|July 28, 2009|
Previously published on July 7, 2009
For the past six years, the Department of Justice (DOJ) has maintained—in varying versions—a formal written policy of requesting a waiver of the attorney-client privilege and attorney work product as part of its investigation into alleged corporate wrongdoing. Even more disturbing, the DOJ can consider a corporation's refusal to waive its privilege and work product as uncooperative behavior, which is one factor a prosecutor can consider in determining whether the DOJ will charge the corporation or its employees with a crime. Corporate counsel, therefore, face a difficult decision regarding waiver, and this decision is made even more challenging by the fact that a waiver of privilege and work product in the context of a government investigation could result in a waiver for all purposes in subsequent legal actions by third parties.
This situation has caused great consternation in the business and legal communities, and has spawned an effort to legislatively prohibit the government from requesting a waiver of the attorney-client privilege and work product in corporate investigations. The most recent proposed legislation is a bill entitled the Attorney-Client Privilege Protection Act of 2009, introduced by Sen. Arlen Spector (D-PA) on February 13, 2009. This bill would finally put to rest the problem faced by corporations, but it remains to be seen whether it will be passed into law.
Given this environment, corporate counsel must be familiar with the following topics to effectively guide a corporation through an investigation: (1) the history of the DOJ's request for waiver and its current position; (2) the law regarding "selective waiver" in the applicable jurisdiction; and (3) legislative efforts to protect the attorney-client privilege and work product. Each of these issues is discussed in detail below.
In January 2003, in the wake of large-scale corporate scandals, the DOJ issued the Thompson Memorandum, which outlined corporate charging guidelines for federal prosecutors, and forcefully articulated the position that a prosecutor may consider a corporation's refusal to waive its attorney-client privilege in a charging decision.
In December 2006, amid fierce criticism and threatened legislation, the DOJ issued the McNulty Memorandum, which superseded the Thompson Memo. The McNulty Memo expressly acknowledged the importance of the attorney-client privilege and set forth specific criteria prosecutors must consider, and procedures they must follow, before seeking the production of privileged material. The McNulty Memo, however, did little to tame the criticism from the business and legal communities. In fact, in 2007, Senator Arlen Specter re-introduced a bill entitled the Attorney-Client Privilege Protection Act, which would legislatively prohibit the government from requesting waiver of information protected by the attorney-client privilege and/or work product doctrine.
In response to continued criticism, in August 2008, the DOJ issued a memorandum authored by Deputy Attorney General Mark R. Filip, entitled "Principles of Federal Prosecution of Business Organizations" (the Filip Memo), which replaced the McNulty Memo as the DOJ's corporate charging guidelines. The Filip Memo modifies the manner of requesting and evaluating privilege waivers. It purports to focus solely on the disclosure of "relevant facts," and states that a corporation's cooperation credit be based, not on the fact of waiver itself, but on disclosure of the "relevant facts" concerning the alleged misconduct, whether privileged or not.
At first glance, it may appear that the Filip Memo has properly addressed the concerns with waiver of privilege. It has not. Four problems remain: (1) whether couched as a request for "relevant facts" or otherwise, the fact remains that corporations are still pressured to waive privilege; (2) the Filip Memo does not apply to all government agencies; (3) although requests for waiver of privilege under the Filip Memo have been few, there is no guarantee that when the next waive of corporate scandals occur, the government will not revert back to its previous position on waiver; and (4) a waiver to the government may still result in a waiver of privilege for all purposes in subsequent legal actions.
Waiver of Privilege Under The Thompson Memo
The Thompson Memo directed prosecutors to consider nine factors in determining whether to bring charges against a corporation for the conduct of its employees or agents. One of those factors was a "corporation's timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents." In assessing a corporation's cooperation, the Memo instructed prosecutors to consider "the completeness of a corporation's disclosure, including, if necessary, a waiver of the attorney-client and work product protections, both with respect to its internal investigation and with respect to communications between specific officers, directors and employees and counsel."
Deputy Attorney General Paul J. McNulty, in a statement before the Senate Judiciary on September 12, 2006, defended the need for a waiver in part because:
… in some instances, corporate counsel run virtually every document through the corporation's legal department just so that they can assert attorney-client privilege or work product protection. Some attorneys assert privilege like that famous scene of Lucille Ball gobbling chocolates off of a conveyor belt.
McNulty argued that unethical behavior by corporate counsel was rampant and such behavior justified an attack on the attorney-client privilege. McNulty apparently recognized that this hard-line stance was questionable, and soon issued the McNulty Memo.
