White Collar Crime Prof Blog

Total Victory for the Defense in Greenbelt Health Care Fraud Case

After a three-week trial, and only one full day of deliberations, a federal jury in Greenbelt, MD acquitted Kasandra Vilchez-Duarte and Donnie Amis on all counts of an indictment charging conspiracies to defraud Medicaid and violate the Anti-Kickback statute.  Congratulations to the defense teams: Federal Defenders Maggie Grace & Ned Smock on behalf of Ms. Vilchez-Duarte, as well as John McNichols & Allie Eisen (Williams & Connolly) and Eugene Gorokhov (Burnham & Gorokhov) on behalf of Mr. Amis.

(wisenberg)

The Eastman Letter and the Fifth Amendment

Here is the Eastman Letter to January 6th Select Committee Chairman Bennie G. Thompson from Eastman's attorney Charles Burnham, invoking Eastman's Fifth Amendment Privilege Against Self-Incrimination and raising other issues as well. The letter is in response to a Committee subpoena for Eastman's testimony and documents. Burnham's letter  leaves open the question of whether Eastman will appear at all, although that is clearly the proper course. As I noted here, in order to successfully invoke the Fifth Amendment Privilege Against Self-Incrimination the client must appear and invoke it on a question by question basis. This will be easy for Eastman to do, as Burnham's letter makes clear, because so many public figures and office-holders have expressed their belief that he has serious criminal exposure. Federal judges, most recently U.S. District Judge Amy Berman Jackson, have suggested that January 6 rally speakers have exposure as well. Chairman Thompson wants to "test" the assertions of witnesses invoking the privilege and Norm Eisen, E. Danya Perry, and Joshua Perry argue here in the Washington post that he should vigorously do so with witnesses such as Eastman and former DOJ Civil Division Chief Jeffrey Clark. But a Fifth Amendment assertion by either man is a no-brainer. All Burnham has to do is point to the public record, as he amply does in his letter. Almost any question after name, address, age, and current occupation could furnish a link in a potentially incriminatory chain. The Committee also demanded from Eastman a broad array of documents, and Burnham has invoked the Fifth Amendment "Act of Production" Privilege, a part of the Privilege Against Self-Incrimination, with respect to these documentary demands.  Eastman arguably does not even have to provide a Privilege Log, because the very act of listing the documents might bring into play the "foregone conclusion" exception to the Act of Production Privilege. Of course, the Committee may be able demonstrate that the existence and possession of such documents by Eastman is a "foregone conclusion" based on testimony and documents it has received from other witnesses. Stay tuned. 

(wisenberg)

Re-evaluating DOJ's Special Matters Unit

In 2020, the Fraud Section of the DOJ created the Special Matters Unit (SMU).  The naming of this unit was somewhat interesting in that in the early years of white collar crime, larger law firms used the term "special matters" for their section handling white collar criminal activity. Initially, many large firms did not handle any criminal matters and preferred to refer these cases to outside law firms.  Gradually, the business of handling white collar criminal matters became too profitable to send elsewhere, and the firms created sections called "special matters" to handle these cases.  Today, more firms in an effort to attract this business now openly advertise their white collar and government investigations sections.  So, to see in late 2020 the DOJ Fraud Division creating a new unit and calling it "special matters" was fascinating. 

But there is a big difference between the defense and government side of "special matters."  The government unit was created to deal with:

"issues related to privilege and legal ethics, including evidence collection and processing, pre-and post-indictment litigation, and advising and assisting Fraud Section prosecutors on related matters. The SMU: (1) conducts filter reviews to ensure that prosecutors are not exposed to potentially privileged material, (2) litigates privilege-related issues in connection with Fraud Section cases, and (3) provides training and guidance to Fraud Section prosecutors."  (see here)

It appears that this unit was created in response to the 4th Circuit decision, U.S. v. Under Seal, 942 F.3d 159 (4th Cir. 2019), that found the government's use of a taint or filter team improper.

It certainly can be argued that the better process is to appoint a "special master" as was done in Michael Cohen's case. But the question is whether taint teams should continue to be allowed. With continual discovery violations being noticed, this is a time to re-evaluate whether outsiders may be a better way to proceed when issues of attorney-client privilege arise resulting especially from government searches of law offices. 

(esp)

Should Congress Be Allowed to Obtain President Trump's Financial Information?

The Supreme Court on March 31st will hear oral arguments in the cases of Trump v. Mazars USA,  Trump v. Deutsche Bank, and Trump v. Vance, the first two of the cases consolidated for argument.  

The question in the Mazars case is whether the Committee on Oversight and Reform of the U.S. House of Representatives has the constitutional and statutory authority to issue a subpoena to "the accountant of President Trump and several of his business entities" that "demands financial records belonging to the President." The question in the Deutsche Bank case is "whether three committees of the House of Representatives had the constitutional and statutory authority to issue subpoenas to third-party custodians for the personal records of the sitting President of the United States."  The question in the Vance case is whether a subpoena issued by NY's DA against the President as part of "a criminal investigation that, by his own admission, targets the President of the United States for possible indictment and prosecution during his term in office," "violates Article II and the Supremacy Clause of the United States Constitution." 

For background on the cases see Amy Howe's terrific introduction as part of a Scotus Blog Symposium on these three cases. (here).  Also check out the other symposium pieces as they come online on the Scotus Blog here.

There are many amici briefs on these cases that provide unique points that highlight issues not covered in the main briefs.  I want to focus on one amici brief - The Brief of Financial Investigation and Money Laundering Experts in Support of Respondent Committees of the U.S. House of Representations.  The brief is filed by Jonathan J. Rusch as well as Steven E. Fineman and Daniel Chiplock of Lieff Cabraser Heimann & Berstein, LLP.  This brief provides important history that "there is nothing unusal about Congressional investigations of the financial affairs of presidents and their family members."  They note that what is unusual here is the fact that the President has "consistently demonstrated his resolute opposition to the disclosure of financial information relevant to Congress's concern." Obtaining this information from two banks is therefore needed. 

