in place, but also change the perception of the DOJ from being called the ones who are destroying the attorney-client privilege to the ones who are fighting corporate crime.
2. The problem with the DOJ categorization of materials, is that we see an executive agency legislating. They are creating rules that they can or cannot follow in their deciding when to violate the longstanding attorney-client privilege. The most important aspect here is that they are not only the ones who are deciding what the rules will be, but also how they will be interpreted, and what happens if they are not followed.
3. In Part II of the Memo it states - "an indictment often provides a unique opportunity for deterrence on a massive scale. In addition, a corporate indictment may result in specific deterrence by changing the culture of the indicted corporation and the behavior of its employees."
Since when is deterrence supposed to be forthcoming from an indictment? Shouldn't we have a trial first? And more importantly, shouldn't we first have a conviction?
4. So why does the Specter legislation provide a better alternative? The main reason is that it keeps within the executive branch - the executive functions. It allows the judiciary to provide the proper oversight and thus promotes a system with proper checks and balances.
5. Finally, back to the discussion with my co-blogger. The Specter bill does not explicitly have language for a remedy when there is a violation. This is no different from the McDade Amendment. A remedy was unnecessary there, as none is necessary here. Judges need to have discretion to provide for an appropriate remedy depending upon the circumstances. Judges, through caselaw, will interpret the statute to let prosecutors know what is proper and what is not. Who knows, maybe they will have a Leon type of an exception that allows the conduct to stand when the prosecutor acts in good faith.
Tuesday, December 12, 2006
The Department of Justice's latest guidance on prosecuting corporations, the newly-christened McNulty Memo, tries to assuage some of the concerns of corporations and various interest groups about the frequency with which federal prosecutors can request waiver's of the privilege. This latest iteration of the Department's policy is now even more complex than its predecessors, the Thompson and Holder Memos, by creating categories of privileged material and work product. On this blog, we will discuss various issues related to this new approach, but it remains an open question whether Congress will intervene and set the policy through the legislation that Senator Arlen Specter will introduce in the new Congress in January. As discussed in an earlier post (here), this legislation would prevent federal prosecutors from seeking a privilege waiver in any circumstances, along with other prohibitions. These are the two approaches, one legislative and one an internal guideline, that raise a number of interesting questions we plan to discuss here. The first issue we will talk about is whether there should be some enforcement mechanism along with the restrictions on requesting waivers,and the related question of the proper remedy for a violation.
Peter Henning: One significant weakness with the McNulty Memo appears in its name -- it is only an internal policy statement with no means to enforce its provisions except what the Department chooses to provide. While the Office of Professional Responsibility could investigate a complaint, the McNulty Memo has a hortatory value but not much else if there is a violation of its restrictions on privilege requests. The U.S. Attorney's Manual is quite explicit in its first provision that it "provides only internal Department of Justice guidance. It is not intended to, does not, and may not be relied upon to create any rights, substantive or procedural, enforceable at law by any party in any matter civil or criminal. Nor are any limitations hereby placed on otherwise lawful litigative prerogatives of the Department of Justice." USAM 1-1.100. The McNulty Memo will take the place of the Thompson Memo in the Manual, and be subject to the same limitation on its enforceability, or even usefulness outside of an internal Department investigation.
The "Attorney-Client Privilege Protection Act of 2006" that Senator Specter will introduce (I'm hopeful with "2007" at the end) in the next Congress similarly does not contain any enforcement mechanism or reference to what remedy might be available (or to whom) in case of a violation. One can argue that not including a remedial provision is a benefit because it creates maximum judicial discretion, but that can also lead to substantial inconsistency. More importantly, a crucial issue involved in the proposed legislation is identifying the goal Congress would hope to achieve if it enacts the bill. If the purpose is to eliminate what Congress views as prosecutorial misconduct, then providing a remedy against the prosecutor without directly interfering in the underlying investigation or prosecution would be a good approach. The focus of Senator Specter's bill is on the request for a waiver and the decision whether to institute charges, and not as much with providing that information. The bill acknowledges that a corporation can voluntarily waive its privilege and work product protection, so I think the focus is on the prosecutor and not simply protecting information.
