Feeling a Chill
Changing Government Policies Are Pressing Corporations and Attorneys to Disclose Protected Information
Posted Dec 29, 2005 5:15 AM CST
By Bruce A. Green and David C. Clifton
Perhaps to some, the unanimous vote by the ABA House of Delegates earlier this year in support of the attorney-client privilege and the work-product doctrine may have seemed like a superfluous statement of the obvious.
After all, these are well-established principles recognized by case law in jurisdictions throughout the United States.
But the August vote by the ABA’s policy making House reflected concerns that the legal protections given to attorney client confidentiality are at risk, especially for corporations and the attorneys who represent them.
The measure’s lead sponsor was the Task Force on the Attorney Client Privilege, created in September 2004 by then ABA President Robert J. Grey Jr. of Richmond, Va. The group was asked to study the growing challenges to the attorney client privilege and work product doctrine, and to propose responses. In its report supporting the recommendations, the task force said, “It is important for the ABA to affirm bedrock principles that will be the foundation for its further work.”
It is widely recognized that the attorney client privilege protects confidential communications between lawyer and client, while the work product doctrine provides qualified protection to writings embodying an attorney’s factual investigations, research, impressions, opinions and conclusions in anticipation of litigation. The attorney client privilege encourages clients to make disclosures necessary to obtain legal assistance, while the work product doctrine allows lawyers to investigate, prepare and develop strategy relating to litigation without worrying about adversaries obtaining their work and using it against their clients.
Both the attorney client privilege and the work product doctrine restrict a third party’s use of legal compulsion, such as a court order backed by the threat of a contempt sanction, to obtain protected information. While potentially impeding third party access to relevant evidence, the privilege and doctrine are understood to serve a paramount public interest: The public benefits when parties obtain effective assistance from lawyers who advise them how to act in conformity with the complexities of the law, or who present legitimate claims or defenses on their behalf in litigation.
Courts have recognized that the attorney client privilege and work product doctrine are as essential for corporations and other entities (including government agencies) as they are for individuals.
The leading federal case embodying this view is Upjohn Co. v. United States, 449 U.S. 383 (1981), in which the U.S. Supreme Court recognized that both the attorney client privilege and the work product doctrine apply to confidential communications in the context of a law firm’s internal investigation of corporate misconduct.
In Upjohn, a pharmaceutical manufacturer discovered that its subsidiary may have paid foreign officials to secure government business in violation of U.S. criminal law. The company retained outside counsel to investigate and help the company act consistently with its legal interests and obligations. After counsel completed their work, the company voluntarily reported the questionable payments to the Securities and Exchange Commission.
Then the Internal Revenue Service started an investigation and issued a summons for various documents, including outside counsel’s interview notes and completed questionnaires that corporate employees had returned to the lawyers.
The Supreme Court ruled that the corporate employees’ communications with counsel were privileged. The court rejected the government’s argument that the corporation’s attorney client privilege should apply exclusively to communications between counsel and the corporation’s high ranking officials (the “control group”), who would receive and implement counsel’s advice.
The court reasoned that “the privilege exists to protect not only the giving of professional advice to those who can act on it but also the giving of information to the lawyer to enable him to give sound and informed advice.” Often, those likely to have relevant information are low and middle level employees, the court noted. If they are not protected by the privilege, they would be discouraged from communicating. This, the court said, “threatens to limit the valuable efforts of corporate counsel to ensure their client’s compliance with the law.”
Subsequent cases have recognized that the attorney client privilege and work product doctrine apply generally to corporate communications with in house counsel for the purpose of obtaining legal advice.
Recently, however, lawyers representing corporations have expressed concern that the legal protections afforded by the attorney client privilege and work product doctrine are eroding.
Their concern is focused on requests by federal prosecutors and government regulators that corporations disclose privileged or work product protected information. The requests, although not quite amounting to legal commands, may be virtually irresistible as a practical matter because of the legal consequences of refusing.
