December 09, 2006
What Does the Attorney-Client Protection Act of 2006 Do?
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)
November 25, 2006
Preserving Crime Victims' Restitution Act of 2006
Perhaps better described as the "Recoup Ken Lay's Money Because He Had the Temerity to Die on Us Act," the text of S. 4055 (here) provides that restitution can be ordered for any case pending on July 1, 2006, in which the defendant died before sentencing and appeal. First proposed by the Department of Justice in August 2006, Senators Feinstein and Sessions introduced the bill during the lame duck session after the November mid-term elections, and at this point the bill is unlikely to pass unless it is attached to a more pressing piece of legislation. A more likely scenario is that it will be reintroduced in the next session beginning in January 2007. The basic thrust of the legislation is:
`(a) General Rule- Notwithstanding any other provision of law, the death of a defendant who has been convicted of a Federal criminal offense shall not be the basis for abating or otherwise invalidating a plea of guilty or nolo contendere accepted, a verdict returned, a sentence announced, or a judgment entered prior to the death of that defendant, or for dismissing or otherwise invalidating the indictment, information, or complaint on which such a plea, verdict, sentence, or judgment is based, except as provided in this section.
We shall see how far the proposal goes in the legislative process. (ph)
November 17, 2006
Feinstein and Sessions Introduce DOJ-Backed Bill to Overturn Abatement Doctrine
California Senator Diane Feinstein and Alabama Senator Jeff Sessions introduced a bill in the Senate to enact the Department of Justice's proposal to overturn the abatement doctrine that led to the dismissal of the indictment and conviction of former Enron CEO Ken Lay after his death in July 2006. The Department had asked U.S. District Judge Sim Lake to postpone dismissing the case while it sought Congressional action to enact a retroactive reversal of the abatement doctrine (see earlier post here), but the bill was never introduced before Judge Lake finally acted on a motion by Lay's estate on October 18. The Fifth Circuit affirmed that decision a short time later.
The effect of the abatement doctrine, as discussed in an earlier post (here), is that the entire case disappears, which means that any asset forfeiture action must proceed as a civil case against the estate and not as an adjunct to the criminal conviction, and there can be no restitution order because the conviction is removed from the record. A Houston Chronicle story (here) quotes Senator Feinstein reiterating the victims rights rationale first offered by the DOJ for getting rid of the abatement doctrine. Given that a majority of the federal departments do not have a budget yet and the change of party control in Congress will cause much distraction, it is unlikely the bill will go anywhere during the lame duck session. While it can be reintroduced in the new Congress in January, the Senate Judiciary Committee may have more pressing business, although bi-partisan sponsorship certainly gives the bill a chance. (ph)
UPDATE (Nov. 25): The text of S. 4005, entitled "Preserving Crime Victims' Restitution Act of 2006" is available here. (ph)
October 02, 2006
Making "Pretexting" a Crime
At the House Energy & Commerce Subcommittee hearings on the Hewlett-Packard internal investigation that involved pretexting to obtain private telephone records, some of the Representatives railed at the H-P witnesses, particularly former chairwoman Patricia Dunn and outside counsel Larry Sonsini, that the practice is already a crime. Yet, it is not entirely clear what federal statute the "pretexting" violated, although as discussed in an earlier post (here) prosecutors could stretch the wire fraud statute to cover the conduct of the private investigators, although defense lawyers would certainly challenge the application of that law to their clients. Whenever conduct appears to slip through the cracks, the legislature is often quick to fill it in. California adopted a law (here), signed by Governor Schwarzenegger on Sept. 29, that will make the following a crime:
Any person who purchases, sells, offers to purchase or sell, or conspires to purchase or sell any telephone calling pattern record or list, without the written consent of the subscriber, or any person who procures or obtains through fraud or deceit, or attempts to procure or obtain through fraud or deceit any telephone calling pattern record or list shall be punished by a fine not exceeding two thousand five hundred dollars ($2,500), or by imprisonment in a county jail not exceeding one year, or by both a fine and imprisonment. If the person has previously been convicted of a violation of this section, he or she is punishable by a fine not exceeding ten thousand dollars ($10,000), or by imprisonment in a county jail not exceeding one year, or by both a fine and imprisonment.
