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.
Monday, November 27, 2006
Upcoming Event of the Heritage Foundation RSVP here.
The Future of the Attorney-Client Relationship in White-Collar Prosecutions
|Date:||November 30, 2006|
|Time:||11:00 a.m. to 12:00 p.m.|
The Honorable George J. Terwilliger III
With Introductory Remarks by
Director, Practice Groups,
The Federalist Society
Brian W. Walsh
Senior Legal Research Fellow,
The Heritage Foundation
Saturday, November 18, 2006
Bloomberg News is reporting here that DOJ officials are reconsidering their practice of requesting waivers of attorney-client privilege by corporations. But it also sounds like they aren't ready to just plain ban this DOJ practice. Instead, it may just be a baby step in this direction.
One change mentioned is to require approval from top DOJ officials before seeking a waiver from a company of their attorney-client privilege. Approvals from high level DOJ officials are common in existing DOJ guidelines. For example, using RICO requires approval, as does some actions involving international affairs. But these actions that require approval are a far cry from the present practice of disregarding a basic common law privilege.
This is the second time that DOJ would be modifying the practice, with the first time requiring merely a set practice within each USA's office. (see here) This new step would bring the issue to a higher level, but it certainly will not alleviate the problem.
Friday, September 29, 2006
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’s 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)
Thursday, September 28, 2006
The first panel before the House Energy & Commerce Subcommittee investigating "pretexting" by Hewlett-Packard has come and gone, and all of them asserted their Fifth Amendment privilege and refused to answer questions. Among those who asserted the Fifth were H-P's former general counsel, Ann Baskins, who announced her resignation shortly before the hearing, former chief ethics officer Kevin Hunsaker, and former security chief Anthony Gentilucci. In addition, all the private investigators who assisted in the pretexting for H-P asserted their self-incrimination privilege.
After the dismissal of the witnesses, Rep. Joe Barton, the chairman of the full committee, said that he had never seen an entire panel take the Fifth Amendment and lamented the inability of the Subcommittee to gather information. It is clear, however, that holding a hearing while there are ongoing federal and state criminal investigations, including an assertion by the California State Attorney General that crimes took place, is almost a guarantee that witnesses who were involved in the alleged misconduct will assert their constitutional privilege before knowing where the criminal investigations are going. It may be hard for Congress to hear this, but criminal liability is much more important to a witness than what a committee or subcommittee wants to hear. For those interested in listening to the hearing, it is available on the Subcommittee website (here). (ph)
Thursday, September 21, 2006
The attention in the Hewlett-Packard investigation will turn to Congress on September 28 when a subcommittee of the House Energy & Commerce Committee grills chairwoman Patricia Dunn, general counsel Ann Baskins, outside counsel Larry Sonsini, and security manager Anthony Gentilucci. Outside private investigator Ronald DeLia, who has been linked to the "pretexting" that is the ostensible subject of the hearing, will assert his Fifth Amendment privilege (see Bloomberg story here). An article in The Recorder (here) lists the various white collar crime practitioners who have been retained by Dunn, Baskins, Sonsini, and H-P's chief ethics officer, Kevin Hunsaker. I assume the company is paying for all the attorneys, and it is likely that some -- or even all -- of the other board members have retained counsel.
An interesting question will be whether Baskins, Sonsini, and Hunsaker, if he is asked to testify, will assert the attorney-client privilege in response to questions at the hearing. A New York Times article (here) quotes from an e-mail Hunsaker sent that explains the reason why he was taking over supervision of H-P's internal investigation: "Ann Baskins has asked me to oversee the investigation into this in order to protect the attorney-client privilege in the event there is litigation or a government inquiry of some sort." Well, the government inquiry is here, and there may well be a privilege waiver already.
Even if the witnesses attempt to assert the attorney-client privilege, it is not entirely clear that Congress recognizes such a claim to prevent testimony. There have been instances in the past in which Congressional committees rejected attorney-client privilege claims on the ground that the Legislative Branch does not recognize common law privileges, as opposed to a constitutional privilege such as the Fifth Amendment. For example, in hearings related to the Ferdinand and Imelda Marcos regime, a committee recommended contempt for lawyers who asserted the privilege, although the contempt citation ultimately rested on the basis that there was no attorney-client relationship. A recent article in the American Criminal Law Review entitled "Congressional Investigations and the Role of Privilege" discusses the issues (43 Am. Crim. L. Rev. 165 (2006)). There is a chance that a broad attorney-client privilege claim by Baskins or Sonsini could trigger a move to hold either in contempt, although I expect that the parameters of their testimony will be worked out in advance.
