Long before Enron, corporations accused of crimes typically didn’t pause for long when prosecutors asked them to waive their attorney-client privilege and spill their guts to the government.
For the guilty, waiver was a way to curry leniency through cooperation. For those who protested their innocence, waiver and all it laid bare was a way to bolster their legal positions and perhaps even persuade prosecutors to back off. Either way, companies ran the risk that waiver to the government also entitled potential private civil plaintiffs to the same sensitive materials.
It would seem to follow that corporate America would embrace a new evidence rule that could reduce its exposure to civil liability by limiting outside access to privileged attorney client exchanges and to attorney work product shared with the government.
Yet the protests started arriving at the U.S. Judicial Conference even before its Advisory Committee on Evidence Rules in August published just such a proposal for public comment.
Though companies had long sought the protection, known as selective or limited waiver, leaders of bar and business groups dueling with the government over the erosion of attorney client privilege instead have stepped up attacks on the underlying agency policies they see as the root cause of the conflict.
As the organized fight to preserve the privilege enters its third year, the leaders see progress in recent encouraging words from the bench and key members of Congress, as well as success on the regulatory front. Given that, they aren’t ready to settle for selective waiver.
“I think they at first looked at this as their only chance,” says Susan Hackett, head in house lawyer for the Association of Corporate Counsel. “Now that it’s starting to look like the momentum has shifted, people don’t want just leftover bits of the cookie.” The measure would become Federal Rule of Evidence 502(c) if Congress adopts it. As drafted, it would prevent additional disclosures of privileged materials only after a client has turned them over to a government agency, not to private parties. Defendants also can ask for additional protection through court orders that forbid the release of privileged materials to participants in other federal or state proceedings.
The rule aims to mend a split among the federal courts in which all but the Denver based 8th U.S. Circuit Court of Appeals hold that a waiver to the government operates as a waiver to all comers for any reason. The split goes deeper, however, because some courts have held out the possibility that a selective waiver may be appropriate in certain situations, such as confidentiality agreements between defendants and the government. In its note, the advisory committee maintains that a codified privilege will resolve the split, further the favored public policy of cooperation with the government, and make government investigations more effective and efficient. The rule wouldn’t affect separate common law doctrines where courts still could determine that litigants had broadly waived the privilege, such as in legal malpractice cases and in defenses based on advice of counsel.
“The rule seeks to provide a predictable, uniform set of standards under which the parties can determine the consequences of a disclosure of communications or information covered by the attorney client privilege or work product protection,” the committee note states.
Memo Changes Everything
Before the 2001 Enron Corp. scandal, corporate criminal defendants waiving the privilege typically would negotiate confidentiality agreements with prosecutors—though more often than not ignored by courts—in attempts to ensure that the materials didn’t fall into the hands of third parties. Still, as business decisions go, the benefit of disclosure often outweighed the risk, and corporate waivers did not attract much notice.
After Enron went down the tubes, then Deputy Attorney General Larry Thompson came along in 2003 with a couple of tweaks to an existing Justice Department policy that suggested waiver as a gauge of cooperation. Critics say the Thompson version ratcheted it up into a requirement.
Most lawyers complain the policy so deeply institutionalized waiver as a hallmark of cooperation that clients no longer believe they have the choice they once had. The Securities and Exchange Commission follows a similar policy.
In an effort to ease the escalating tension between corporate defendants and increasingly routine government demands for waivers, House Judiciary Committee Chairman F. James Sensenbrenner, R Wis., asked the advisory committee to draft a provision that would allow corporate defendants to surrender the privilege to prosecutors but to no one else. Other sections of draft Rule 502 contain protections from inadvertent release of privileged materials. But the selective waiver provision has drawn nearly all the attention. “We must take a firm, line in the sand position that limited waiver is not acceptable,” Hackett says. “I think most people would like to be in that camp.”
The so called Thompson memorandum and other agency policies have become the prime targets for a movement that started in the summer of 2004 among ABA leaders as an esoteric discussion on the nature of the privilege.
“While limited waiver is an important thing, getting rid of the Thompson memorandum is crucial, because that guts the privilege,” says R. William Ide III, chair of the ABA Task Force on Attorney Client Privilege, which has assumed a leading role in a coalition of bar and business groups working to dump the memo. The alliance includes such diverse organizations as the corporate counsel association, the U.S. Chamber of Commerce and the American Civil Liberties Union.
Besides mounting government pressure for waivers, accountants feeling the heat of tough new post Enron audit standards also have begun to demand mountains of private attorney client materials in scrutinizing companies’ tax records, litigation reserves, environmental contingencies and internal investigations.