To prohibit these subpoenas would mean that a President could engage in conduct that could never be scrutinized. It is sad to see a President failing to allow scrutiny of this information - information that would be coming from banks and not take up Presidential time. After all - if there is nothing improper, the subpoenas would provide that proof for all to see the propriety of the President's conduct. It is more troubling to see a resistance to important money-laundering initiatives that have come from both the executive and legislative branches of government.

(esp)

That's Entertainment: Judge Ellis and the Hearing on Manafort's Motion to Dismiss

Attached is the transcript of  yesterday's hearing in the Eastern District of Virginia on Paul Manafort's Motion to Dismiss the Indictment against him: USA v PAUL J MANAFORT JR - 5-4-2018 Hearing on Motion to Dismiss. The hearing was before Judge T.S. Ellis III and was characterized by Judge Ellis's typically blunt and withering wit.

Here are some takeaways:

1. Despite the headline worthy comments of Judge Ellis, the Court will reject Manafort's argument that the Indictment should be dismissed because the Order appointing Mueller is broader than the Special Counsel regulation allows. DAG Rod Rosenstein's  August 2 2017 Letter Re The Scope of Investigation and Definition of Authority makes clear that Mueller had the authority from the first day of his appointment, on May 17, 2017, to investigate Manafort for colluding with Russian officials during the 2016 election in violation of U.S. laws and for crimes arising out of payments Manafort received from former Ukrainian President Victor Yanukovych. Judge Ellis indicated that he considered this to be the government's strongest argument. Unless Judge Ellis believes that Rosenstein's August 2 letter was an after-the-fact sham, the letter puts an end to Manafort's central claim. Judge Ellis may also find, although this is not as certain, that the Special Counsel regulation creates no personal rights for Manafort that are enforceable in a judicial proceeding. In other words, this is a non-justiciable intra-branch matter within the Department of Justice.  
2. It was striking to me that Michael Dreeben, who spoke for the government, did not lead with the argument that Rosenstein's August 2 letter resolves the question of whether Mueller is acting within his authority. Why not? Is it because, Mueller does not want a detailed factual inquiry on this point? During the motions hearing, both sides referenced Rosenstein's December 13, 2017 House Judiciary Committee testimony. Here are relevant Excerpts from that testimony, in which Rosenstein stated under oath that "the specific matters are not specified in the [May 17] order. So I discussed that with Director Mueller when he started, and we've had ongoing discussion about what is exactly within the scope of his investigation." (Rosenstein could not say with 100% certainty what parts of Mueller's investigation were an expansion and what parts were a clarification of Mueller's original mandate. He promised to get back to the House Judiciary Committee on this point.] Dreeben told Judge Ellis that the "specific factual  [August 2] statement, as [DAG] Rosenstein described in his Congressional testimony, was conveyed to the special counsel upon his appointment in ongoing discussions that defined the parameters of the investigation that he wanted the special counsel to conduct." So which is it? Was the scope of the investigation crystal clear on March 20, 2017 or on May 17, 2017, or did it have to be hammered out in ongoing discussions. Rod Rosenstein's May 17 2017 Order Appointing Robert S. Mueller III clearly states that Mueller has the authority to conduct the investigation confirmed by former FBI Director Comey in his March 20, 2017 Congressional testimony. Manafort's attorney, Kevin Downing, wanted to see any memos written by Rosenstein leading up to Mueller's appointment to help determine the scope of Mueller's authority. When Judge Ellis asked Downing how he knew such memos existed, Downing, who worked under Rosenstein for five years, replied: "Mr. Rosenstein is a stickler for memos being written, for there to be a written record for the actions of the Department of Justice." Downing argued that if Rosenstein exceeded his authority in appointing Mueller, Mueller "does not have the authority of a U.S. Attorney." In that event, according to Downing, any indictment procured from the grand jury by Mueller's operation would presumably be null and void.
3. Fox News's assertions that Judge Ellis accused the Mueller team of "lying" and using "unfettered power" to target Trump are not supported by the record. Judge Ellis did express extreme skepticism regarding one of the government's arguments and made the undoubtedly true statement that the government was using Manafort to go after Trump.
4. The non-justiciable, intra-branch dispute argument by Mueller's people could end up biting them in the butt in another context. Expect President Trump to use a similar argument if he is subpoenaed, asserts Executive Privilege, and is challenged on this point by Mueller. Trump will argue that Mueller, as an inferior officer within the President's DOJ, lacks regulatory authority to contest Executive Privilege, and that the entire matter is a non-justiciable, intra-branch dispute. Contrary to general assumptions, U.S. v. Nixon does not settle this issue. The Supreme Court in Nixon rejected President Nixon's justiciability argument, but did so on the basis that Special Prosecutor Leon Jaworski had the explicit authority to contest assertions of Executive Privilege pursuant to the terms of the federal regulation that governed his appointment. As far as I can tell, Special Counsel Mueller has not been given explicit authority to contest issues of Executive Privilege.

(wisenberg)

Of Course Michael Cohen is Taking the Fifth

Everyone is reporting that Michael Cohen is taking the Fifth Amendment (see here and here). This is no surprise.  For the government to get a search warrant, probable cause is needed.  Further when there are parallel proceedings - with both possible civil liability and criminal prosecution, lawyers are quick to request a stay of the civil proceeding pending a resolution of the criminal action. When an individual is a target or subject of an ongoing investigation, not talking is about the best a lawyer can advise to their client. Perhaps the only monumental aspect of this case is that the individual taking the 5th Amendment happened to be the President's lawyer.