I would be surprised if a federal prosecutor made a request that arguably violated the bill and was not immediately the subject of a protest to the U.S. Attorney, Main Justice, and the courts about the legal violation. I think it is unlikely that a company would provide privileged information and protected work product and then later come to the realization that the request violated the Attorney-Client Privilege Protection Act. The question, then, is if the primary concern is prosecutorial misconduct, can a remedial provision be attached to the bill that would fulfill that purpose?
One area that has some similarity to this issue is Federal Rule of Criminal Procedure 6(e)'s provision for pursuing violations of the grand jury secrecy requirement. Rule 6(e)(7) provides: "A knowing violation of Rule 6, or of guidelines jointly issued by the Attorney General and the Director of National Intelligence pursuant to Rule 6, may be punished as a contempt of court." This provision concerns prosecutorial misconduct, and permits a direct punishment of the government attorney for a violation. Moreover, the provision requires proof of knowledge, and provides that a violation "may be punished." These limitations give the courts flexibility to find that a de minimis or technical violation does not merit contempt, while a serious transgression could even be punished with a fine or jail sentence. This strikes me as a workable provision under Senator Specter's legislation, and could be added quite easily as a single sentence amendment.
One possible objection is that such a provision only addresses the prosecutor's conduct but not the effect on the investigation. To address that issue, a provision similar to Federal Rule of Criminal Procedure 41(g) could be added. That Rule provides, "A person aggrieved by an unlawful search and seizure of property or by the deprivation of property may move for the property’s return." Similarly, language could be added so that a company aggrieved by a violation of the act could move for the return of documents and a restoration of the privilege and work product protection for any information it was compelled to turn over in violation of the law. If the case ever came to trial, a court could ensure that the government did not use privileged information, something every trial just is empowered to do already.
If the goal of the bill is to give corporations, and perhaps their employees, a means to block an investigation or have an indictment dismissed, then leaving judges the widest discretion may be the way to achieve that purpose. The discussion about the legislation has been focused on the need to protect the privilege, and I think there are some fairly simple procedural mechanisms to punish prosecutorial misconduct and restore privileged communications and work product to their prior state that can give the courts real guidance on how to proceed in cases that arise five and ten years down the line. Enacting a law prohibiting conduct without any direction on how it should be applied creates significant uncertainty that may result in inconsistent results. If the legislation does create (or restore) an important right, then it should have a remedy. (ph)
Ellen S. Podgor - Although I agree with many of the points made by my co-blogger, there are several aspects that we do part ways. So stay tuned to a forthcoming entry that will discuss another approach. It will specifically look at why it is important to provide judges with flexibility in fixing a remedy for a violation, why existing statutes of a similar nature mirror this approach, and why the focus of Senator Specter's bill is on the information, more specifically on protecting a privilege that is at the bedrock of our adversarial system. (esp)
It looks like DOJ has decided to try and save itself from legislation (here) concerning the attorney-client privilege waivers, by issuing a revision to the Thompson Memo. DOJ issued a press release that tells of Paul McNulty's talk to Lawyers for Civil Justice in New York. The new McNulty Memo and an Executive Summary are below. The press release states in part:
"The new guidance requires that prosecutors must first establish a legitimate need for privileged information, and that they must then seek approval before they can request it. When federal prosecutors seek privileged attorney-client communications or legal advice from a company, the U.S. Attorney must obtain written approval from the Deputy Attorney General. When prosecutors seek privileged factual information from a company, such as facts uncovered in a company’s internal investigation of corporate misconduct, prosecutors must seek the approval of their U.S. Attorney. The U.S. Attorney must then consult with the Assistant Attorney General of the Criminal Division before approving these requests.
"The guidance cautions prosecutors that attorney-client communications should be sought only in rare circumstances. If a corporation chooses not to provide attorney-client communications after the government makes the request, prosecutors are directed not to consider that declination against the corporation in their charging decisions. Prosecutors are told to request factual information first and make sure they can establish a legitimate need to go further before requesting a waiver of privilege to obtain attorney-client communication or legal advice.