The ABA House of Delegates in August adopted a resolution urging the accounting and legal professions, as well as government regulators, to adopt standards to ensure protection of the privilege during audits. In many cases, auditors unsure of their legal responsibilities have begun casting much wider nets in search of supporting documentation for their findings. They are doing so largely to protect themselves from liability should law enforcement or civil plaintiffs question them.
“I sit on four audit committees myself, so I can see this firsthand,” Ide says. “Risk minimization is now the first priority for the audit community.”
Now the ABA task force turns to re examination of selective waiver in a different light. Ide and three other members this spring objected to selective waiver as individuals when it looked like the idea would receive serious consideration. Ide says he expects the task force as a whole eventually will follow.
But when they convened just two years ago, Ide says, members might have accepted selective waiver as the best they could do. That was until closer study revealed just how pernicious the Thompson memo has become, he adds.
“When we started gathering the facts, we discovered that this goes very deeply into the core principles of the adversarial system,” Ide says. “Let’s get the core issues dealt with first. Then let’s deal with limited waiver.”
Congress and the Courts
The best the Justice Department has offered so far is an order to all 93 U.S. attorney offices to write their own individual policies on seeking waiver. That hardly impresses coalition members, who want some sort of national uniformity. Though they haven’t given up on directly lobbying Justice, members have started to tap other potential sources of relief.
From the bench comes U.S. District Judge Lewis A. Kaplan’s June holding that prosecutors unconstitutionally used the Thompson memo to pressure accounting firm KPMG into cutting off lawyer fees for criminally charged employees, in violation of their rights to due process and legal representation.
Though Kaplan’s ruling doesn’t bind other judges, coalition members view the lengthy opinion as a template for other courts. And Kaplan turned his words into action in July by suppressing statements of two former KPMG executives, holding that the fees provision and other aspects of the Thompson memorandum coerced them into giving up their Fifth Amendment rights to remain silent.
Besides fee cutoffs, prosecutors evaluating a corporate defendant’s cooperation also consider whether a defendant company fired or disciplined employees accused of crimes or entered into joint defense agreements with them. Such agreements allow the company to share information with workers and make it more difficult for the government to pierce their Fifth Amendment shields. The ABA House passed a second resolution in August opposing those practices.
Congressional pressure is another avenue. Besides Sensenbrenner’s request for a draft evidence rule, the House Judiciary Subcommittee on Crime, Terrorism and Homeland Security in March conducted a hearing on the issue. Senate Judiciary Committee Chairman Arlen Specter, R Pa., also has promised to conduct hearings.
“I wouldn’t waive my attorney client privilege if I were you under any circumstance,” former prosecutor Specter told coalition members at a November 2005 conference. “Government has the burden of proof.”
In the regulatory realm, the coalition successfully persuaded the U.S. Sentencing Commission in April to eliminate language from a 2004 guideline amendment that suggested waiver was required for a company to receive full credit for cooperation.
Why split the baby?
Though selective waiver sounds appealing at first blush, corporate lawyers worry that it could become an even more coercive weapon for prosecutors because it moots defense arguments on collateral effects arising from release to others. They also worry that it will chill corporate candor and the attorney client relationship by making executives wary of confiding in their lawyers, lest waiver should some day let prosecutors in on the conversation.
“It’s a great way to split the baby, but I’m not in the baby splitting business right now,” Hackett says. “You’ll gut that relationship. You’ll never be able to reject a government request, because they’ll say, ‘What’s wrong? We can protect you.’ ”
Still, prosecutors already have painted plenty of post Enron corporate defendants into corners by extracting waivers from them, sometimes with disastrous collateral consequences. While dumping the Thompson memo may be appealing to many, lawyers with clients in that position say they still need the protection of a codified selective waiver in the face of uncertain judicial outcomes without black letter guidance. “If I had a client, I would want to be able to get the benefit of full cooperation, including waiver, if needed,” says Washington, D.C., corporate defender James K. Robinson, a former evidence advisory committee member and former Criminal Division chief at the Justice Department.
Moreover, Robinson says, the business community’s strategy of setting selective waiver to the side may backfire. That’s because Congress could have little incentive to enact selective waiver for those who still may need it should the Thompson memo eventually succumb. Such a scenario likely would put courts back in charge—for better or worse—and diminish prosecutors’ roles in evaluating defendants’ cooperation.
“They’re whistling in the dark on this one,” Robinson says of the focus on the memo. “I worry that it will be a missed opportunity. What happens if you try to use [selective waiver] as a wedge to get rid of the Thompson memo, and it doesn’t work?”