(esp)

Law Office Searches - Nothing New Except the President's Lawyer This Time

The NYTimes is reporting that the FBI raided the office of President Trump's personal attorney, Michael Cohen.  (see here). Raids on law offices are not new, and there have been many law offices throughout the years that have had FBI teams show up to obtain boxes of materials and computers.  In places such as the Southern District of Florida, one might find a law office raided by the FBI when the attorneys represented individuals engaged in drug dealing, and the government believed that the attorneys were involved in the illegality. But perhaps what is new here, is that the attorney represented the President of the United States, albeit in his personal capacity.

Law firm searches are particularly tricky as the attorney is likely to have privileged information that may be compromised when the investigating agents view items in cases they are opposing.  The US Attorney's Manual sets forth a procedure for searching law offices (U.S. Attys Manual - 9-13.420) to protect this information. The Manual provides that "[f]or purposes of this policy only, 'subject' includes an attorney who is a 'suspect, subject or target,' or an attorney who is related by blood or marriage to a suspect, or who is believed to be in possession of contraband or the fruits or instrumentalities of a crime."   The Manual notes that:

There are occasions when effective law enforcement may require the issuance of a search warrant for the premises of an attorney who is a subject of an investigation, and who also is or may be engaged in the practice of law on behalf of clients. Because of the potential effects of this type of search on legitimate attorney-client relationships and because of the possibility that, during such a search, the government may encounter material protected by a legitimate claim of privilege, it is important that close control be exercised over this type of search. Therefore, the following guidelines should be followed with respect to such searches:"

The guidelines then note that prosecutors should use the "least intrusive approach," obtain "authorization by United States Attorney of Assistant Attorney General," consult with the Criminal Division - including submitting "a draft copy of the proposed search warrant, affidavit in support thereof, and any special instructions to the searching agents regarding search procedures and procedures to be followed to ensure that the prosecution team is not "tainted" by any privileged material inadvertently seized during the search." "If exigent circumstances prevent such prior consultation, the Criminal Division should be notified of the search as promptly as possible." The guidelines also provide that there is "safeguarding procedures" in place "to ensure that privileged materials are not improperly viewed, seized or retained during the course of the search." And in conducting the search, "to protect the attorney-client privilege and to ensure that the investigation is not compromised by exposure to privileged material relating to the investigation or to defense strategy, a "privilege team" should be designated, consisting of agents and lawyers not involved in the underlying investigation."  Specific procedures are used for searching and seizing computers.  Finally, guidelines also exist concerning the review of the materials obtained.

Bottom line - 1) All of this takes time. 2) The use of a search warrant against a law firm is not new. 3) Can a government taint team really assess privileged material? 4) The government procedures are concerned about protecting their cases, but who is monitoring and protecting the attorney's cases?

Hopefully, a court will soon step in to evaluate any privilege issues.

(esp) 

Environmental Crime Prosecutions Down

Trac reports - "The latest available data from the Justice Department show that during the first six months of FY 2017 the government reported 152 new environment prosecutions. If this activity continues at the same pace, the annual total of prosecutions will be 304 for this fiscal year. According to the case- by-case information analyzed by the Transactional Records Access Clearinghouse (TRAC), this estimate would be the lowest ever recorded since the Justice Department started tracking its environmental prosecutions over two decades ago."  For more information and data see here.

(esp)(w/disclosure that she received her BS degree from Syracuse University).

Comey Digs A Deeper Hole

In white collar cases, prosecutors often stress the signs or "indicia" of fraud inherent in a given defendant's conduct.  In the FBI/DOJ investigation of Secretary Clinton we have several signs of incompetence and/or highly irregular conduct on the part of those in charge. The one that stands out most clearly to anyone who practices white collar criminal defense was the decision to allow Cheryl Mills to attend Secretary Clinton's FBI interview. Competent prosecutors do not allow a key witness to participate as an attorney in an FBI interview of the main subject. It just isn't done. It isn't a close question. It is Baby Prosecution 101. Director Comey's attempt to justify this decision during yesterday's House Judiciary Committee Oversight Hearing was disingenuous and disgraceful.  According to Comey, the FBI has no power to control which attorney the subject of an investigation chooses to represent her during an interview. This is literally true, but irrelevant and misleading. Prosecutors, not FBI agents, run investigations. Any competent prosecutor faced with the prospect of Ms. Mills's attendance at Secretary Clinton's interview would have informed Clinton's attorneys that this was obviously unacceptable and that, if Clinton insisted on Mills's attendance, the interview would be conducted under the auspices of the federal grand jury. At the grand jury, Secretary Clinton would not have enjoyed the right to her attorney's presence in the grand jury room during questioning. In the event Clinton brought Ms. Mills along to stand outside the grand jury room for purposes of consultation, competent prosecutors would have gone to the federal judge supervising the grand jury and attempted to disqualify Ms. Mills. In all likelihood, such an attempt would have been successful. But of course, it never would have gotten that far, because Secretary Clinton will do anything to avoid a grand jury appearance. So, Director Comey's response was a classic dodge, one of several that he perpetrated during yesterday's hearing. As noted above, the decision to allow Ms. Mills to attend Secretary Clinton's FBI interview was only the clearest example to date of irregular procedures sanctioned by the prosecutors in charge of the Clinton email investigation. More to come on that in a subsequent post.

(wisenberg)

New Paper re Internal Investigations and Privilege

I have just published a new article in the Compliance Elliance Journal entitled "Internal Investigations and the Evolving Fate of Privilege."  

Abstract

In 1981, the United States Supreme Court delivered a landmark ruling in Upjohn Co. v. United States. The decision made clear that the protections afforded by the attorney-client privilege apply to internal corporate investigations. This piece examines the fundamental tenets of Upjohn, discusses some recent challenges to the applicability of privilege to materials gathered during internal investigations, and considers the manner in which the international nature of modern internal investigations adds complexity and uncertainty to the field.

The article is available for free download here. 