The lawyers who will be witnesses have to be equally careful about guarding the attorney-client privilege, regardless of how Congress views its right to reject a common law privilege claim. Under California law, which covers Baskins and Sonsini, they are required to "maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client." (Cal. Bus. & Prof. Code Sec. 6068(e)(1)) It's that "at every peril" language that could put them at risk if Congress were decide to push the privilege issue, however unlikely that may be. In their testimony, the California lawyers have to be especially careful in what they say. (ph)
Friday, September 8, 2006
A group of former senior Department of Justice officials, including former Attorney Generals Griffin Bell and Dick Thornburgh, and former Solicitor Generals Ted Olson, Ken Starr, and Seth Waxman, sent another letter (available below) to Attorney General Alberto Gonzales asking that the Department revise the Thompson Memo "to state affirmatively that waiver of attorney-client privilege and work-product protections should not be a factor in determining whether an organization has cooperated with the government in an investigation." The letter comes in advance of a hearing before the Senate Judiciary Committee on September 12 on "The Thompson Memorandum’s Effect on the Right to Counsel in Corporate Investigations." Virtually all of the former Department officials are now in private practice, and many of their firms represent corporate clients. Moreover, two signatories, Ted Olson and Seth Waxman, were in the Department when the Thompson Memo and its predecessor, the Holder Memo, were issued. It would be interesting to learn whether they took the same position on this issue during their time in government. A Legal Times story (here) discusses the letter sent to A.G. Gonzales. (ph)
Wednesday, August 16, 2006
Two reporters for the San Francisco Chronicle, Mark Fainaru-Wada and Lance Williams, have been ordered to testify before a federal grand jury about the leak of the grand jury testimony of major league baseball players who testified in 2003 about receiving steroids from Balco (Bay Area Laboratory Co-operative). Among those whose testimony reached the reporters is San Francisco Giants slugger Barry Bonds, who stated to the grand jury that he did not knowingly use steroids provided by his personal trainer who also worked at Balco. Bonds is now the target of a separate grand jury investigation into possible perjury, and the Department of Justice has also been investigating the leak for well over a year. Fainaru-Wada and Williams published the book Game of Shadows that asserted Bonds used steroids for a number of years, which apparently triggered baseball's investigation of steroid use and may have stimulated the perjury investigation.
U.S. District Judge Jeffrey White issued an opinion (In re Grand Jury Subpoenas to Mark Fainaru-Wada and Lance Williams available below) rejecting the reporters' assertion of a journalist privilege to maintain the confidentiality of sources, and found that the grand jury subpoenas were not "unreasonable or oppressive" under Federal Rule of Criminal Procedure 17(c). The decision to enforce the subpoenas is consistent with the decisions reached in the Special Counsel's investigation of the leak of Valerie Plame's identity as a CIA agent in which former New York Times reporter Judith Miller spent almost three months in jail on a civil contempt before I. Lewis Libby released her from the promise of confidentiality. See In re Grand Jury Subpoena, Judith Miller, 438 F.3d 1141 (D.C. Cir. 2006). Among those filing affidavits in support of the two reporters were former baseball commissioner Fay Vincent and well-known journalist and author Carl Bernstein.
The reporters are unlikely to testify before the grand jury and could end up in jail for civil contempt, a fate that has already befallen Bonds' former personal trainer, Greg Anderson, who refused to testify in the perjury investigation. While Judith Miller's source released her from the confidentiality agreement, that is probably less likely to occur here because of the substantial legal risks that person (or persons) faces. The leak of grand jury material is punishable as a criminal contempt under Rule 6(e)(7). Moreover, during the government's investigation, it appears that all parties to the Balco case with access to the leaked grand jury testimony have stated they did not disclose it, so revealing the source of the information could well open that person up to additional charges of perjury, obstruction of justice, and making a false statement (Sec. 1001). The two reporters may be in jail for quite a while if the case is being investigated by the new grand jury empaneled in July in the Bonds perjury investigation because the civil contempt lasts for the panel's term, which could be until January 2008 (assuming it's not extended another six months). (ph)
Monday, August 14, 2006
One might find voice samples being requested by the government in street crime cases, especially ones where the accused is thought to have made a threatening telephone call or a statement at the scene of the crime. But in a white collar case?
