Attorney/Client Privilege Update

Attorney/Client Privilege Update

By Tammi Franke

As you may (or may not) know, Illinois has recently instituted mandatory continuing legal education (MCLE) requirements for lawyers in Illinois. I hope none of our newsletter readers are relieved to hear that Fitzgerald & Hewes attorneys are now required to keep up-to-date on developments in our chosen profession! Nevertheless, my first MCLE course was a one-hour update on recent developments concerning the erosion of corporate attorney-client privilege entitled "Securities Enforcement after The McNulty Memo: The Future of Corporate Cooperation."

If you received our last newsletter, you may recall that I wrote a short article on this issue, which has been a major concern for corporate attorneys and management. To quickly recap, since 2001, the SEC and the Department of Justice (DOJ) have both issued policies that jeopardize the protections provided by the attorney-client privilege doctrine.

The policy of both Federal agencies directed their officials to reward corporations under investigation for waiving the attorney-client privilege. Any corporation under investigation was deemed to be "uncooperative" if it did not waive the privilege and, consequently, withheld documents that were communications between corporate counsel and management.

After much vocal opposition from both the business and the legal communities, the DOJ reconsidered its policy and, in December, the Deputy Attorney General, Paul J. McNulty, issued a new directive to department officials regarding the policy (the "McNulty Memo"). In the memo, the DOJ outlines the general principles and factors to be taken into consideration when a business organization is charged with a crime.

The McNulty Memo lists nine factors that government prosecutors should take into consideration when deciding whether to bring charges against or negotiate a plea agreement with a corporation under investigation. The factors are:

1. The nature and seriousness of the offense.

2. The pervasiveness of wrongdoing within the corporation.

3. The corporation’s history of similar conduct.

4. The corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation.

5. The existence and adequacy of the corporation’s pre-existing compliance program.

6. The corporation’s remedial actions (such as implementing a compliance program, replacing management and employees, and cooperating with government agencies).

7. Collateral consequences (such as harm to shareholders, pension holders and employees).

8. The adequacy of the prosecution of individuals responsible for the corporation’s malfeasance.

9. The adequacy of civil or regulatory enforcement actions.

Factor four, which considers the corporation’s willingness to cooperate in the investigation, is the primary factor where the issue of attorney/client privilege and waiver is most prevalent. According to the DOJ, the McNulty Memo revises and clarifies the DOJ policy in this area.

The memo acknowledges how the attorney/client privilege is one of the oldest most sacrosanct privileges under U.S. law and that its purpose is to encourage "full and frank" communication between attorneys and their clients. It then attempts to reverse the former DOJ policy by stating: "Waiver of attorney-client and work product protections is not a prerequisite to a finding that a company has cooperated in the government’s investigation."

Unfortunately, the following paragraphs of the memo chip away at this reversal. The memo next provides U.S. prosecutor’s with the ability to request a waiver of attorney-client privilege "when there is a legitimate need... to fulfill their law enforcement obligations." The memo sets out a balancing test for determining when a prosecutor’s legitimate need for privileged information outweighs one of the most sacrosanct privileges under U.S. law. According to the memo, mere convenience or desire does not rise to the level of a legitimate need. A legitimate need depends upon:

1. The likelihood that the privileged information will benefit the government’s investigation.
2. Whether the information can be obtained without the waiver.
3. Whether the voluntary disclosure is complete.
4. The collateral consequences to a corporation from the waiver.

Based on these factors, if it is determined that a legitimate need exists, the memo outlines a step-by-step process for prosecutors to follow so that the request for privileged information is the least intrusive request possible. First, the prosecutor should, if possible, request only factual information such as copies of key documents, witness statements, factual summaries or reports containing investigative facts gathered by corporate counsel. Before requesting any privileged factual information, prosecutors must obtain a written authorization from the U.S. Attorney. If the request is granted the U.S. Attorney will communicate the request in writing to the corporation. A corporation’s response to this type of request may be considered in determining whether a corporation has cooperated with the government’s investigation.

If the request for factual information does provide a complete basis for a thorough investigation, only then can prosecutors request non-factual privileged information such as legal advice given to the corporation before, during and after the corporate misconduct occurred. The memo cautions prosecutors to seek this information in "rare circumstances". If the corporation refuses to turn over non-factual privileged information or work product, the DOJ cannot hold this decision against the corporation. However, if the corporation does provide this information, they can be given credit for cooperating.

ANALYSIS

It would be easy to guess at intentions, good or bad, of the DOJ and Deputy Attorney General in the McNulty memo. Whatever the intentions, an attempt was made to address some very legitimate concerns of private attorneys and businesses about the erosion of one of the most sacrosanct privileges under U.S. law. While the memo restricts the actions of individual prosecutors in this area, it does very little to change the policy of rewarding corporations for waiving the privilege. The only real change is that corporations will not be viewed as uncooperative for withholding memos or other work product with direct legal advice from their counsel regarding the misconduct under investigation.

The attorneys at Fitzgerald & Hewes have conducted internal investigations on behalf of their clients on a variety of legal issues. In considering if the policy set out in the McNulty Memo would affect those investigations, the unanimous conclusion was “yes”. Attorneys and the corporations they represent will be hard pressed to have “full and frank” communications when those communications are still at risk of ending up in a prosecutors case against the corporation. Even if this risk is now less under the McNulty Memo, any risk of disclosure of privileged information creates a chilling effect on attorney-client communications and the work product produced during internal investigation by corporate counsel.