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Article Excerpt
Introduction
I. The Corporate Attorney-Client Privilege and White-Collar Investigations A. The Origin and Mechanics of the Corporate Attorney-Client Privilege B. The Mechanics and Implications of Waiving the Attorney-Client Privilege and Work-product Protections C. The Department of Justice Corporate Charging Policies: From the Holder to McNulty Memos and Beyond 1. An Overview of the DOJ Corporate Charging Polices 2. The McNulty Memo 3. The Revised DOJ Guidelines D. The Privilege Protection Act 1. The Privilege Protection Act of 2007 2. The Privilege Protection Act of 2008 II. Evaluating White-Collar Investigations under the Attorney-Client Privilege Protection Act: What Might Specter's Bill Accomplish? A. How the Privilege Protection Act Might Affect the Logistics of White-Collar Investigations 1. The Argument Against the Act's Implementation a. The Privilege Protection Act May Increase Inefficiency in white-Collar Prosecutions b. The Privilege Protection Act May Decrease a Corporation's Willingness to Cooperate with the Government and Minimize the Deterrent Effect of White-Collar Prosecutions c. The Privilege Protection Act May Chill Communications Between Prosecutors and Defense Counsels, and Open the Door to Prosecutorial Liability d. A Legislative Solution Might Unduly Hamper Prosecutorial Discretion 2. The Argument for the Act's Implementation. a. The Government May Conduct Effective White-Collar Investigations Without the Aid of Privilege Waiver b. A Corporation May Sufficiently Cooperate Without Waiving Its Privilege c. The Privilege Protection Act Is Consonant with Other Legislative Restraints on Prosecutorial Conduct B. How the Privilege Protection Act Will Affect Waivers in White-Collar Investigations 1. Supporters of the Privilege Protection Act Claim that the Act Will Bolster the Privilege and Remedy the "Culture of Waiver" that Pervades white-Collar Investigations 2. Detractors Argue that the Privilege Protection Act Will not Prevent Privilege Waivers from Serving as a Mainstay of White-Collar Investigations III. The Potential Ramifications of the Attorney-Client Privilege Protection Act Weigh Against Its Passage into Law A. Why the Senate Should not Pass the Privilege Protection Act in Its Current Form B. The Revised DOJ Guidelines: Corporate Cooperation as a Best Practice C. A Second Look at Selective Waiver Conclusion
INTRODUCTION
Cooperation in a criminal investigation often involves a degree of coercion. Severe consequences might befall the subject of an investigation who refuses to cooperate or strike a deal with prosecutors. The subject may have little strategic choice in the matter, but nevertheless, such cooperation remains voluntary, assuming that the state actor abides by constitutional restraints. With the waiver of rights cooperation entails--notably the Fifth Amendment right against self-incrimination and the Sixth Amendment right to trial by jury--comes the age-old carrot of prosecutorial and judicial leniency. (1) The criminal justice system mass-produces this trade-off on a daily basis. When a corporation becomes the cooperator, some things do change; however, many stay the same. Corporate liability changes the format of a prosecution inasmuch as the entity exists as an amalgam of its agents' actions, but retains its rights just as an "individual" defendant. (2) As its interest demands, a corporation may waive its rights, including its attorney-client privilege, just as millions of other criminal defendants do to secure leniency. Corporate privilege waivers, however, have generated exceptional controversy despite the widespread nature of analogous waivers in the justice system. (3) This controversy stems in large part from recent Department of Justice ("DOJ") corporate charging policies that directed prosecutors to consider privilege waivers in evaluating corporate cooperation. These policies, some argue, leave corporations little choice but to waive their attorney-client privilege. (4) Those who oppose waiver practices are powerful and loud enough that Congress is now contemplating the passage of the Attorney-Client Privilege Protection Act: a bill that would prohibit prosecutors from requesting or considering waiver of the corporate attorney-client and work-product protections as a measure of cooperation. (5) Despite the DOJ's revision of its corporate charging policy in an effort to appease critics and prevent congressional intervention, supporters of the Privilege Protection Act continue to argue for the Act's passage into law. Against the backdrop of this struggle between Congress and the DO J, this Note critically examines the Privilege Protection Act, and provides reasonable alternatives to the Act's implementation.