The House of Representatives passed a bill, HR 4709 (here), in April 2006, by a 409-0 vote no less, that would add the following to the federal criminal code:
Criminal Violation -- Whoever, in interstate or foreign commerce, knowingly and intentionally obtains, or attempts to obtain, confidential phone records information of a covered entity, by --
(1) making false or fraudulent statements or representations to an employee of a covered entity;
(2) making such false or fraudulent statements or representations to a customer of a covered entity;
(3) providing a document to a covered entity knowing that such document is false or fraudulent; or
(4) accessing customer accounts of a covered entity via the Internet, or by means of conduct that violates section 1030 of this title, without prior authorization from the customer to whom such confidential phone records information relates;
shall be fined under this title, imprisoned for not more than 10 years, or both.
The statute defines a "covered entity" as a telecommunications company or those who provide internet calling service. The House bill has been held up in the Senate by a jurisdictional fight between the Commerce Committee and Judiciary Committee, which have competing bills. Always nice to see that sharing toys remains a problem long after people have stopped playing in sandboxes. An AP story (here) discusses the turf war in the Senate blocking the legislation. (ph)
September 12, 2006
The Senate Talks About the Thompson Memo
The Senate Committee on the Judiciary has scheduled a hearing on "The Thompson Memorandum’s Effect on the Right to Counsel in Corporate Investigations" for today. The impressive lineup of individual's giving testimony are:
The Honorable Paul J. McNulty
Deputy Attorney General
U.S. Department of Justice
The Honorable Edwin Meese
Former Attorney General
Ronald Reagan Distinguished Fellow in Public Policy
Chairman, Center for Legal and Judicial Studies
The Heritage Foundation
Thomas J. Donohue
President and CEO
U.S. Chamber of Commerce
Karen J. Mathis, Esq.
American Bar Association
Andrew Weissmann, Esq.
Jenner & Block LLP
New York, NY
Mark B. Sheppard, Esq.
Sprague & Sprague
The testimony from these witnesses will be retrievable online here. More will be posted on this blog tomorrow regarding this testimony. But to give a preview, the written testimony of the Hon. Edwin Meese includes the following passage regarding the McCallum Memo, an unsuccessful attempt by the government to appease people by saying that waivers of attorney client privilege need to coordinated within each individual USA's office. Meese states:
"Nevertheless, it appears that the McCallum Memorandum does not represent a sufficient improvement. The main objectives of the Memorandum included providing greater uniformity, predictability, and transparency to the process that federal prosecutors use when requesting a waiver of a business organization’s attorney-client privilege. But the McCallum Memorandum does nothing to address the inherently coercive nature of the Thompson Memorandum factors that take into account whether a company has waived its privilege."
There are many important issues of the day that need to be addressed by the Senate. So why is DOJ allowing so much time to be spent on the waiver issue, an issue they could easily resolve by just removing it from the Memo and from practice? Don't they get it - asking for a waiver of the attorney-client privilege is just plain wrong.
May 03, 2006
Yet Another Federal Crime
We elect Congress to pass laws, so it is a bit disingenuous to criticize our Senators and Representatives for enacting legislation. Yet, when it comes to federal criminal laws, will there ever come a time when we say "enough already"? The House passed H.R. 5253, the Federal Energy Price Protection Act of 2006, on a 389-34 vote (AP story here). The legislation ostensibly is designed to address one aspect of the spike in gasoline prices. The Act makes it an unfair or deceptive practice to engage in "price gouging" in the sale of petroleum products such as gasoline, home heating oil, diesel fuel, and the like. The law gives the Federal Trade Commission the authority to investigate such abuses and to bring civil actions for violations, and permits a civil penalty of $3 million per day. It also authorizes state Attorney Generals to pursue a civil enforcement action in federal court under the law. While that is all well and good, the final provision of H.R. 5253 (here) provides:
(1) IN GENERAL- In addition to any other penalty that applies, a violation of subsection (a) is punishable-
(A) in the case of a wholesale sale in violation of subsection (a), by a fine of not more than $150,000,000, imprisonment for not more than 2 years, or both; or
(B) in the case of a retail sale in violation of subsection (a), by a fine of not more than $2,000,000, imprisonment for not more than 2 years, or both.