Yes, AP reports here that a judge has allowed the government to obtain voice samples from three individuals charged in the "theft of trade secrets from The Coca-Cola Co." case. This case originates when Pepsi turned over evidence to Coca-Cola that someone was trying to sell them alleged trade secrets.
In the case of United States v. Dionisio, 410 U.S. 1 (1973), the Supreme Court held that requiring a grand jury witness to produce voice exemplars would not violate constitutional rights under the Fourth and Fifth Amendments.
Saturday, August 5, 2006
The Stein case (KPMG related) has been a subject of a good number of posts on this blog. (e.g., here and here). Here is one to add to this collection, as Joan Rogers has an extremely thorough and thoughtful article in the ABA/BNA Lawyers' Manual on Professional Conduct. The ABA and BNA have been kind enough to allow this blog to provide direct access to this article. (Download PDFArtic.pdf)
The article dissects Hon. Lewis Kaplan's decision and provides extensive commentary on the decision. It also places it in context with happenings on this issue in the ABA and the New York State Bar Association.
The Wall Street Jrl reports here of other happenings on this case.
Wednesday, July 26, 2006
In the usual case in which a grand jury issues a subpoena for documents, the recipient determines what is responsive and, if necessary, asserts any attorney-client privilege and work product protection claim by refusing to turn over the records. At that point, the ball is in the government's court to either challenge the claimed privilege or protection, or to assert the crime-fraud exception to undermine the claim. A recent decision by the Sixth Circuit in In re Grand Jury Subpoenas 04-124-03 and 04-124-5 (here) essentially follows that model when a third party held the documents and was willing to turn them over to the government despite a privilege claim by the target of the investigation.
The investigation concerns Venture Holdings and possible looting of the company by its former owner, Larry Winget, before it went into bankruptcy. As a result of the bankruptcy, new ownership took control of Venture (called "New Venture" in the opinion), and when a grand jury investigation began regarding questionable transactions at Venture, New Venture received a subpoena for documents that it was more than happy to comply with, including waiving any corporate attorney-client privilege. At this point, Winget stepped in and claimed that records held by New Venture included documents covered by his personal attorney-client privilege. The district court accepted the government's suggestion that a "taint team" made up of a prosecutor and investigator with no connection to the case -- behind the so-called "Chinese Wall" -- review the documents and determine which ones were subject to a privilege claim. Under the government's proposal, if the taint team determined that a document was not privileged, it would go straight to the personnel assigned to the grand jury investigation without a chance for Winget to challenge that decision, at least not until after disclosure of the document.
It was this step in the process that cause the Sixth Circuit to reject the taint team and instead permit the privilege claimant to make the initial determination on the privileged nature of the documents, as if the subpoena were served directly rather than on a cooperative the third party. The court expressed some hesitation about the fairness of the proposed government review, stating:
It is reasonable to presume that the government’s taint team might have a more restrictive view of privilege than appellants’ attorneys. But under the taint team procedure, appellants’ attorneys would have an opportunity to assert privilege only over those documents which the taint team has identified as being clearly or possibly privileged. As such, we do not see any check in the proposed taint team review procedure against the possibility that the government’s team might make some false negative conclusions, finding validly privileged documents to be otherwise; that is to say, we can find no check against Type II errors in the government’s proposed procedure. On the other hand, under the appellants’ proposal, which incidentally seems to follow a fairly conventional privilege review procedure employed by law firms in response to discovery requests, the government would still enjoy the opportunity to challenge any documents that appellants’ attorneys misidentify (via the commission of Type I errors) as privileged. We thus find that, under these circumstances, the possible damage to the appellants’ interest in protecting privilege exceeds the possible damage to the government’s interest in grand jury secrecy and exigency in this case. Therefore, we reverse the district court, and hold that the use of a government taint team is inappropriate in the present circumstances. Instead, we hold that the appellants themselves must be given an opportunity to conduct their own privilege review; of course, we can presently make no ruling with respect to the merits of any claimed privilege that may arise therefrom.