Corporate fraud has and will continue to capture national attention. Following the turn of the millennium, billion-dollar frauds at Enron, Adelphia, and WorldCom shocked the markets, wiped out pensions, and sparked a focus at the highest levels of government on prosecuting white-collar crime. (6) In the wake of these startling crimes, President Bush created the Department of Justice's Corporate Fraud Task Force ("Task Force") on July 9, 2002. (7) More of an affiliation of existing prosecutorial and investigative bodies than a new governmental organization, (8) the Task Force focused on aggressively rooting out corporate fraud throughout the country. (9) At the Task Force's fifth year anniversary event on July 17, 2007, former Attorney General Alberto Gonzales extolled the Task Force for "obtain[ing] more than 1,200 convictions, including 214 corporate chief executives or presidents," and "hundreds of millions of dollars in fines and restitution to investors." (10) In that same speech, however, the former Attorney General failed to mention any of the Task Force's significant setbacks, namely a number of acquittals, mistrials, and convictions overturned on appeal. (11) From the perspective of some scholars, bar organizations, and former prosecutors, the Department of Justice ("DOJ") arrived at these high conviction numbers through legally and ethically questionable means. (12) By contrast, the former Attorney General and the DOJ would maintain that these numbers signify the effectiveness of the DOJ corporate charging policy in reigning in corporate criminal conduct in a time of vast indiscretion.
Much of the debate surrounding recent white-collar prosecutions centers on the practice of government-compelled waivers of the corporate attorney-client privilege and work-product protections. Beginning with the Holder Memorandum ("the Holder Memo") in 1999 and through the McNulty Memorandum ("the McNulty Memo") in 2006, the DOJ could request and consider a corporation's willingness to waive its attorney-client privilege in determining whether a corporation sufficiently cooperated in an investigation and should be spared a criminal charge. (13) On August 28, 2008, the DOJ issued new corporate charging guidelines that deemphasized the role of privilege waivers in evaluating cooperation, but nevertheless directed prosecutors to consider a corporation's disclosure of the relevant facts (privileged or not) in their consideration of corporate liability. (14) Since corporate indictments carry tremendous costs, corporations are understandbly eager to cooperate by any means possible. (15) Thus, corporations often are compelled to waive their privilege in order to receive cooperation credit from the government, or rather simply to dissuade the government from prosecuting the corporate entity. (16)
Critics of such practices cite a "culture of waiver" and the erosion of the attorney-client privilege these memoranda engendered, and that likely will continue even under the DOJ's revised corporate charging guidelines. (17) In particular, critics claim that the erosion of the privilege hampers employees' willingness to consult with corporate counsel, and thus eliminates an early restraint on illegal conduct. (18) Additionally, the prevalence of privilege waivers likely increases the potential for increased civil liability, since it provides discoverable fodder for civil plaintiffs. (19)
In contrast, those who favor current DOJ corporate charging policies that permit prosecutors to consider waiver of the corporate attorney-client privilege cite the increased efficiency and effectiveness of white-collar prosecutions following such waivers. (20) They further argue that aggressive enforcement deters corporate fraud, and thus protects market integrity for private and public investors. (21) Moreover, the nature of the corporate privilege causes the very infirmities that critics claim the DOJ memos create. (22) A corporation may still waive privileges as it deems fit, particularly where waiver might permit the corporation to weather a criminal investigation. Thus, the corporate privilege, as the Supreme Court formalized in Up john v. United States, (23) provides little protection to employees in the first place. Any expectations otherwise might very well lack a reasonable basis.
Despite the DOJ's issuance of revised guidelines, Congress remains on the brink of further altering the current corporate charging policy. Senator Arlen Specter originally introduced the Attorney-Client Privilege Protection Act ("Privilege Protection Act") on December 8, 2006, to end the practice of privilege waiver under recent DOJ regimes. (24) On November 13, 2007, the House passed its version of the Privilege Protection Act with only slight modification to the version pending before the Senate. (25) Recently, Senator Specter introduced a slightly revised version of the Attorney-Client Privilege Protection Act on June 26, 2008. (26) On July 9, 2008, Attorney General Michael Mukasey appeared before the Senate Judiciary Committee and announced that the DOJ planned to make adjustments to the McNulty Memo, specifically stating "[we] will no longer measure cooperation by waiver of the attorney-client privilege." (27) Following the meeting, Deputy Attorney General Mark Filip sent a letter to Senate Judiciary Committee members outlining proposed changes to the McNulty Memo. (28) The letter also requested that the Senate Judiciary Committee allow the DOJ to alter and implement over a reasonable time a revised corporate charging policy. (29) Shortly thereafter, on August 28, 2008, the DOJ issued its revised corporate charging guidelines in an attempt to placate critics. (30) While the new guidelines received praise from Senator Specter and the ABA as a step in the right direction, both the Senator and the ABA insist that the revised guidelines do not go far enough to protect the attorney-client privilege. (31) Thus, a new round of Capitol Hill brinksmanship has begun, with the Senate Judiciary Committee pursuing a legislative solution and the DOJ working to retain its authority over its corporate charging policy under the revised guidelines.