Waiver of Privilege Under the McNulty Memo
On December 12, 2006, McNulty announced the release of a revised set of charging guidelines. The McNulty Memo was a long overdue amendment to the DOJ's policy concerning waiver requests, but offered little assurance that the attorney-client privilege would in practice be protected.
Although the McNulty Memo clarified that "[w]aiver of the attorney-client and work product protections is not a prerequisite to a finding that a company has cooperated in the government's investigation," it does not state that waiver will not be considered in the cooperation analysis. Indeed, the purpose of the McNulty Memo was not to change the government's policy of requesting and considering waivers, but rather to add substantive and procedural requirements that must be followed before a prosecutor could request a waiver of privilege.
The McNulty Memo instructed prosecutors to request privileged information only when there was a "legitimate need" for the information. Prosecutors were to balance four factors to determine whether a "legitimate need" existed:
- the likelihood and degree to which the privileged information will benefit the government's investigation;
- whether the information sought can be obtained in a timely and complete fashion by using alternative means that do not require waiver;
- the completeness of the voluntary disclosure already provided; and
- the collateral consequences to a corporation of a waiver.
If a "legitimate need" existed, prosecutors were required to seek the least intrusive waiver necessary to conduct a complete and thorough investigation. Prosecutors were instructed to first seek only "Category I" information, which was described as "purely factual information, which may or may not be privileged, relating to the underlying misconduct." These materials include "copies of key documents, witness statements, or purely factual interview memoranda regarding the underlying misconduct, organization charts created by company counsel, factual chronologies, factual summaries, or reports (or portions thereof) containing investigative facts documented by counsel." The inclusion of witness statements and interview notes in Category I indicated that the DOJ would take an expansive view of the type of information qualifying as "purely factual."
To request Category I information, prosecutors were required to obtain written authorization from the U.S. Attorney, who in turn was required to consult with the assistant attorney general for the Criminal Division. The corporation's response to the request for waiver of Category I information was to be considered in determining whether a corporation had cooperated in the government's investigation.
If Category I information provided an "incomplete basis to conduct a thorough investigation," the prosecutor was permitted to request "Category II" information, which "includes legal advice given to the corporation before, during, and after the underlying misconduct occurred." These materials were to "only be sought in rare circumstances," and include "attorney notes, memoranda or reports (or portions thereof) containing counsel's mental impressions and conclusions, legal determinations reached as a result of an internal investigation, or legal advice given to the corporation."
To request Category II information, the prosecutor was required to obtain written authorization from the United States Attorney, who in turn was required to obtain written authorization from the deputy attorney general. If a corporation declined to provide a waiver for Category II information, the McNulty Memo stated that prosecutors were not permitted to hold the refusal against the corporation in making a charging decision. However, prosecutors were permitted to favorably consider a corporation's acquiescence to the government's waiver request in determining whether a corporation had cooperated in the government's investigation. Corporations, therefore, faced the other side of the same coin they faced under the Thompson Memo—refusal to waive privilege would not be considered uncooperative, but to affirmatively get cooperation points, they needed to waive privilege.
Finally, the McNulty Memo stated that prosecutors were not required to obtain any authorization if the corporation voluntarily offered privileged documents without a request by the government. This loophole permitted prosecutors to simply shift their focus to informally obtaining "voluntary" waivers in order to avoid the requirement of obtaining written authorizations.
Waiver of Privilege Under the Filip Memo
The McNulty Memo did little to muffle the loud uproar from the legal and business communities. In an effort to once again counter threatened legislation, Deputy Attorney General Mark Filip authored the Filip Memo.
The Filip Memo revises the framework for requesting and considering privilege waivers. The new theme is disclosure of "relevant facts." Specifically, under the Filip Memo, a corporation's cooperation credit is based, not on the waiver of privilege, but on disclosure of the "relevant facts" concerning the alleged misconduct, whether or not privileged. The Filip Memo even goes as far as prohibiting prosecutors from requesting waivers of "core" attorney-client communications or work product (the substantial equivalent of the Category II information spelled out in the McNulty Memo) except in two situations – if an advice of counsel defense is asserted, or if the communication is in furtherance of a crime or fraud.
In essence, the Filip Memo attempts to redefine the issue, and asserts that the real focus should be on the production of facts and the manner in which the corporation chooses to gather the facts. The Filip Memo articulates a simplistic and wholly unsatisfactory solution to the issue of waiver—avoid using lawyers to conduct internal investigations. Without lawyers, there is no privilege and thus no waiver issue.