The legal effect of complying, however, may be that the corporation waives the attorney client privilege or the work-product doctrine--or both. That means a corporation may lose the privilege and work product protections that would otherwise apply not only to the material disclosed to the government but to other protected information on the same subject. All of this otherwise protected information may then become accessible to third parties who oppose the corporation in litigation.
Prosecutors Up The Ante
At common law, corporations were not subject to criminal liability because they were deemed incapable of forming criminal intent. Over time, though, corporations have come to face the risk of criminal prosecution based on wrongdoing committed by corporate officers and employees, even when the corporation is essentially the victim. While criminal charges against corporations are rare, prosecutors sometimes use the threat of prosecution as a way of gaining cooperation in their investigations and prosecutions of individuals.
At one time, this assistance largely amounted to providing relevant documents and information other than privileged communications and attorneys’ litigation work product. But now, in some cases, prosecutors seek material subject to the protection of the attorney client privilege or work product doctrine, raising concerns that the corporation’s response will serve to measure how well it cooperated with an investigation and whether it merits prosecution.
On Jan. 20, 2003, as part of the U.S. Justice Department response to the 2001 collapse of Enron Corp. and other corporate scandals, then Deputy Attorney General Larry Thompson issued a memorandum addressing “Principles of Federal Prosecution of Business Organizations.” (See www.usdoj.gov/dag/cftf/corporate_guidelines.htm.) The Thompson memorandum identifies nine factors that federal prosecutors should consider in deciding whether to charge corporations or other business entities. Those factors include the corporation’s timely and voluntary disclosure of wrongdoing, and its willingness to cooperate in the investigation of its agents, even if that involves the waiver of the attorney client privilege and work product protection.
“Too often, business organizations, while purporting to cooperate with a department investigation, in fact take steps to impede the quick and effective exposure of the complete scope of wrongdoing under investigation,” Thompson wrote in the memorandum. “The revisions make clear that such conduct should weigh in favor of a corporate prosecution. The revisions also address the efficacy of the corporate governance mechanisms in place within a corporation, to ensure that these measures are truly effective rather than mere paper programs.”
In a more recent development, amendments to the federal sentencing guidelines relating to corporations and other organizations went into effect Nov. 1, 2004.
In particular, the amended commentary to section 8C2.5 of the guidelines “authorizes and encourages the government to require entities to waive their attorney client and work product protections in order to show ‘thorough’ cooperation with the government and thereby qualify for a reduction in the culpability score--and a more lenient sentence--under the sentencing guidelines,” states a letter sent by ABA Governmental Affairs Director Robert D. Evans to the U.S. Sentencing Commission on Aug. 15.
“The ABA believes that as a result of the privilege waiver amendment, companies and other organizations will be forced to waive their attorney client and work product protections on a routine basis,” Evans wrote.
The sentencing commission has included the privilege waiver amendment on a list of issues to be considered further in its 2005 06 amendment cycle. The ABA supports amending the commentary to section 8C2.5 “to clarify that the waiver of attorney client privilege and work product protections should not be a factor in determining whether a sentencing reduction under the guidelines is warranted for cooperation with the government,” Evans wrote.
A coalition of other groups--including the U.S. Chamber of Commerce, the American Civil Liberties Union and the National Association of Criminal Defense Attorneys--also supports that proposed amendment.
It may be difficult for corporations to resist prosecutorial requests for disclosure of protected information for two reasons: First, the consequences of defending against criminal charges can be harsh. And second, in cases where criminal charges are brought and sustained, corporations depend on the leniency in sentencing that results from providing assistance satisfactory to the prosecution.
Prosecutors have understandable motivations for using their considerable leverage to obtain privileged material from corporations. Obtaining the content of attorneys’ interviews with corporate officers and employees saves prosecutors considerable time that might otherwise be devoted to similar interviews. And, in some cases, these interviews provide evidence that might otherwise be unavailable because employees may not be as candid with government investigators or may be unwilling to talk with government investigators at all.