"The new memorandum also instructs prosecutors that they cannot consider a corporation’s advancement of attorneys’ fees to employees when making a charging decision. A rare exception is created for those extraordinary instances where the advancement of fees, combined with other significant facts, shows that it was intended to impede the government’s investigation. In those limited circumstances, fee advancement may be considered only if it is authorized by the Deputy Attorney General."
It is certainly wonderful to see the DOJ realizing the importance of the right to counsel, and how asking for a waiver of attorney fees can be problematic to making certain that the accused has appropriate legal counsel. In light of the Stein case, this is certainly a step in the correct direction.
But with regard to the attorney-client privilege, the new McNulty Memo does not go far enough. For one, it is commonly known that DOJ guidelines are nothing more than internal guidelines that are unenforceable at law. So if an AUSA fails to follow this guideline, and forgets to seek approval before requesting a waiver, there is nothing that the accused can do in response. This is exactly why, Specter's legislation is needed. As long as the possibility exists that DOJ will allow someone to ask for a waiver of the attorney-client privilege, the privilege is in jeopardy.
What is not mentioned here is that DOJ always has the right to secure a waiver with a court through the crime-fraud exception. It is sad that this new Memo tries to bypass judicial review by having the DOJ do internally what is clearly against the long standing privilege.
On the bright side - Larry Thompson is probably happy to see a new name on this memo.
Saturday, December 9, 2006
Senator Specter's bill on attorney-client privilege is certainly receiving some commentary on this blog - here and here. And although my co-blogger and I agree on most items, this topic is one that I feel compelled to respond to his comments here.
1. This bill will survive - I disagree that this bill will be lost in oblivion (although my co-blogger does not expressly state this and this is my interpretation of the commentary that states that the session is ending and Specter will no longer be chair of the Senate Judiciary Committee). The coalition backing this bill is like none other seen before. It crosses both political and ideological boundaries. It includes the ABA, the National Association of Criminal Defense Lawyers (NACDL), Edwin Meese, Richard Thornburgh, some associated with the CATO Institute, the U.S. Chamber of Commerce and the National Association of Manufacturers (see here and here) as well as others. (some citations from Alan Childress' Legal Profession Blog here) The bottom line is that Sen. Specter will be proceeding ahead on this one in the next session. Why? Because the DOJ has done nothing to correct this situation and the political change in legislature is not likely to influence the strong support that this bill will receive.
2. What's the procedure? Mr co-blogger questions the lack of guidance offered by the bill on what a court should do if there is a question of a violation. Yes, what if a prosecutor decides to violate this law by improperly requesting attorney-client privileged material? It is true that a remedy is not included here, but it is also good that none is stated. It would be a shame to stifle the judiciary in finding an appropriate remedy to fit the particular circumstances. Obviously if the circumstances warrant dismissal then that is what should occur, and the government may be seeking review in a higher tribunal. But often, such an extreme remedy would not be necessary and the court needs to have the flexibility to either exclude evidence or preclude its use in further proceeding. Is this not done in cases of a violation of immunity, so why can't it be done here (see the Hubbell case).
3. What's the standard? Clearly if there is an alleged violation, then the government has the burden to show otherwise. Does this need to be stated in the legislation? No, it usually isn't in federal legislation of this nature, and is certainly presumed in light of the fact that the legislation calls for prosecutors not to be asking for the attorney-client privilege waivers.
4. What's the remedy? See # 2 above. And more importantly, if prosecutors follow the law then a remedy won't be needed.
5. Will this legislation encourage corporations to act unscrupulously? Absolutely not. The scenario presented by my co-blogger is one of obstruction of justice. This is not a pre-arranged contractual relationship that is being voided by the government through its asking of a waiver of an attorney-client privilege. Just like individuals have a right to assert a 5th Amendment privilege - a corporate executive instructing a lower level employee that they have to assert the privilege raises issues of undue influence that may trigger the obstruction statutes. It is also important to mention that nothing in the statute precludes prosecutors from securing needed information by going to a judge and presenting evidence of the existence of a crime or fraud. The crime-fraud exception is not eradicated by this statute.