Putting aside the absurdity of the government's apparent suggestion that corporation's avoid lawyers in conducting internal investigations, certain aspects of the Filip Memo represent steps in the right direction. Specifically, a good faith effort is made to protect corporations from feeling pressure to waive privilege over "core" attorney-client communications and work product. The Filip Memo orders prosecutors not to request protected notes or interview memoranda generated by attorneys during internal investigations. The problem is that no protection is offered for other privileged information.
Many "facts" uncovered in an internal investigation are a result of an attorney's interpretation and impression of numerous interviews and documents, which is classic work product. It is also common for counsel to encounter multiple witnesses providing contradictory accounts of the same event. In this circumstance, any discussion of the "facts" will necessarily involve disclosing what the various witnesses said, i.e., revealing attorney-client communications. Accordingly, under the Filip Memo, corporations may still need to waive privilege in order to provide the "relevant facts" and receive cooperation credit.
The Selective Waiver Doctrine
Because pressure still exists to waive privilege, even under the Filip Memo guidelines, counsel must consider the effect waiver may have on pending, parallel, and/or prospective civil litigation or regulatory enforcement actions before making the waiver decision. The majority of federal circuit courts have declined to adopt the "selective waiver" doctrine, which would permit a corporation to produce documents to government agencies under a confidentiality agreement, but still assert the attorney-client privilege and work product protections as to those same documents in subsequent legal actions. Thus, once the privilege is waived—even if waived under pressure by the government—it is waived for all subsequent purposes.
Below is a listing of how the federal circuit courts, which have addressed the issue, have ruled:
Rejected Selective Waiver Doctrine
U.S. v. Mass. Inst. of Tech., 129 F.3d 681 (1st Cir. 1997)
In re Steinhardt Partners, 9 F.3d 230 (2d Cir. 1993) (suggesting that selective waiver may be adopted where the disclosing party and the government have a "common interest in developing legal theories and analyzing information," or where a confidentiality agreement is executed)
- Westinghouse Electric Corp. v. Republic of the Philippines, 951 F.2d 1414 (3d Cir. 1991)
- Martin Marietta Corp. v. Pollard, 856 F.2d 619 (4th Cir. 1988) (rejecting selective waiver for attorney client privilege and fact work product, but recognizing selective waiver for opinion work product)
- In re Columbia/HCA Healthcare Corp. Billing Practices Litigation, 293 F.3d 289 (6th Cir. 2002)
- In re Chrysler Motors Corp. Overnight Evaluation Program Litigation, 860 F.2d 844 (8th Cir. 1988) (rejecting selective waiver for fact work product)
- In re Qwest Comm., Int'l, 450 F.3d 1179 (10th Cir. 2006)
- Permian Corp v. U.S., 665 F.2d 1214 (D.C. Cir. 1981)
Approved Selective Waiver Doctrine
Diversified Indus. v. Meredith, 572 F.2d 596 (8th Cir. 1977)
The Attorney-Client Privilege Act
On February 13, 2009, Sen. Arlen Specter introduced Senate Bill 445, entitled the Attorney-Client Privilege Protection Act of 2009. While Specter believed that the DOJ had made improvements to the corporate prosecution guidelines, he felt legislation was still necessary because the department could modify the guidelines, which failed to carry the force of law, at its whim.
The proposed act would prohibit all government lawyers from requesting or considering waiver of the attorney-client privilege or work-product protection in assessing cooperation in connection with any federal investigation or criminal or civil enforcement matter:
Like my previous bills, this bill will protect the sanctity of the attorney-client relationship by statutorily prohibiting Federal prosecutors and investigators across the executive branch from requesting waiver of attorney-client privilege and attorney work product protections in corporate investigations. The bill would similarly prohibit the government from conditioning charging decisions or any adverse treatment on an organization's payment of employee legal fees, invocation of the attorney-client privilege, or agreement to a joint defense agreement.
154 Cong. Rec. S2331-S2332 (Feb. 13, 2009) (remarks of Senator Specter.
The legislation has been referred to the Senate Judiciary Committee where it is currently pending.
The Filip Memo may be more of a strategic retreat, rather than a real change in the government's position. Even if the DOJ cools off on waiver requests, there is no guarantee that its position will not change in the future. Moreover, the Filip Memo guidelines apply only to the DOJ, and carry no weight with other government agencies. What is needed is consistent protection of privilege, so that corporate employees know what to expect and corporate counsel can effectively design and conduct investigations. The real solution must come from Congress by passing into law the Attorney-Client Privilege Act.