Corporations subject to criminal and civil regulatory investigations have long grappled with the highly charged decision over whether to provide the government with privileged communications and attorney work product or whether to maintain those materials as privileged despite a governmental inquiry. On the one hand, a corporation may hope to avoid criminal prosecution or civil regulatory action, as well as potential downstream effects of such actions on insurance rights and indemnification, by forthright disclosure of “relevant facts” to the government, including information that may be protected by attorney-client privilege or the attorney work product doctrine. See Principles of Federal Prosecution of Business Organizations, reprinted in United States Attorneys’ Manual, tit. 9 ch. 9-28.710, 9-28.720(a). On the other hand, in disclosing privileged materials and work product to the government, the corporation risks having waived the privilege over those very same materials as to third parties, including civil litigants seeking to recover monetary damages from the corporation.
Posts Tagged ‘Attorney-client privilege’
In a striking example of formalism over realism, the European Court of Justice on September 14, 2010 ruled that the attorney-client privilege applied only when a communication was connected to the “client’s right of defence” and when the exchange emanated from “‘independent lawyers’, that is from ‘lawyers who are not bound to the client by a relationship of employment’.”
In rejecting the privilege for in-house lawyers in Akzo Nobel Chemicals Ltd l v. European Commission, the ECJ was affirming the holdings of a 1982 case (AM & S Europe Ltd v. European Commission) and rejecting the arguments not just of Akzo but of numerous intervenors, both national entities (the governments of the UK, Ireland and the Netherlands) and legal groups (including the Netherlands Bar Association, the International Bar Association and the Association of Corporate Counsel).
At issue were two emails about antitrust issues – obtained in a dawn raid aimed at enforcing EU competition laws – exchanged between a general manager and an in-house lawyer who was a member of the Netherlands bar. Although the in-house Dutch lawyer was just as bound by the ethical rules of the bar association as outside lawyers, the European Court of Justice held the emails were not privileged on the sole ground of in-house employment.
Facing the prospect of Congressional legislation that would forbid federal prosecutors and civil enforcement lawyers from requesting any communications protected by the attorney-client privilege or work product doctrine, the Department of Justice has indicated that it will, yet again, revise its Principles of Federal Prosecution of Business Organizations (“Principles”). The current version of the Principles, known as the “McNulty Memo,” has been the subject of criticism since its issuance in December 2006 for not going far enough to guard against encroachments on the attorney-client privilege and work product doctrine.
On June 26, 2008, Senator Arlen Specter re-introduced the Attorney-Client Privilege Protection Act of 2008, which is a modified version of legislation that he had previously introduced. (See Year End Review: Current Regulatory and Enforcement Climate, January 2, 2007). Apparently in response to this legislation and the continuing criticism of the Principles, on July 9, 2008, the Deputy Attorney General, Mark Filip, wrote a letter to Senators Specter and Patrick Leahy, indicating that DOJ intended to make certain changes to the Principles in the coming weeks.
The Deputy Attorney General identified the following changes:
• Cooperation will be measured by the extent to which a corporation discloses
relevant facts and evidence, not its waiver of attorney-client privilege or work product;
• Federal prosecutors will not demand the disclosure of non-factual attorney work
product or core attorney-client communications as a condition for cooperation credit;
• Federal prosecutors will not take into consideration in evaluating cooperation whether a corporation has (i) advanced attorneys’ fees to its employees; (ii) entered into a joint defense or common-interest agreement; or (iii) retained or sanctioned employees involved in alleged wrongdoing.
There are at least two significant limitations to addressing the problem of government interference with the attorney-client privilege or work product doctrine through a revision of DOJ’s Principles. First, unlike the proposed Attorney-Client Privilege Protection Act, the Principles do not apply to the SEC or other federal regulators. Second, the Principles do not have the force of law, but would require corporations to rely on self-policing by DOJ.
If implemented, the new Principles will have a significant impact on how corporations respond to federal criminal investigations. But what must not be lost in considering these proposed changes is the continuing fundamental requirement that, under the Principles, corporations must cooperate with government investigations to help avoid indictment. Corporations will still need to be forthcoming with detailed and relevant factual information to be perceived as cooperative.
The Court of Chancery’s recent decision in Ryan v. Gifford puts corporate boards and their attorneys on notice that the attorney-client privilege may not protect corporate investigations from discovery in shareholder suits.
A special committee of the board of directors of Maxim Integrated Products, Inc., engaged Orrick Herrington & Sutcliffe LLP to conduct an investigation into alleged options backdating at Maxim. Orrick produced a final report to the special committee, and shared that report with the full board of directors. The plaintiffs in a shareholder derivative suit sought to compel production of the report and all communications concerning the investigation between Orrick and the special committee or Maxim.
Chancellor William B. Chandler, III held that that the special committee could not assert the attorney-client privilege against the shareholder plaintiff under the Garner v. Wolfinbarger theory, which allows shareholders to access their corporation’s privileged information in certain circumstances. In any event, the court held, the committee had waived its attorney-client privilege by sharing its report with the full board of directors of Maxim, some of whom were the subject of the investigation. The court further ruled that the presentation of the report to the full board resulted in a waiver of all other privileged communications relating to the investigation.
The Chancellor’s ruling can be accessed here.