6. Could there be a constitutional problem? This same issue was raised pre-the-McDade Amendment by prosecutors who argued that the judiciary could not usurp the legislative role. Congress stepped in with legislation to preclude prosecutors from acting unethically in court. And the legislation passed and remains valid today. It is no different here. Prosecutor's via this proposed legislation are being given a rule as to what will be allowed in their investigation of criminal matters. This is clearly within the legislative function.
This bill is clearly one that aims toward returning our system to one that honors, as opposed to ignores, the attorney-client privilege. It is unfortunate that DOJ failed to get its act together timely to rewrite the Thompson Memo so that it omits this language. And perhaps realizing that the Specter bill is hanging over its head, such a move will now be forthcoming. But if forced to proceed with this legislation because of DOJ inaction, it is important for this legislation to permit judges to be judges and find appropriate remedies to fit the situation. A one-size-fits-all remedy in a statute will preclude the judiciary from tailoring the remedy to fit the particular unethical circumstances of the rogue prosecutor.
(esp)(w/disclosure that she serves on the board of directors of the NACDL).
Senator Arlen Specter's legislative proposal, The Attorney-Client Protection Act of 2006 (here), would roll back portions of the Thompson Memo on the considerations that go into deciding whether to prosecute a corporation, if Congress enacts it. The legislation may go beyond just organizations by protecting "any communication" covered by the attorney-client privilege and not just those of a corporation. Perhaps more importantly, while the title refers to the privilege and includes the work product protection, it also extends to prohibiting consideration of a company's decision to pay the attorney's fees of an employee under investigation, entering into a joint defense agreement with employees, and refusing to terminate a person's employment if the employee does not cooperate in an investigation. This language has little to do with the privilege directly, and largely tracks the ABA's criticism of the Thompson Memo adopted this past August. It also reaches beyond just criminal prosecutions by covering civil enforcement actions, which means the SEC, FTC, and OIGs, among others, that pursue civil actions would also be governed by the legislation.
The proposal is certainly interesting, and addresses problems that have developed since the adoption of the Thompson Memo and its predecessor, the Holder Memo. Nevertheless, the bill will not go anywhere in the current Congress because the session is over and a bill will have to be introduced in the 110th Congress that convenes in January, when Senator Specter will no longer chair the Judiciary Committee. In analyzing the legislation, some issues that may be worth thinking about include:
- What's the procedure? While the proposal says that in a civil or criminal investigation the government shall not "demand, request, or condition treatment" of an organization on its decision to waive the privilege, pay an employee's attorney's fees, etc., it does not say what will happen if someone alleges a violation of the law. Who can challenge the government if there is a belief that such a "demand, request or condition" has occurred? Most likely the corporation can raise the issue because that's whose rights are being protected, but could an individual investigative target, such as an employee, bring a challenge? If so, and particularly if this is during the pre-indictment phase of an investigation, there may be substantial grand jury secrecy issues if discovery were permitted. A procedure similar to raising a Rule 6(e)(7) contempt challenge to improper disclosure of grand jury information might be used, but the law says nothing about what a court is supposed to do, so some guidance may be helpful.
- What's the standard? Imagine this scenario, unlikely as it might be: an attorney whose corporate client is under investigation meets with the prosecutor and states that the company will pay all attorney's fees and will not waive any privilege, and that if the company is indicted then that decision will be challenged because the decision must have been affected by the company's posture on these issues. If an indictment takes place, will there be a hearing on the company's challenge at which it can take discovery of the government's decision-making process? If so, who bears the burden of production and persuasion, and can a court grant discovery on the issue? Mini-trials are not welcomed in criminal cases, and there would be issues whether the propriety of the charges could be considered by a court hearing a challenge. The Supreme Court has been reluctant to permit discovery of the exercise of prosecutorial discretion, and this legislation goes to those charging decisions, so this is another issue that should at least be considered.