(LED)

Cosby Decision May Affect Oral Agreements in Practice of Criminal Law

 

The decision by a Philadelphia suburban trial court that a previous prosecutor's publicly announced promise not to prosecute Bill Cosby was not enforceable has virtually no precedential value anywhere, but it may affect how prosecutors, defense lawyers, defendants and targets act throughout the nation. The rule of law from this case seems to be that a former prosecutor's (and perhaps a current prosecutor's) promise not to be prosecute, at least when not memorialized in a writing, is not binding, even when the target relies on it to his potential detriment.  That promise can be disavowed by a successor prosecutor, and perhaps by the prosecutor himself.

Occasionally, cases arise where defense lawyers contend that prosecutors violated oral promises made to them and/or their clients.  Such situations include those where a prosecutor, it is claimed, promised a lawyer making an attorney proffer that if his client testified to certain facts, he would not be prosecuted or would be given a cooperation agreement and favorable sentencing consideration.  Often these instances result in swearing contests between the adversary lawyers: the prosecutor denies making any such promise and the defense lawyer says he did.  In most instances, in the absence of a writing,  the court sides with the prosecutor.  With respect to plea agreements, some courts have set forth a black-letter rule that promises not in writing or on-the-record are always unenforceable.

The Cosby case is very different.  There the (former) prosecutor in testimony avowed his promise, which was expressed in a contemporaneous press release, although there was no formal writing to defense counsel or a court, and expressly testified he did so in part in order to deprive Cosby of the ability to invoke the Fifth Amendment in a civil case brought by the alleged victim,  he also said that he believed his promise was "binding."   Cosby, according to his civil lawyer, testified at a deposition because of that prosecutorial promise.  (Generally, prudent prosecutors, when they announce a declination to prosecute give themselves an "out" by stating that the decision is based on currently-known information and subject to reconsideration based on new evidence).

To a considerable extent, the criminal justice system relies on oral promises by prosecutors (and sometimes judges) to defense lawyers and defendants, especially in busy state courts.  And, in federal courts, while immunity agreements are almost always in writing, federal prosecutors (and occasionally, but rarely,  federal judges) often make unrecorded or unwritten promises.   Sometimes such prosecutorial promises are made in order to avoid the time-consuming need to go through bureaucratic channels; sometimes they are made by line assistants because they fear their superiors would refuse to  formalize or agree to such a promise;  sometimes they are made to avoid disclosure to  a defendant against whom a benefiting cooperator will testify.  Based on the Pennsylvania judge's decision,  some defense lawyers (and some defendants) will believe that prosecutors' oral promises are not worth the breath used to utter them, and, perhaps, since there appears to be no dispute that such a promise was made here, that written promises are barely worth the paper they are written on. 

Defense lawyers are frequently asked by their clients whether they can trust the prosecutor's word in an oral agreement.  My usual answer is that they can: most prosecutors are reliable and honest.  Defense lawyers are then sometimes  asked a variant question about what will happen if the promising prosecutor leaves the office or dies.  My usual answer is that if there is no disagreement as to whether the promise was made, it will be honored.  The Cosby decision has made me reconsider that response. 

There are certain highly-publicized cases of celebrities of little precedential or legal value that have a considerable effect on the practice of law by both prosecutors and defense lawyers.  The case of Martha Stewart, who was, on highly disputed testimony,   convicted of 18 USC 1001 for lying in a voluntary proffer to prosecutors investigating her purported insider trading (which, assuming it occurred, was most likely not a crime),  is still invoked by prosecutors in cautioning witnesses not to lie to them and by defense lawyers in cautioning witnesses about making a voluntary proffer.  The Cosby case will likely be cited by defense lawyers and their clients concerning the uncertain value of oral agreements with prosecutors.  The skepticism of many defense lawyers about the reliability of agreements with the government and trustworthiness of prosecutors will grow.   I suspect the sarcastic refrain of some defense lawyers, "Trust me, I'm the government," will be said more often. 

I assume that the decision will be appealed, and also that a motion will be made to exclude Cosby's deposition because it was a consequence of the promise.  That latter motion is likely to be denied based on the judge's decision on the issue discussed here, although since the judge failed to set forth any reasoning for his decision, there may be room for distinguishing that issue from the one decided.

Although the judge's ruling has no doubt pleased those clamoring for Cosby's conviction and those desiring a decision on the merits, it may have a considerable negative effect on the perceived integrity and reliability of prosecutorial  non-memorialized promises and the actual practice of criminal law.  And it reveals once again how celebrity cases often make bad law.

It's Official - Throw the Employees Under the Bus

The new DOJ Policy (see here for the NYTimes story that includes DOJ Policy) makes the current practice of corporations "throwing employees under the bus," official. It states, "[t]o be eligible of any cooperation credit, corporations must provide to the Department all relevant facts about the individuals involved in corporate misconduct."  Corporations have received deferred and non-prosecution agreements (DPAs and NPAs) that often provide for the corporation cooperating with the government in the investigation of alleged criminally culpable individuals.  Now it is clear that to obtain "any" cooperation credit it will be necessary to provide the evidence against these individuals. 

Three concerns here: 

1) what is meant by providing "all relevant facts"?  Does this mean only information that is relevant to the government's case against the individuals?  Will the government also be asking for Brady material that might be exculpatory for the individuals? Does this mean that the corporation now is officially a member of the government team?  

2) what does this mean for the corporate culture?  The concept of the individuals in the company working together, asking for legal advice from corporate counsel, and working to resolve problems in an open environment may now be officially over.  This policy pits the corporation against the individual.  Is this a wise approach to correcting business misconduct?

3) does this make it more important that there be fairness in internal investigations?  See here for a discussion of the importance of fairness in internal investigations.

Interestingly, the new policy calls for starting with the individual and also calls for sharing information between civil and criminal attorneys. It also requires "a clear plan to resolve related individual cases before the statute of limitations expires and declinations as to individuals in such cases must be memorialized." This is a clear message that individual prosecutions are now a priority.

The message to white collar criminal defense attorneys - corporate prosecutions may no longer be the focus.  Get ready for more prosecutions against individuals.