What is "price gouging" you might ask? The statute states that the FTC will adopt rules within six months defining that term. That sure is precise for a criminal provision. Note that the statute does not contain any mens rea element, and indeed simply adds criminal liability on to the civil liability provisions, with an additional fine and prison term a possibility tacked on to the bill. Do we really need to make this type of conduct, which likely will be very difficult to prove, a federal offense? (ph)
February 15, 2006
Proposed Mortgage Fraud Crime
Senator Barack Obama of Illinois introduced legislation to combat mortgage fraud that includes an interesting provision that would create a new federal criminal law. The bill, S. 2280 (available below), is entitled (unfortunately) the "Stop Transactions which Promote Fraud, Risk, and Underdevelopment Act" or "STOP FRAUD Act," and it would provide for a central data base to track mortgage fraud and fund federal and state anti-fraud efforts in the area. Section 2 of the bill would create Section 1351, "Mortgage Fraud," that would make it a federal crime for a "mortgage professional" to engage in a scheme to defraud or make false/fraudulent statements in connection with a real property loan, with a maximum punishment of 35 year and a $5 million fine. The statute is narrower than the mail and wire fraud statutes, which are often used to prosecute mortgage fraud cases, because of the limitation to conduct by mortgage professionals. That term is defined as including appraisers, lawyers, real estate brokers, mortgage underwriters, and "any other provider of professional services engaged in the mortgage process" -- how is that for a circular definition: mortgage professionals are providers of professional services related to mortgages. Mortgage scams in which straw purchasers engage in sham transactions to inflate the value of property and then take out a large mortgage would not be covered by the statute unless the perpetrators were themselves mortgage professionals.
Even more interesting is proposed Section 1351(c), which permits private parties to bring a private right of action for violations of the provision, regardless of the amount in controversy, citizenship of the parties, or exhaustion of administrative remedies. Creating such a broad private right of action, with no real guidelines on the scope of the potential suit, is uncommon, and perhaps unprecedented. Off the top of my head, the only criminal provisions that I am aware of that also include express private rights of action are the False Claims Act and RICO, while the antitrust and securities laws also rely on private actions as a means of enforcement along with federal civil and criminal enforcement. RICO and qui tam actions have very specific pleading requirements, while the mortgage fraud suit would seem to be, in effect, a federal common law fraud action limited to mortgage professionals. If enacted, this provision would raise interesting questions about whether the principle of respondeat superior would permit a law suit against the mortgage professional's employer, whether punitive damages are recoverable, and perhaps most importantly, whether a prevailing party could be awarded attorney's fees. On a different note, is there any way that the use of silly acronyms for laws can be stopped, or at least curtailed? (ph)
May 24, 2005
Former Wal-Mart Executive Files Whistleblower Complaint Over Termination
Jared Bowen, a former vice-president at Wal-Mart, has filed a whistleblower complaint with the Department of Labor over his termination by the company in late March, which he claims was in retaliation for disclosing expense-account abuses by former executive and board member Thomas Coughlin. The company reported to the U.S. Attorney in March that Coughlin had submitted false invoices for up to $500,000, and there is a grand jury investigation of Coughlin. Just to complicate matters, Coughlin's attorney has hinted that the funds were used to make secret payments to union officials for information about organizing drives involving Wal-Mart employees (see earlier post here). Bowen asserts that he reported two instances of improper billing by Coughlin, but was terminated because he failed to report a third instance of misconduct involving Coughlin and that there was a "loss of confidence" in him.
Section 806 of the Sarbanes-Oxley Act created protections for employees of publicly-traded companies who report misconduct involving fraud (18 U.S.C. Sec.1514A here). The provision provides the following remedies:
(1) IN GENERAL- An employee prevailing in any action under subsection (b)(1) shall be entitled to all relief necessary to make the employee whole.