Government taint teams have been used primarily in law office search cases in which documents seized are within the government's control, and there has been quite a bit of controversy about them because the same incentives identified by the Sixth Circuit are present. While In re Grand Jury Subpoenas is a subpoena case, so the court is merely putting the privilege claimant in the same position he would have been in if the he received the subpoena directly, the court's rationale regarding taint teams could be applied to challenges to searches involving privileged documents. (ph)
Tuesday, June 27, 2006
If one were ranking decisions by the quality of the writing, Hon. Lewis Kaplan's decision would be very high on the list, as it ranks in quality with those authored by Learned Hand. From the opening passage that states -
"Those who commit crimes - regardless of whether they wear white or blue collars - must be brought to justice. The government, however, has let its zeal get in the way of its judgment. It has violated the Constitution it is sworn to defend."
To the detailed footnotes, like seen in footnote 13 -
"Mr. Thompson was quoted in the press as having defended pressuring companies to cut off payment of defense costs for their employees on the ground that "they [the employees] don’t need fancy legal representation" if they do not believe that they acted with criminal intent. Laurie P. Cohen, In the Crossfire: Prosecutors’ Tough New Tactics Turn Firms Against Employees, WALL. ST. J., June 4, 2004, A1. Naturally, the Court does not consider it in deciding this matter, as it is not in evidence. It notes, however, that such a view, whether held by Mr. Thompson or anyone else, would be misguided, to say the least.
"The innocent need able legal representation in criminal matters perhaps even more than the guilty. In addition, defense costs in investigations and prosecutions arising out of complex business environments often are far greater than in less complex criminal matters. Counsel with the skills, business sophistication, and resources that are important to able representation in such matters often are more expensive than those in less complex criminal matters. Moreover, the need to review and analyze frequently voluminous documentary evidence increases the amount of attorney time required for, and thus the cost of, a competent defense. Thus, even the innocent need substantial resources to minimize the chance of an unjust indictment and conviction.
This decision is a masterpiece. The interesting question now will be whether the Thompson Memo survives in light of this decision. Here my answer is yes. Prosecutors need cooperation. Prosecutors also need corporations to have compliance programs that will assist in diminishing fraudulent conduct. Having cooperation and compliance programs, however, is a far cry from seeking to waive the attorney-client privilege or asking a corporation to waive attorney fees that were contractually agreed upon prior to the government investigation or indictment.
The defendants in this case will eventually enter pleas or go to trial. And if convicted they will be sentenced. But this decision will make the eventual verdict fairer, and for that we should all thank Judge Lewis Kaplan.
Highlights from the opinion by Judge Lewis Kaplan:
- "The Thompson Memorandum and the USAO pressure on KPMG to deny or cut off defendants' attorneys' fees necessarily impinge upon the KPMG Defendants' ability to defend themselves."
- "If the government means to take the payment of legal fees into account in making charging decisions only where the payments are part of an obstruction scheme - and thereby narrowly tailor its means to its ends- it would be easy enough to say so. But that is not what the Thompson Memorandum says."
- "The Thompson Memorandum discourages and, as a practical matter, often prevents companies from providing employees and former employees with the financial means to exercise their constitutional rights to defend themselves. This is so even where companies obstruct nothing and, to the contrary, do everything within their power to make a clean breast of the facts to the government and to take responsibility for any offenses they may have committed. It undermines the proper functioning of the adversary process that the Constitution adopted as the mode of determining guilt or innocence in criminal cases. The actions of prosecutors who implement it can make matters even worse, as occurred here."
- "[T]he government's interference in the KPMG Defendants' ability to mount a defense 'creates an appearance of impropriety that diminishes faith in the fairness of the criminal justice system in general.'"
The remedy is not a dismissal of the action, but rather:
"1. The Court declares that so much of the Thompson Memorandum and the activities of the USAO as threatened to take into account, in deciding whether to indict KPMG, whether KPMG would advance attorneys’ fees to present or former employees in the event they were indicted for activities undertaken in the course of their employment interfered with the rights of such employees to a fair trial and to the effective assistance of counsel and therefore violated the Fifth and Sixth Amendments to the Constitution.