(esp) 

Privilege and Internal Investigations

Earlier this year, the Wall Street Journal ran an interesting story about several cases in which U.S. courts refused to recognize the attorney-client privilege for communications between in-house counsel and overseas companies.  The article focused on two cases in particular – Wultz et al. v. Bank of China Limited and Anwar et al. v. Fairfield Greenwich Limited. 

Just recently, Janet Levine, Gail Zirkelbach, Derek Hahn, and Danielle Rowan wrote an article in the Summer 2015 edition of the ABA CJS Criminal Justice magazine on the topic of The Evolving Landscape of Legal Privilege in Internal Investigations.  Along with the Bank of China case, the article provides summaries of three other cases involving the privilege issue during internal investigations – In re Kellogg Brown & Root, Inc. (KBR) (previously discussed on this blog here and here), Wal-Mart Stores, Inc. v. Ind. Elec. Workers Pension Trust Fund IBEW (previously discussed on this blog), and Paterno v. NCAA).

As an update to the above excellent reads, it is important to note that the U.S. Court of Appeals for the District of Columbia recently released another opinion in the KBR matter.  This opinion vacated additional orders by the District Court that would have required KBR to turn over the materials at issue in the case.  See In re Kellogg Brown & Root, Inc., -- F.3d –, 2015 WL 4727411 (August 11, 2015).

According to the appellate court in the new KBR opinion:

More than three decades ago, the Supreme Court held that the attorney-client privilege protects confidential employee communications made during a business’s internal investigation led by company lawyers. See Upjohn Co. v. United States, 449 U.S. 383, 101 S. Ct. 677, 66 L. Ed. 2d 584 (1981). In this case, the District Court denied the protection of the privilege to a company that had conducted just such an internal investigation. The District Court’s decision has generated substantial uncertainty about the scope of the attorney-client privilege in the business setting. We conclude that the District Court’s decision is irreconcilable with Upjohn. We therefore grant KBR's petition for a writ of mandamus and vacate the District Court's March 6 document production order. 

The issue of attorney-client privilege in the internal investigation context is one that is growing in both complexity and significance.  Keep an eye out for more court decisions on this issue in the future as companies, attorneys, and courts struggle to find a balance in today’s complex legal and business environment.

(LED)

Privilege, Corporate Wrongdoing, and the Wal-Mart FCPA Investigation

The New York Times had an interesting article this week by Steven Davidoff Solomon entitled “Keeping Corporate Lawyers Silent Can Shelter Wrongdoing.”  The piece centers on the recent decision out of the Delaware Supreme Court in the case of Wal-Mart Stores, Inc. v. Indiana Electrical Workers Pension Trust Fund IBEW,Del. Supr., No. 614, 2013 (July 23, 2014), and notes that the attorney-client privilege can be used to “shelter potential wrongdoing, perhaps to the detriment of many people, including shareholders.”  As discussed at length in the article, the IBEW case permits stockholders to unilaterally breach the attorney-client privilege when there is suspected wrongdoing at a corporation. 

The IBEW case is one many have followed in recent years.  The controversy began after the New York Times broke the story of potential Foreign Corrupt Practices Act violations by Mar-Mart in April 2012.  In response to that initial article, the IBEW, a Wal-Mart stockholder, sent a letter to the company demanding inspection of a number of documents related to the potential FCPA matter, including documents regarding the corporation’s initial internal review of the situation.  Wal-Mart declined to provide certain of the documents and, with regard to some of those materials, claimed they were protected by the attorney-client privilege.  The issue of whether Wal-Mart could properly withhold these materials from shareholders was litigated at length and finally made its way to the Delaware Supreme Court.  In the ruling from last month, the Delaware Supreme Court sided with the IBEW and ordered Wal-Mart to produce the materials.  Referring to the Fifth Circuit Court of Appeals case of Garner v. Wolfinbarger (1970), which recognized a fiduciary exception to the attorney-client privilege, the court in IBEW said:

With regard to the other Garner good cause factors, the record reflects that disclosure of the material would not risk the revelation of trade secrets (at least it has not been argued by Wal-Mart); the allegations at issue implicate criminal conduct under the FCPA; and IBEW is a legitimate stockholder as a pension fund. Accordingly, the record supports the Court of Chancery's conclusion that the documentary information sought in the Demand should be produced by Wal-Mart pursuant to the Garner fiduciary exception to the attorney-client privilege.

It is important to note, of course, that the shareholders are meant to keep the information they receive confidential and use it only to decide whether to file a claim against Wal-Mart directors related to the FCPA matter. 

In reading the most recent New York Times article, I kept coming back to Upjohn v. United States and the ever present debate regarding the proper role of privilege in the world of internal investigations and potential corporate wrongdoing.  In particular, I was drawn to the important language in Upjohn regarding the reasons for applying the privilege: “The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyers being fully informed by the client.”  As the New York Times states in its piece from this week, “the attorney-client privilege for companies is increasingly under attack.”  I wonder now what impact the IBEW decision and related issues regarding lawyer whistleblowers, such as in the ongoing Vanguard case, will have on the future of internal investigation strategy and, in particular, the role of internal counsel in such situations.

(LED)

Article About Former Penn State President Raises Issues Concerning Independent Investigative Reports and Role of Corporate Counsel

The New York Times Magazine several weeks ago published a lengthy, largely sympathetic article about Graham Spanier, the former Penn State president (Sokolove, "The Shadow of the Valley"), see here, who is awaiting trial on charges of perjury and other crimes in connection with the Pennsylvania grand jury investigation of his alleged complicity or nonfeasance concerning the actions of now-convicted (and affirmed on appeal) former assistant football coach Jerry Sandusky.

