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Corporate View on Attorney-Client Privilege Resonates With Sentencing Commission

Posted Jun 24, 2006 1:55 AM CDT
By Terry Carter

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When the U.S. Sentencing Commission recently dropped a policy that encouraged prosecutors to seek waivers of lawyer-client privilege from corporations; it was not a sop for the legal profession.

Business had the commission’s ear.

And that bad-for-business angle is now the key for those battling policies at the U.S. Department of Justice, the Securities and Exchange Commission and other investigative bodies that include privilege waivers in ramped up requirements for cooperation.

After all, the argument goes, President Bush is unabashedly pro-business. But it is primarily his executive branch that has developed what the business community and their lawyers decry as a “culture of waiver.”

So for an April 13 meeting on the issue with nearly a dozen high-ranking Justice Department officials, an unusual coalition of bar associations, the American Civil Liberties Union and business groups pared its ranks to show they mean business—strictly business. They sent only representatives from the Association of Corporate Counsel and the U.S. Chamber of Commerce.

The National Association of Criminal Defense Lawyers, which has played a leading role in the coalition, did not send a representative. The ABA, which has worked informally and extensively with the coalition, also did not.

The meeting itself was prompted by an overture from U.S. Attorney General Alberto Gonzales, who apparently had heard business voices with some clarity above the din of lawyer complaints.

“This isn’t just a lawyer issue; it’s a client issue,” says Susan Hackett, ACC general counsel and a member of the ABA Task Force on the Attorney-Client Privilege. “We want to show them that this is a bread-and-butter issue for [corporations], and that they’re ticked off.

“I think the administration is concerned that its usually strong allies on business issues—the chamber, the National Association of Manufacturers, the Business Roundtable and others—are leaving the reservation on this one,” says Hackett, who attended the April 13 meeting.

Though the meeting had been in the works for a couple of months, it was scheduled and took place shortly after the decision by the Sentencing Commission concerning its 2004 policy on attorney-client privilege.

At its April 5 meeting, the commission amended its guidelines by deleting commentary suggesting that waiver of privileged information is in some instances a prerequisite for credit at sentencing. The amendments will go into effect on Nov. 1 unless Congress votes its disapproval.

Waivers Become Routine

The reversal resulted from the commission’s agreement with critics who said its own policy had been somewhat responsible for waivers becoming routine.

In commentary accompanying the 2004 amendment, the commission had noted that waivers should not be sought “unless such waiver is necessary in order to provide timely and thorough disclosure of all pertinent information known to the organization.” “But the exception is likely to swallow the rule,” ABA representative Donald C. Klawiter told the commission at a hearing last fall. Klawiter of Washington, D.C., chairs the ABA Section of Antitrust Law.

“By encouraging routine government demands for waiver of attorney-client and work-product protections, the amendment discourages personnel within companies and other organizations from consulting or being completely candid with their lawyers,” Klawiter testified. “This, in turn, seriously impedes the lawyers’ ability to counsel compliance with the law effectively.”

(In August 2005, the ABA House of Delegates unanimously approved a broad policy statement supporting preservation of attorney-client and work product protections, and opposing government actions that erode them.)

The commission subsequently asked the Association of Corporate Counsel and the National Association of Criminal Defense Lawyers to do a more finely tuned version of a survey of their members from last year, which had indicated that government requests for waivers of attorney-client privilege were up.

In that second survey, conducted in January and February, 52 percent of in-house lawyers and 59 percent of outside defense lawyers who responded said they believe there has been a significant increase in waiver requests in recent years. Respondents reported that about half of all investigative inquiries by government agencies resulted in privilege waivers.

A full 75 percent of them agreed with the statement that there is now a culture of waiver. That held sway with the commission.

“This takes away from prosecutors the ability to gain more leverage by saying the waiver is recognized by the sentencing guidelines,” Hackett says of the commission’s reversal of policy. “It doesn’t change the policies of the Justice Department or the Securities and Exchange Commission. But it does help us in sitting down to talk with them about whether seeking waiver is appropriate.”

Refining Policy

That dialogue began with a meeting at the justice Department in April, which was presided over by Associate Attorney General Robert McCallum. He had argued to the Sentencing Commission that critics were exaggerating claims about requests for attorney-client waiver, and that the survey was flawed.

In 1981, the U.S. Supreme Court ruled that a corporation is entitled to lawyer client privilege, and that its employees’ communications with counsel are privileged. Upjohn Co. v. United States, 449 U.S. 383. But the issue never went away. And it intensified through a series of Justice Department policy refinements that began in 1999 with the so-called Holder memo.

Then-Deputy Attorney General Eric H. Holder wrote that federal prosecutors could consider waiver of privilege in determining whether a corporate defendant cooperated in an investigation. Next, in 2001, the SEC issued the “Seaboard report,” in which it listed waiver of privileged material as one factor in deciding not to take action against a particular company.

In 2003, then-Deputy Attorney General Larry D. Thompson issued a memo that amplified that of his predecessor. Where Holder had written that prosecutors “could” consider waivers as factors in cooperation, Thompson asserted that waivers of attorney-client privilege and work product protection “are often critical in enabling the government to evaluate the completeness of a corporation’s voluntary disclosure and cooperation.”

Taking Sides

Critics say that those memos triggered more requests for waivers, and that the Sentencing Commission’s 2004 policy added fuel to the fire. In response, McCallum issued a memo last October instructing U.S. attorneys to develop review processes for waiver requests and to require that they be approved by appropriate supervisors within the Justice Department.

“But it still is a brooding omnipresence in every investigation,” says Lawrence J. Fox, a Philadelphia lawyer and member of the ABA Task Force on the Attorney Client Privilege. “Just the threat, the possibility, of a waiver request affects who you talk to, what you write down—sometimes what advice you give. It interferes with candor. I’ve experienced this.”

And Hackett says general counsel are reporting that the McCallum memo has not reined in subtle and not-so-subtle suggestions by prosecutors in the field that “voluntary” waiver would be in a corporation’s best interest if it wants to talk about settlement or even be involved in discussions about how an investigation might be handled.

At the April meeting with representatives from the ACC and the Chamber of Commerce, McCallum told them he wanted to hear their perspectives, Hackett says.

“I told him the alliance in disagreement with the DOJ on this issue includes the courts [through the Sentencing Commission], the legislature, bar groups, business groups and the ACLU,” Hackett says. “We asked ‘Who’s on your side?’ with the upshot being that we believe that eventually they will have to change their policy.”

(The increased pressure for waivers has brought bipartisan criticism in both houses of Congress. A House subcommittee held hearings in March, and preparations are under way for the same in the Senate.)

As part of the dialogue, the Justice Department has been provided with alternatives to its policy—one drafted by the ABA task force and the other by the ACC.

Both seek to remove requirements for attorney client privilege waivers as a part of cooperation in investigations. They have asked that prosecutors not be permitted to seek waivers during investigations. They also asked that prosecutors specify nonprivileged information they might request in cooperation and ensure that any voluntary waiver of attorney client privilege will not be considered as a factor in determining cooperation. “This would strike the proper balance between effective law enforcement and the preservation of essential attorney-client and work product protections,” says ABA President Michael S. Greco of Boston.

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