Attorneys’ work product also may assist prosecutors in assuring the accuracy of a corporation’s representations about the nature and extent of its own culpability or of its subsequent efforts to improve its legal compliance processes.
Regulators Follow Justice
The Justice Department maintains that the impact of its policies and the sentencing guidelines has been overstated. In both cases, the goal is to reward corporations “for genuine cooperation that assists law enforcement in bringing the culpable parties to justice,” wrote Mary Beth Buchanan, the U.S. attorney for the Pittsburgh based Western District of Pennsylvania in the fall 2004 issue of the Wake Forest Law Review. In most cases, Buchanan wrote, “an organization’s willingness to make a waiver is one factor among many considered by prosecutors when assessing the extent of the organization’s cooperation,” but it is not a prerequisite for receiving credit for cooperation.
Moreover, in practical terms, “the government is seeking the underlying facts regarding the wrongdoing, an inquiry normally limited to work product information and in some instances legal advice contemporaneous with the criminal conduct at issue,” Buchanan wrote.
Federal regulators--particularly the SEC--are adopting policies and practices mirroring those of the Justice Department. These policies discuss “cooperation credit” and disclosures of protected confidential information in essentially the same regulatory breath.
On Oct. 23, 2001, the SEC issued what’s commonly called the Seaboard report (Exchange Act Release No. 44969), which outlines some of the criteria it considers when assessing the extent to which a company’s self policing and cooperation efforts will influence the commission’s decision to bring an enforcement action.
The criteria include whether a company:
• Cooperated completely with appropriate regulatory and law enforcement bodies.
• Conducted a thorough review of the nature, extent, origins and consequences of the conduct and related behavior.
• Promptly made available to SEC staff the result of its review and provided sufficient documentation reflecting its response to the situation.
• Identified possible wrongful conduct with sufficient precision to facilitate prompt enforcement actions against those who violated the law.
• Produced a thorough and probing written report detailing the findings of its review.
• Voluntarily disclosed information SEC staff did not directly request and otherwise might not have uncovered.
Within the legal community, there is a perception that the SEC regards the production of attorney client privileged information and attorneys’ litigation work product developed in a company’s internal investigation as part of the needed disclosure identified in the Seaboard report. This concern is bolstered by public remarks made by SEC officials. (For example: Sept. 20, 2004, remarks by Stephen M. Cutler, then the director of the SEC’s enforcement division, are on the Web at www.sec.gov/news/ speech/spch092004smc.htm)
Moreover, the federal prosecutorial approach appears to be catching on elsewhere. The New York attorney general’s office seems to have adopted a similar approach to corporate cooperation with criminal and regulatory investigations. Most recently, the New York Stock Exchange announced a similar policy encouraging the disclosure of privileged material. (See NYSE memo No. 5 65, Sept. 14, 2005, at www.nyse.com in the left bar menu, click on “Regulation” and “Information memos.”)
The Implications Of Disclosure
Once a corporation discloses privileged material to a prosecutor or regulator, it is not at all clear that the material can be kept from opposing parties in litigation or from others who seek to discover the information in the course of litigation.
One thing the cases do seem to agree on is that, if a company discloses attorney client privileged material to a prosecutor or regulator, the company thereby waives the privilege as far as that particular information is concerned. The cases disagree, however, on whether such disclosure also impliedly waives the privilege with respect to all other attorney client communications on the same subject matter.
The answer was no in an early decision on the issue by the St. Louis based 8th U.S. Circuit Court of Appeals. Diversified Industries Inc. v. Meredith, 572 F.2d 596 (1978). But more recently, the Cincinnati based 6th Circuit rejected the idea of “selective waiver.”
The 6th Circuit, in In re Columbia/HCA Healthcare Corp. Billing Practices Litigation, 293 F.3d 289 (2002), concluded that, even when the corporation provides privileged information to a regulator pursuant to a confidentiality agreement, the corporation waives the attorney client privilege as to all communications on the subject matter.