The article rather gently criticized the Freeh report, commissioned by the university, as I too did (see here), and asserts that it "probably led to [Spanier's] indictment."  Commissioning an independent investigative report -- generally either by a former prosecutor or judge, or a large law firm -- is the de rigueur response of institutions or corporations accused of wrongdoing.  An independent investigative report, especially by a respected authority, has the weight of apparent impartiality and fairness and thus the appearance of accuracy.  However, the investigative report -- frequently done with no input from the accused or presumed wrongdoers (since, fearful of prosecution, they choose not to be interviewed) -- is often based on an incomplete investigation.  Further, since the investigator is expected to reach conclusions and not leave unanswered questions, but unlike a prosecutor may not be required to have those conclusions tested by an adversary in an open forum, such investigations, like the Freeh investigation, are often based on probability, and sometimes even speculation, more than hard evidence.  Lastly, the "independent" report, like the report concerning Gov. Christopher Christie's alleged involvement in Bridgegate, may be less than independent.

*                    *                    *

The article also discusses an interesting pretrial motion in Spanier's case concerning a question that had puzzled me since the Penn State indictments were announced over two years ago -- what was Penn State's counsel doing in the grand jury?  Sub judice for six months is a motion for dismissal of the indictment and other relief related to the role of the Penn State general counsel ("GC") who appeared in the grand jury with Spanier, and also earlier with two other officials who were indicted, Tim Curley, the former athletic director, and Gary Schultz, a vice president.

According to the submitted motions (see here , here and here ), largely supported by transcripts and affidavits, the GC appeared before the grand jury with Spanier (and also separately with Curley and Schultz) and Spanier referred to her as his counsel (as also did Curley and Schultz).  According to what has been stated, neither she, who had previously told the supervising judge -- in the presence of the prosecutor but not Spanier -- that she represented only Penn State, nor the prosecutor corrected Spanier.  Nor did the judge who advised Spanier of his right to confer with counsel advise Spanier that the GC was actually not representing him or had a potential conflict.

Later, after Spanier's grand jury testimony, according to the defense motion, the GC -- represented by Penn State outside counsel -- was called to testify before the grand jury.  Curley and Schultz -- both of whom had by then been charged -- objected in writing to the GC's revealing what they asserted were her privileged attorney-client communications with them.  Spanier apparently was not notified of the GC's grand jury appearance  and therefore submitted no objection.

Prior to the GC's testimony, Penn State's outside counsel asked the court essentially to rule on those objections and determine whether the GC was deemed to have had an attorney-client relationship with the individuals, as they claimed, before Penn State decided whether to waive its privilege (if any) as to the confidentiality of the conversations.  Upon the prosecutor's representation "that he would put the matter of her representation on hold" and not "address . . . conversations she had with Schultz and Curley about [their] testimony," the judge chose not to rule at that time on the issue of representation, which he noted "perhaps" also concerned Spanier, and allowed her to testify, as limited by the prosecutor's carve-out.

Nonetheless, despite the specific carve-out to conversations with Schultz and Curley analogous to those she had with Spanier and the judge's mention that the issue might also apply to Spanier, the prosecutor questioned the GC about her conversations with Spanier in preparation for his testimony.  Her testimony was reportedly harmful to Spanier (see here).  At no time did the GC raise the issue of whether her communications with Spanier were privileged. 

Whether the motion will lead to dismissal, suppression of Spanier's testimony or preclusion or limitation of the GC's testimony, or none of the above, will be determined, presumably soon, by the judge.  Whatever the court's ruling(s), I have little hesitation in saying that is not how things should be done by corporate or institutional counsel.   At the least, even if the GC were, as she no doubt believed, representing the university and not the individuals, in my opinion, the GC (and also the prosecutor and the judge) had an obligation to make clear to Spanier (and Schultz and Curley) that the GC was not their counsel.  Additionally, the GC had, in my view, an obligation to make clear to Spanier that the confidentiality of his communications with her could be waived by the university if it (and not he) later chose to do so.  Further, the GC, once she was called to testify before the grand jury, had in my opinion an obligation to notify Spanier that she might be questioned as to her conversations with him in order to give him the opportunity to argue that they were privileged.  And, lastly, the GC had, I believe, an obligation to ask for a judicial ruling when the prosecutor went beyond at least the spirit of the limit set by the judge and sought from her testimony about her communications with Spanier.

(goldman)

In re Kellogg Brown & Root – Privilege, Internal Investigations, and International White Collar Crime – Part II of II

In last week’s post, I discussed the recent case of In re Kellogg Brown & Root (“KBR”) from the perspective of privilege issues and internal investigations generally.  Today, I would like to focus our consideration of the KBR case on international investigations and privilege issues. 

In the KBR matter, a whistleblower alleged that the defense contractor defrauded the government by “inflating costs and accepting kickbacks while administering military contract in wartime Iraq.”  During the whistleblower’s case, he sought discovery of materials from an internal investigation of the matter previously conducted by KBR.  As discussed last week, the U.S. Court of Appeals for the District of Columbia Circuit concluded that the whistleblower was not entitled to the materials, stating that the “same considerations that led the Court in Upjohn to uphold the corporation’s privilege claims apply here.” 

In rendering its opinion, the DC Circuit offered several important clarifications regarding the applicability of the attorney-client privilege to internal investigations.  One of those was to note that Upjohn v. US (1981) does not require the involvement of outside counsel for the privilege to apply. 

From In re KBR:

First, the District Court stated that in Upjohn the internal investigation began after in-house counsel conferred with outside counsel, whereas here the investigation was conducted in-house without consultation with outside lawyers. But Upjohn does not hold or imply that the involvement of outside counsel is a necessary predicate for the privilege to apply. On the contrary, the general rule, which this Court has adopted, is that a lawyer’s status as in-house counsel “does not dilute the privilege.” In re Sealed Case, 737 F.2d at 99. As the Restatement’s commentary points out, “Inside legal counsel to a corporation or similar organization . . . is fully empowered to engage in privileged communications.” 1 RESTATEMENT § 72, cmt. c, at 551.