2. The government shall adhere to its representation that any payment by KPMG of the defense costs of the KPMG Defendants is acceptable to the government and will not be considered in determining whether KPMG has complied with the DPA or otherwise prejudice KPMG.
3. The Clerk shall open a civil docket number to accommodate the claims of the KPMG Defendants against KPMG for advancement of defense costs should they elect to pursue them. If they file a complaint within 14 days, the Clerk shall issue a summons to KPMG. The Court in that event will entertain the claims pursuant to its ancillary jurisdiction over this case.
The motions are denied insofar as they seek monetary sanctions against the government. The Court reserves decision as to whether to grant additional relief." (citations omitted)
Wednesday, June 21, 2006
The Tenth Circuit joined every other federal circuit aside from the Eighth Circuit in rejecting the "selective waiver" approach to the attorney-client privilege and work product protection, which means that documents provided to the government cannot be withheld on either a privilege or work product claim. The decision arises from the private securities fraud claims filed against Qwest Communications after the Department of Justice and the SEC began investigating the company when it disclosed in 2002 that there were substantial accounting problems. As part of that investigation, Qwest voluntarily turned over to the government more than 220,000 pages that were subject to privilege and work product claims. Qwest settled an SEC civil enforcement action in November 2004 by paying a $250 million penalty. In the consolidated securities class action, the plaintiffs demanded production of the documents turned over to the government, which the district court ordered.
In a mandamus action to the Tenth Circuit, In re Qwest Communications International Inc. Securities Litigation (here), Qwest argued that the court should adopt the selective waiver analysis from the Eighth Circuit decision in Diversified Industries v. Meredith, 572 F.2d 596 (8th Cir. 1977) (en banc), that would permit it to assert the attorney-client privilege and work product protection because it only intended to waive the privilege with regard to the government agencies and not private parties. The court noted that every other circuit has rejected that position with regard to waiver of the attorney-client privilege, and, aside from attorney opinion work product, the same result applied to general work product claims, including the Eighth Circuit. The court rejected the argument that a failure to recognize selective waiver in the current "culture of waiver" would result in less cooperation by corporations with law enforcement investigations, stating:
[H]aving considered the purposes behind the attorney-client privilege and the work-product doctrine as well as the reasoned opinions of the other circuits, we conclude the record in this case is not sufficient to justify adoption of a selective waiver doctrine as an exception to the general rules of waiver upon disclosure of protected material. Qwest advocates a rule that would preserve the protection of materials disclosed to federal agencies under agreements which purport to maintain the attorney-client privilege and work-product protection but do little to limit further disclosure by the government. The record does not establish a need for a rule of selective waiver to assure cooperation with law enforcement, to further the purposes of the attorney-client privilege or work-product doctrine, or to avoid unfairness to the disclosing party. Rather than a mere exception to the general rules of waiver, one could argue that Qwest seeks the substantial equivalent of an entirely new privilege, i.e., a government-investigation privilege. Regardless of characterization, however, the rule Qwest advocates would be a leap, not a natural, incremental next step in the common law development of privileges and protections. On this record, "[w]e are unwilling to embark the judiciary on a long and difficult journey to such an uncertain destination." Branzburg v. Hayes, 408 U.S. 665, 703 (1972).
The Tenth Circuit noted that adoption of a selective waiver provision is better left to Congress and the rulemaking committee of the Judicial Conference, which has proposed a new Evidence Rule 502(c) (here) on this issue, which if adopted will provide:
In a federal or state proceeding, a disclosure of a communication or information covered by the attorney-client privilege or work product protection — when made to a federal public office or agency in the exercise of its regulatory, investigative, or enforcement authority — does not operate as a waiver of the privilege or protection in favor of non-governmental persons or entities. The effect of disclosure to a state or local government agency, with respect to non-governmental persons or entities, is governed by applicable state law. Nothing in this rule limits or expands the authority of a government agency to disclose communications or information to other government agencies or as otherwise authorized or required by law.
Without selective waiver in this case, counsel for the plaintiffs now get to wade through a mountain of documents that Qwest will have to produce. (ph)