This article originally ran in The Legal Intelligencer on May 5, 2015.
In 2006, a landmark decision by the U.S. District Court for the Southern District of New York resulted in a dramatic change in the Department of Justice's policies and practice in the prosecution of corporations, including its policy regarding requests for waiver of attorney-client and work-product protections. That decision is United States v. Stein, 435 F.Supp.2d 330 (S.D.N.Y. 2006). In the years since the issuance of the Stein decision, the DOJ's policy with respect to waiver of attorney-client privilege and attorney work-product privilege has evolved significantly. While the DOJ's current approach to such waivers is considerably less aggressive than its pre-Stein approach, the DOJ's most recent pronouncement on the issue of waiver still presents pitfalls that attorneys should keep in mind when counseling corporations in DOJ investigations.
Prior to the Stein decision, the DOJ had issued advisory memoranda setting forth guidelines for the prosecution of corporations. One of the most controversial aspects of the advisory memos was the DOJ's approach to what it considered a company's "willingness to cooperate." The memos were generally interpreted as requiring corporations to waive the attorney-client and work-product privileges during a government investigation in order to avoid a corporate prosecution. This DOJ practice resulted in several challenges to the DOJ's policies, including Stein.
Factually, the Stein case involved an Internal Revenue Service investigation of allegedly fraudulent tax shelters by KPMG. The company agreed to pay for legal representation for certain of its officers who were facing potential criminal indictments. In an early meeting with KPMG, the prosecutors made it clear that KPMG's payment of legal fees to employees would not be looked on favorably by the DOJ in determining whether the company should be indicted. Following that meeting, KPMG announced that it would continue paying its employees' legal fees, but on the condition that the employees fully cooperate with the government and agree to forgo any exercise of their Fifth Amendment right to remain silent.
The Southern District of New York held that the government violated the Fifth and Sixth amendments by pressuring KPMG to stop paying the legal fees of former KPMG officers indicted as part of the tax fraud scheme. While the Stein decision focused on the issue of advancement of legal fees, the opinion also supported arguments that other DOJ policies, including demands for privilege waivers, were similarly improper. The Stein decision was upheld by the U.S. Court of Appeals for the Second Circuit.
Shortly after the Stein decision, Sen. Arlen Specter introduced the Attorney-Client Privilege Protection Act of 2006, aimed at scaling back DOJ policies regarding waiver of attorney-client and work-product protections. In response to this and the Stein decision, the DOJ revised its policies in December 2006 by issuing a revised corporate prosecution memorandum, known as the "McNulty Memorandum." The McNulty Memo announced that DOJ attorneys could request a waiver of the attorney-client or work-product protections only "when there is a legitimate need for the privileged information." The memo also instructed prosecutors to "seek the least intrusive waiver necessary to conduct a complete and thorough investigation." Many believed that, despite these changes, corporations were still pressured to waive attorney-client and work-product protections in order to receive credit for cooperating and escape an indictment.
In August 2008, the DOJ again attempted to hone its policy on waiver of the attorney-client and work-product privileges. A new memorandum, known as the "Filip Memo," issued by then-deputy attorney general Mark R. Filip, explained that in assessing cooperation, prosecutors may consider "the corporation's willingness to provide relevant information and evidence, [as well as] identify relevant actors within and outside the corporation." However, the memo explained that although cooperation is a "potential mitigating factor," "failure to cooperate, in and of itself, does not support or require filing of charges" against a corporation.
Under the Filip Memo, DOJ prosecutors were no longer permitted to request corporate waiver of the attorney-client and work-product privileges. Moreover, a company's willingness to cooperate would be assessed not on its willingness to waive attorney-client privilege, but on whether the company provided "relevant facts" about the underlying misconduct. However, the Filip Memo simultaneously stated that a "corporation that does not disclose the relevant facts about the alleged misconduct—for whatever reason—typically should not be entitled to receive credit for cooperation." This directive has raised questions on whether the Filip Memo actually offers any greater protections to corporations from requests for the waiver of attorney-client and work-product privileges. At a minimum, the Filip Memo raises the question of what a company should do if its attorneys' internal investigation simultaneously reveals facts that are both relevant to a government investigation and protected by the attorney-client privilege.
In light of these developments, attorneys counseling corporations in DOJ investigations should take steps to clearly delineate attorney-client and work-product material from factual matters, such as keeping attorney opinions, impressions and analysis separate from written summaries of witness interviews. Attorneys should also keep in mind certain issues that are present when a company is considering waiver of its attorney-client privilege, including the fact that waiver of a privilege in a DOJ investigation will likely give rise to waiver regarding the same subject matter in other civil litigation or criminal investigation. In other words, there is no selective waiver.
Similarly, waiver of certain information has the potential to effectuate a broader waiver of the entire subject matter to which that information relates. Moreover, in weighing the advantages and disadvantages of waiving attorney-client and work-product protections in DOJ investigations, corporations should keep in mind that waiver is not always the best course of action, such as where waiver will not likely prevent prosecution (and can potentially open the corporation to further litigation).
In examining the evolution of DOJ policies regarding corporate waiver over the past decade, it is clear that DOJ policies have come a long way from the pre-Stein policies. However, the waiver of attorney-client and work-product protections in DOJ investigations remains an important and complex issue in corporate investigations, one that will likely remain a matter of serious consideration for white-collar practitioners.
Reprinted with permission from the May 5, 2015 issue of The Legal Intelligencer. © 2015 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.