While this is accurate with regard to domestic internal investigations, one must be cognizant of the fact that various jurisdictions around the globe interpret the privilege differently.  When an internal investigation crosses borders, a failure to examine the breadth and scope of attorney-client privilege protections in the relevant jurisdictions could unexpectedly expose vast quantities of materials to production or seizure.  

Take for example, the case of Akzo Nobel Chemicals Ltd. v. European Commission (European Court of Justice 2010).  The case involved an antitrust investigation during which a dawn raid was carried out on Akzo’s Manchester, England, offices.  During the raid, two emails were seized.  The emails were an exchange regarding relevant antitrust issues between a general manager and the company’s in-house counsel.  Despite the fact that such communications would almost certainly be privileged under U.S. standards and the ruling in In re KBR, the European Court of Justice rejected Akzo’s position that the emails were protected under the EU rules of privilege.  Relying on an earlier ruling, the European Court of Justice reiterated that in EU investigations the attorney-client privilege only applies where (1) the communication is given for purposes of the client’s defense and, (2) the communication is with an independent lawyer, which does not including in-house counsel.  See AM&S v. Commission (European Court of Justice 1982).  The Akzo court went on to state, “It follows, both from the in-house lawyer’s economic dependence and the close ties with his employer, that he does not enjoy a level of professional independence comparable to that of an external lawyer.”

While such a limited application of the attorney-client privilege will not be present in every jurisdiction encountered during an international internal investigation, it is an important issue to consider both when structuring and conducting such inquiries in a cross-border setting.

For more on the dynamics of international internal investigations, see my recent article entitled International White Collar Crime and the Globalization of Internal Investigations (Fordham Urban Law Journal), available for free download here.

(LED)

In re Kellogg Brown & Root – Privilege, Internal Investigations, and International White Collar Crime – Part I of II

I am honored to join Ellen Podgor, Lawrence Goldman, and Solomon Wisenberg as a blogger on the White Collar Crime Prof Blog.  My focus on the blog will be matters related to internal investigations and international white collar crime.

To get us started, let’s take a quick look at a new case that relates to both of these topics – In re: Kellogg Brown & Root, Inc., et al.

As readers of this blog will no doubt recall, the U.S. Supreme Court held in 1981 that attorney-client privilege protections may apply to internal corporation investigations.  See Upjohn Co. v. United States, 449 U.S. 383 (1981).  The Court stated:

The attorney-client privilege is the oldest of the privileges for confidential communications known to the common law.  Its purpose is to encourage full and frank communication between attorneys and their clients, and thereby promote broader public interests in the observance of law and administration of justice. The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyers being fully informed by the client. 

Despite the strong language in the Upjohn case, a U.S. District Court in Washington, DC ruled that a whistleblower at Kellogg Brown & Root (“KBR”), a defense contractor, was entitled to production of documents related to an internal investigation.  The lower court concluded that the internal investigation was “undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.”

Last month, the U.S. Court of Appeals for the District of Columbia Circuit overruled that lower court decision in the case of In re: Kellogg Brown & Root, Inc., et al. (Decided June 27, 2014).  The court concluded that the “same considerations that led the Court in Upjohn to uphold the corporation’s privilege claims apply here.”

In overruling the lower court’s decision, the DC Circuit offered several important clarifications regarding the applicability of the attorney-client privilege to internal investigations.  First, the court clarified that Upjohn does not require the involvement of outside counsel for the privilege to apply.  Second, the court noted that the privilege may apply even when many of the employee interviews are conducted by non-attorneys, as long as those interviewers are serving as the agents of attorneys.  Third, the court explained that even though the employees in the KBR case were not explicitly informed that the purpose of the interviews were to assist the company in obtaining legal advice, Upjohn does not require any “magic words” for the privilege to apply.  Further, the court noted that the employees in the KBR case knew that the company’s legal department was conducting an investigation and that the investigation was highly confidential.

Finally, and, perhaps, most importantly, the court rejected the lower court’s argument that the attorney-client privilege did not apply in this investigation because KBR was acting to comply with Department of Defense regulatory requirements, not to obtain legal advice.  In ruling on the matter, the appeals court stated, “So long as obtaining or providing legal advice was one of the significant purposes of the internal investigation, the attorney-client privilege applies, even if there were also other purposes for the investigation and even if the investigation was mandated by regulation rather than simply an exercise of company discretion.”  This is important language from the court, particularly given the increasing regulatory compliance obligations imposed on corporations and the fact that many internal investigations today are instigated at the behest of the government.  See e.g. Computer Associates – discussed here and here.  

In my next post, we’ll consider how the In re: KBR case fits into the larger legal framework of international internal investigations.  In particular, we’ll examine whether attorney-client privilege extends to internal investigations undertaken solely by internal counsel when the investigation extends outside the United States.

(LED)

Lois Lerner Held in Contempt

Last week, as reported in the New York Times (see here), the House of Representatives Oversight and Government Reform Committee voted to hold in contempt Lois Lerner, the Internal Revenue Service official who after making a brief statement declaring her innocence invoked her Fifth Amendment privilege and refused to answer questions from the Committee members.  The Committee action will be referred to the entire House of Representatives for its consideration.  If the House votes to hold Ms. Lerner in contempt, it would refer the matter to the United States Attorney for the District of Columbia, Ronald C. Machen, Jr., a Democrat who in my view is unlikely to pursue this politically-charged case.

The Committee vote was based on party lines, with the Republican majority voting against Ms. Lerner.  A vote of the entire Congress, if it occurs, will most likely similarly be so based.  Indeed, Representatives on the Committee took exaggerated and hyperbolic positions.  Republican John J. Duncan claimed if Ms. Lerner's position were accepted, "every defendant . . . would testify and plead the Fifth so they couldn't be cross-examined . . . ."  Democrat Elijah Cummings said if he were to vote to hold Ms. Lerner in contempt, it would "place him on the same page of the history books as Senator Joseph McCarthy."