As the battle continues over revising the corporate charging policy, legal scholars, practitioners, and bar associations have weighed in on the Privilege Protection Act's potential effectiveness. This Note analyzes the Privilege Protection Act, focusing on how it might change corporate white-collar prosecutions. Part I of this Note explores the mechanics of the corporate privilege, the development of the DOJ's waiver policy, and the structure of the Privilege Protection Act. Part II addresses the conflicting views on whether the Privilege Protection Act will bolster corporate attorney-client privilege, provide for the effective and efficient prosecution of white-collar crime, and promote ethical prosecutorial practices. Finally, Part III argues that the Privilege Protection Act is a misguided attempt to correct a greater systemic problem with the corporate attorney-client privilege and the nature of corporate cooperation. If Congress is to act, it should recognize the essential role privilege waiver plays in prosecuting white-collar crime, and should move to limit the deleterious ramifications to corporations of routine privilege waivers. Thus, the doctrine of selective waiver would be a preferable remedy: it would protect the confidentiality of privileged documents that the corporation discloses to the government, and would provide an effective means to balance the corporation's interest in cooperating with the government and avoiding unwarranted civil liability.
I. THE CORPORATE ATTORNEY-CLIENT PRIVILEGE AND WHITE-COLLAR INVESTIGATIONS
A. The Origin and Mechanics of the Corporate Attorney-Client Privilege
Upon discovery of potential misconduct or a governmental investigation of its actions, corporations often undertake the strategic step of initiating an internal investigation to gather information to respond to the conflict. (32) An internal investigation comprises "information-gathering activities that a company engages in upon learning of possible wrongdoing." (33) These investigations are usually tailored to the scope of the potential wrongdoing, at times involving a comprehensive document search and interviews of employee witnesses. (34) Outside counsel is often the key actor in conducting an internal investigation and presenting legal advice to guide the corporation through the conflict. (35) The fruits of the internal investigation and subsequent legal analysis allow the corporation to review the potential misconduct. Thus, the corporation is better able to gauge if and what type of liability it may face, and the necessary corrective actions to take in order to resolve the conflict. (36)
The doctrines of attorney-client privilege and work-product protection provide an essential shield to the corporation and the internal investigation. (37) The Supreme Court, addressing what protection the Court should provide to the results of a corporate internal investigation in Upjohn, concluded that the attorney-client privilege and the work-product doctrines apply to corporations, and thus where applicable, to the fruits of an internal investigation. (38) As the Court noted of the attorney-client privilege in Upjohn, "[i]ts purpose is to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice." (39) In order to facilitate effective legal service, "the privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer being fully informed by the client." (40)
Toward the similar end of protecting the attorney-client relationship, the doctrine of work-product protection is designed to protect an attorney's mental impressions in preparing for litigation, (41) An internal investigation should gain the protection of both the attorney-client privilege (protecting communications between counsel and employees (42)) and the work-product doctrine (protecting attorney notes, memoranda, and legal conclusions (43)). (44) While the corporate privilege exists as an amalgam of its agents' statements and attorneys' knowledge, (45) the privilege belongs to the corporation and may be preserved or waived as the corporate entity deems fit. (46)
The corporate attorney-client privilege exists as something of a contradiction. The privilege belongs to the corporate entity, but at the same time, the corporate entity can only speak and act through the many officers and employees who comprise the entity. Nevertheless, the corporate counsel does not represent those individuals. Rather, counsel must act in the corporation's best interests, which at times may be adverse to the employees' interest. (47) In order to avoid ethical conflicts when conducting an investigation, "corporate counsel are duty bound to advise employees with regard to both the scope of the legal representation and the attorney-client privilege prior to conducting any sort of interview in connection with a corporate investigation." (48) Typically referred to as "Upjohn warnings," these instructions from corporate counsel should make the employee aware of the nature of counsel's representation and that while the corporate privilege protects information discussed, the corporation may later decide to disclose this information to others. (49) Corporate counsel's failure to provide sufficient Up john warnings "poses the risk of inadvertently creating a lawyer-client relationship with the officer or employee." (50) Accordingly, Upjohn warnings are crucial for a corporate counsel to avoid unethical and misleading practices, an error likely to harm both the corporation and counsel. Although corporate counsel advising employees on a daily basis presents a different situation than outside counsel conducting an internal investigation, both should provide Up john warnings in their contact with employees. Theoretically then, employees should be well aware of what little protection the corporate attorney-client privilege may provide for their communications with counsel. (51) In practice, however, there remains some question as to the adequacy of Upjohn warnings and the potential remedies should corporate counsel fail to provide the warnings to those it interviews. The quickest solution to that problem would be to strengthen Up john warning practices. (52) As some would argue, the larger problem of erosion of the corporate attorney-client privilege remains, but this discussion of the nature of the privilege should recast the debate in a different light. If the government charging policies favoring privilege waiver chill communications between corporate counsel and employees, the nature of the corporate privilege may hold the greater blame.