- What's the remedy? Closely tied to the procedural issue is what remedy a court could grant if a violation were found. No doubt, investigative targets would want the investigation enjoined, or an indictment dismissed. But where would a court get its authority to do that? The language of Senator Specter's proposal says nothing about this crucial issue. The Supreme Court has restricted the supervisory power of the courts to redress prosecutorial misconduct by dismissing indictments, and stopping a criminal investigation may be extreme if an indictment has not issued, especially if it ends up protecting culpable individuals. The Court in U.S. v. Williams, 504 U.S. 36 (1992), acknowledged that supervisory power could be used to dismiss an indictment for a violation of a clear statutory or constitutional right, so this proposal might grant a court that authority. That said, is dismissal of an indictment proper if a corporation's employees engaged in wrongdoing and the prosecutors sought a waiver of the privilege? Congress may want to be a bit more clear on what happens if there is a violation, and whether any remedy would extend to individuals who are not the privilege holder, such as an employee. Again, the Rule 6(e)(7) contempt model of a contempt proceeding might be a workable approach, so that the underlying investigation or prosecution is unaffected by the prosecutorial misconduct.
- Will this legislation encourage corporations to act unscrupulously? The legislative prohibition may create an unintended incentive for a corporation -- or more particularly its senior executives -- to try to keep lower-level employees from cooperating if there is no downside to doing so. While one would hope this never happens, imagine a corporation and its senior officers are being investigated for a criminal violation, and the company tells its employees that any of them who cooperate with the government will not have their attorney's fees paid by the company, but if they refuse to cooperate then all their fees will be paid and the company will not waive the privilege or work product protection. Even worse, it tells them that if called to testify before a grand jury they should assert their Fifth Amendment privilege and refuse to testify. Could the government take that conduct into consideration in deciding whether to prosecute the company? The bill's language is categorical that the government cannot "condition a civil or criminal charging decision" on the issue of fee payments, privilege waivers, joint defense agreements, information sharing, and retaining uncooperative employees. Of course, the conduct by the senior executives might be an obstruction of justice, but the discussions on attorney's fee payments and cooperation may be protected by a joint defense agreement, and the government could not seek a waiver to learn about the discussion. The legislation could produce a "beware what you wish for" response because it could make prosecutors more reluctant to charge an organization, so the government will charge individual officers more frequently, even in close cases if there's any suspicion of executive stonewalling. This raises the "criminalization of agency costs" issue that has been discussed by some.
- Could there be a constitutional problem? I won't pretend to be an expert on constitutional law, particularly separation of powers questions, but this legislation strikes me as unique in having the Legislative Branch direct the Executive Branch in the exercise of its authority to decide who to prosecute on the basis of investigatory considerations. While courts have imposed limits on prosecutors regarding charging decisions based on protected categories like race and sex, the legislature's role is to define the crimes and then leave it to the executive to enforce the law. Here, the legislation tells prosecutors what they may not consider in making a charging decision, even if the conduct might have probative weight (e.g. conditioning payment of attorney's fees on not cooperating) regarding corporate criminality. Courts have been quite reluctant to second-guess prosecutorial charging decisions absent strong proof of an impermissible motive, and there could be a constitutional issue raised by the legislation.
I've gone on way to long, but these are some of the issues I would like to see explored if the next Congress is going to pursue Senator Specter's proposal. If the goal of the legislation is to bail corporation's out of criminal prosecutions, then the bill may not be the best idea. If it is a serious effort to protect the privilege and not simply insulate organizations from civil and criminal liability, then Congress should address not only how best to go about doing that, but also what happens if there is a violation, and how to keep corporate executives from perhaps misusing the protections Congress may afford companies. (ph)
Saturday, December 2, 2006
David Seide has an article in The Review of Securities and Commodities Regulation titled "Compelled Waivers of the Attorney-Client Privilege." The article discusses the application of the Stein opinions to the privilege waiver provisions found in the Thompson Memo and the SEC's Seaboard Report.