Further, the court questioned as a matter of policy “whether the government should assist in obfuscating the ‘truth finding process’ by entering into such confidentiality agreements at all. The investigatory agencies of the government should act to bring to light illegal activities, not to assist wrongdoers in concealing the information from the public domain.”
There is equal uncertainty about the legal implications of sharing with a prosecutor or regulator material protected by the work product doctrine.
Several courts have said that when a company discloses its attorneys’ work product to a government agency pursuant to a confidentiality agreement, the protections of the work product doctrine are preserved. See In re Steinhardt Partners, 9 F.3d 230 (2d Cir. 1993); In re Leslie Fay Cos. Inc. Securities Litigation, 161 F.R.D. 274 (S.D.N.Y. 1995).
The SEC has supported this approach. But the 6th Circuit took the opposite view in In re Columbia/HCA Healthcare, as did a federal district court in California. United States v. Bergonzi, 216 F.R.D. 487 (N.D. Cal. 2003).
Another concern about waivers is that employees’ comfort level in fully disclosing all facts to a corporation’s attorneys may be chilled. As a result, corporate attorneys may operate in an informational vacuum in which legal advice is formulated without full knowledge of all relevant facts.
Ultimately, the corporation will, in effect, be punished for having previously retained counsel for the salutary end of assisting with a legal problem, and for having directed officers and employees to confide in counsel so that the corporation could benefit from effective legal advice and assistance.
The chilling effect of giving third parties access to privileged information through waivers is not a consequence necessarily sought or desired by prosecutors or regulators, who are seeking to serve legitimate criminal and civil enforcement objectives. As a general rule, government agencies do not and may not use their power for the purpose of assisting private litigants.
Further, government agencies have acknowledged that the attorney client privilege and work product doctrine serve important societal interests. “There is no simple solution to the litigation dilemma,” Buchanan wrote in the Wake Forest Law Review. But, she maintained, limiting waivers to work product information “will lessen the risk in many cases of a judicial determination that a broad waiver has been made.”
Nonetheless, under evidentiary law governing the waiver of privileges, complying with government demands or requests means that corporate clients relinquish legal protection otherwise accorded to attorney client communications and attorneys’ litigation work product. The case law does not take into account that the legal authority wielded by government agencies makes their requests coercive as a practical matter.
As the Supreme Court recognized in Upjohn, the attorney-client privilege enables corporate attorneys to obtain the information necessary to “formulate sound advice when their client is faced with a specific legal problem” and thereby “ensure their client’s compliance with the law.”
But for counsel to serve this role, it is essential that the attorney and client “be able to predict with some degree of certainty whether particular discussions will be protected.”
The perception that corporate lawyers are being “deputized” by government prosecutors and regulatory agencies to develop evidence for their use will not only discourage disclosures but may undermine the trust and confidence in counsel that have historically been recognized as fundamental to an effective attorney client relationship.
There is broad concern that the appropriate balance is not being struck, and that the attorney client privilege and work product doctrine are under erosion as a consequence. While this may well be an unintended consequence, the situation ought to be addressed more thoughtfully by prosecutors and regulators, courts and the private bar in an effort to develop policies and practices that are more consistent with the public interest underlying the attorney client privilege and work product doctrine.
For its part, the ABA Task Force on the Attorney Client Privilege is urging prosecutors and regulators to scale back, or stop altogether, making requests for materials protected under the attorney client privilege and the work product doctrine.
Options discussed by the task force include a return to the practices followed by the Justice Department and the SEC before the 2003 Thompson memo, or for the government bodies to adopt guidelines that would set forth limited circumstances under which they would request protected materials.
The real question, though, is whether the attorney client privilege and the work product doctrine will ever again be what they were in those seemingly long gone days.
Bruce A. Green, the Louis Stein Professor of Law at Fordham University School of Law in New York City, is reporter for the ABA Task Force on the Attorney-Client Privilege. David C. Clifton, an associate at McKenna Long & Aldridge in Atlanta, is associate reporter for the task force.