As I said before (see here), I believe that Ms. Lerner's general declaration of innocence, before she invoked the Fifth, does not constitute a waiver, but I do not believe the issue is crystal-clear.  Lawyers who represent witnesses before legislative committees (or in other matters) should be cautious about taking such positions.

(goldman)

Second Circuit Denies Fifth Amendment Protection for Required Foreign Bank Account Records

One of the increasing incursions into constitutional rights in the white-collar area is the expansion of the "required records" exception to the Fifth Amendment privilege against self-incrimination.  In general, that doctrine provides that an individual or entity required by law to maintain for regulatory purposes certain records has no Fifth Amendment right to refuse to produce them to the government.

The Second Circuit last month, in affirming a contempt finding against an individual for failing to produce to a grand jury records of foreign bank accounts mandated to be kept by regulations promulgated pursuant to the Bank Secrecy Act, 31 CFR 1012.420 ("BSA"), held, in accord with prior rulings by other circuits, that the "required records" exception to the Fifth Amendment privilege against self-incrimination pertains to the production of such records.  In Re Grand Jury Subpoena Dated February 2, 2012, (13-403-CV, Dec. 19, 2013).  

The individual contended that he had a Fifth Amendment right to refuse to comply with a grand jury subpoena for foreign bank records.  He claimed that the subpoena put him in a Catch-22 position:  produce documents that might incriminate him or confirm that he failed to maintain records of his foreign bank accounts, which also might incriminate him.  The court essentially said "tough," and affirmed the contempt order.

The court first considered whether the "act of production" doctrine (see United States v. Hubbell, 500 U.S. 27 (2000)) applied to "required records."  Under that doctrine, generally a person could on Fifth Amendment grounds resist a subpoena for the production of records unless the government could demonstrate it was a "foregone conclusion" that the person actually possessed such records.  Although the contents of the records, as in the case of "required records," might not be privileged, by producing them the individual essentially incriminated herself by its production by admitting, among other things, that she possessed such records.  The court held that the Fifth Amendment did not apply to required records, either as to the content of or production of such records, and thus the "act of production" privilege, a form of Fifth Amendment protection, did not apply.

The court then applied the three-prong test of Grosso v. United States, 390 U.S. 62 (1968), to determine whether the required records doctrine applied to the BSA regulation.  That test provides, first, that the purpose of the legal requirement must be "essentially regulatory;" second, that the information sought must be of a type "customarily kept;" and third, that the records must have "public aspects" which make them at least analogous to public documents.  The court then held that the regulation, although it was designed in part to facilitate criminal prosecutions, was "essentially regulatory" in that it did not target only those suspected of criminal activity since possession of foreign bank accounts by itself was not unlawful.  Second, it held that the records were "customarily kept" since holders of bank accounts are likely to be aware of or have records of the details of their accounts.  Third, the court held that "records lawfully required to be kept" for purposes of constitutional analysis by definition have "public aspects."  Practically, such a finding eliminated this third prong as an independent prerequisite for application of the exception.

In sum, the court essentially ruled that any records ordinarily kept by individuals that are required to be made available to governmental authorities pursuant to a law not primarily designed to detect criminal activity lack Fifth Amendment protection.

Thus, the decision essentially gives federal prosecutors the ability to subpoena any person and demand that she produce any foreign bank records she possesses, even absent any knowledge or suspicion that she has such an account.  To be sure, in this case, and virtually all other reported cases involving subpoenas of foreign bank accounts, the government appears to have had a considerable basis to believe the person subpoenaed does have a foreign bank account.  The Second Circuit's ruling, however, at least implicitly, does not require that such governmental knowledge be a prerequisite for an enforceable subpoena for foreign accounts.  "Fishing expeditions" for foreign bank account information appear to be allowed.

I would not be surprised, therefore, to see a considerable increase in the number of governmental subpoenas for records of foreign bank accounts, and perhaps the addition of a boilerplate request for foreign bank records in other subpoenas for financial records.  As they say, there's no harm in asking.

(goldman)

Non-arrested Person Asserting Right to Silence Must Assert Constitution

by: Lawrence S. Goldman

In Salinas v. Texas, the Supreme Court in a bizarre, unrealistic 5-4 (or more precisely 3/2-4) decision announced yesterday seemed to rule that the pre-arrest silence of a person not in custody may be introduced at trial against that person and commented upon in summation by the prosecutor -- unless that person specifically invoked his Fifth Amendment privilege against self-incrimination.  Justice Thomas, joined by Justice Scalia, concurred only in the result, arguing that Griffin v. California, 380 U.S. 609 (1965), which prohibited prosecutorial use of a defendant's invocation of silence at trial, should not be extended to pre-arrest situations.

According to Justice Alito and two others (Chief Justice Roberts and Justice Kennedy), the individual had the responsibility to demonstrate at the time of his invocation of silence that it was based on his constitutional rights.  ("[I]t would have been a simple matter for him to say that he was not answering the officer's questions on Fifth Amendment grounds.")  Much like a trial lawyer, the defendant thus had the responsibility to make a proper contemporaneous record or forfeit any future legal claim.  ("A witness's constitutional right to refuse to answer questions depends on his reasons for doing so, and the courts need to know those reasons to evaluate the merits of a Fifth Amendment claim.")  Thus, the rules for making a record for a defendant represented by counsel in a courtroom have apparently been extended to an uncounseled layperson on the street or in a police station.

Salinas may affect the advice a white-collar lawyer (or any lawyer) might provide to a non-arrested client who the lawyers suspect might be approached by a law enforcement agent.  Instead of advising the client merely to decline to speak with the law enforcement official, the lawyer should also probably advise the client to explicitly state that his refusal is based on the Fifth (and perhaps also the Sixth) Amendment.  Indeed, perhaps white-collar lawyers should follow the lead of some other criminal lawyers and print the invocation of the Fifth (and Sixth) on the reverse side of their business cards.

(goldman)