(2) COMPENSATORY DAMAGES- Relief for any action under paragraph (1) shall include--
(A) reinstatement with the same seniority status that the employee would have had, but for the discrimination;
(B) the amount of back pay, with interest; and
(C) compensation for any special damages sustained as a result of the discrimination, including litigation costs, expert witness fees, and reasonable attorney fees.
December 22, 2004
The Newest Arrow in the Federal Criminal Quiver
The Senate's passage of the Video Voyeurism Prevention Act of 2004 on Dec. 7, following earlier House approval of an identical measure, means that there will be another statute added to the long roster of federal offenses once President Bush signs the legislation into law. The new crime is a response to the growing number of cell phones with cameras, some of which have been used to snap pictures of unsuspecting individuals in various stages of undress, which are then posted on the internet. Senator DeWine (R-Ohio), the Senate sponsor of the legislation, stated that this new law "will help safeguard the privacy we all value as well as ensure that our criminal law reflects the realities of our rapidly changing technology." Approximately 30 states have similar provisions, and the federal law is limited to conduct on federal property and within the maritime jurisdiction to avoid conflicts with state laws. The statute uses the term "reasonable expectation of privacy" to describe the interest of the individual victim invaded by the defendant, a notoriously vague phrase that will likely test the statutory interpretation skills of the federal courts. The law provides as follows:
`(a) Whoever, in the special maritime and territorial jurisdiction of the United States, has the intent to capture an image of a private area of an individual without their consent, and knowingly does so under circumstances in which the individual has a reasonable expectation of privacy, shall be fined under this title or imprisoned not more than one year, or both.
`(b) In this section--
`(1) the term `capture', with respect to an image, means to videotape, photograph, film, record by any means, or broadcast;
`(2) the term `broadcast' means to electronically transmit a visual image with the intent that it be viewed by a person or persons;
`(3) the term `a private area of the individual' means the naked or undergarment clad genitals, pubic area, buttocks, or female breast of that individual;
`(4) the term `female breast' means any portion of the female breast below the top of the areola; and
`(5) the term `under circumstances in which that individual has a reasonable expectation of privacy' means--
`(A) circumstances in which a reasonable person would believe that he or she could disrobe in privacy, without being concerned that an image of a private area of the individual was being captured; or
`(B) circumstances in which a reasonable person would believe that a private area of the individual would not be visible to the public, regardless of whether that person is in a public or private place.
November 01, 2004
With the Presidential Election almost upon us, there has been much talk about voters being intimidated or otherwise interfered with while trying to vote. Because it is a federal election, 18 U.S.C. § 594 applies, which provides:
Whoever intimidates, threatens, coerces, or attempts to intimidate, threaten, or coerce, any other person for the purpose of interfering with the right of such other person to vote or to vote as he may choose, or of causing such other person to vote for, or not to vote for, any candidate for the office of President, Vice President, Presidential elector, Member of the Senate, Member of the House of Representatives, Delegate from the District of Columbia, or Resident Commissioner, at any election held solely or in part for the purpose of electing such candidate, shall be fined under this title or imprisoned not more than one year, or both.
Interestingly, there are no reported federal court decisions under the statute, and there are no references to any actual prosecutions.
Another provision that applies to voting is 18 U.S.C. § 245(b)(1)(A), which provides:
Whoever, whether or not acting under color of law, by force or threat of force willfully injures, intimidates or interferes with, or attempts to injure, intimidate or interfere with--
(1) any person because he is or has been, or in order to intimidate such person or any other person or any class of persons from--
(A) voting or qualifying to vote, qualifying or campaigning as a candidate for elective office, or qualifying or acting as a poll watcher, or any legally authorized election official, in any primary, special, or general election . . . .
This provision is in the Civil Rights section of Title 18, the federal criminal code, and it protects the right of all citizens to vote and campaign for office. There are no reported decisions under this provision either. (ph)