B. The Mechanics and Implications of Waiving the Attorney-Client Privilege and Work-product Protections
After conducting an internal investigation, a corporation might provide privileged information or attorney work-product to the government as an efficient means to reveal wrongdoing and seek cooperation credit. (53) The frequency of internal investigations uncovering any existing wrongdoing has led the government to focus on obtaining the fruits of such investigations. (54) In the corporation's attempt to cooperate with the government, handing over privileged or work-product protected material may constitute a broad waiver of those privileges and protections to third parties. (55) Generally, "[b]ecause confidentiality is the key to the privilege, '[t]he attorney-client privilege is lost if the client discloses the substance of an otherwise privileged communication to a third party.'" (56) Thus, most forms of cooperation involving disclosures from an internal investigation likely will result in a waiver of the attorney-client privilege and work-product protection. (57) This waiver may extend not just to the material disclosed, but also to the entire subject matter of the disclosure. (58)
Courts, however, have developed conflicting interpretations over what may constitute waiver, and the scope of waiver remains contested ground. (59) Six circuits have found that disclosure of privileged material to a federal agency waives the attorney-client privilege, or possibly even the work-product protection depending on the submission for the entire subject matter of the material. (60) Even in the face of a confidentiality agreement between a corporation and a federal agency, the Third, Sixth, and Tenth Circuits have held that disclosure of privileged or work-product protected documents destroys those protections as to third parties. (61) Currently, "only the Eighth Circuit and district courts in other circuits have held that a selective waiver of the attorney-client privilege applies whenever a client discloses confidential information to a federal agency." (62) Thus, as a whole, courts do not seem comfortable with the Eighth's Circuit flexible notion of the privilege. Instead, courts favor the traditional, absolutist approach. (63)
A growing movement had developed in support of amending the Federal Rules of Evidence to include Proposed Rule 502, which would have enacted a "selective waiver" provision to maintain the attorney-client privilege and work-product protections despite disclosure to the government. (64) This coalition, however, appears to have fizzled. (65) The ABA seems to have placed its support behind the Attorney-Client Privilege Protection Act, and the Senate and Rules Committee seemed to respond to this shift when they eliminated the selective waiver portions from Rule 502. Congress and the President since passed Proposed Rule 502 without the selective waiver provisions. (66) Apart from its recent exodus from Proposed Rule 502, the doctrine of selective waiver would keep intact a corporation's privilege and work-product protection to private parties, even though the corporation might have "waived" both in its disclosure to the government. (67) Selective waiver would allow the government to receive the benefit of a waiver to effectuate its investigation and the corporation to retain its privilege and work-product protections as to third parties. (68) The doctrine would thus facilitate the process of privilege waivers by providing greater protection to corporations from civil suits that often follow fraud investigations. In certain respects, selective waiver permits a corporation to "have its cake and eat it too," gaining both the benefit of cooperating with the government, while also avoiding exposure to litigants waiting in the wings. (69) Additionally, policies favoring waiver generally provide the government with helpful, timesaving information that expedites white-collar investigations. (70) Nevertheless, opponents of the doctrine claim that its enactment would place greater pressure on a corporation to waive its privilege and work-product protections and might add a disincentive for corporate counsel conducting an investigation to record findings in writing, a step that might harm legal representation. (71)
Under the current DOJ corporate charging guidelines (without selective waiver) a corporation that is cooperating with the government must walk a delicate line to prevent waiver of the attorney-client privilege and work-product protections. Considering the potential death sentence a criminal prosecution might entail--for instance, the fate of Arthur Andersen--a corporation is likely inclined to err on the side of cooperation, even if it means risking increased third party liability. (72)
C. The Department of Justice Corporate Charging Policies: From the Holder to McNulty Memos and Beyond
1. An Overview of the DOJ Corporate Charging Polices
Beginning in 1999 with the Holder Memorandum ("Holder Memo") and continuing today with the revised corporate charging guidelines, (73) the Department of Justice has recognized the value of prosecuting the corporate entity in white-collar investigations. (74) The DOJ has issued five corporate charging policies (Holder, Thompson, McCallum, and McNulty Memos in addition to the Revised DOJ Guidelines) over the course of nearly ten years to implement a unified prosecutorial strategy to reduce corporate fraud. (75) Prior to the Revised DOJ Guidelines, the four Memos placed the emphasis in charging decisions on evaluating the quality of corporate cooperation, in particular, by considering privilege waivers and even advancement of attorneys' fees to certain degrees. (76) After outrage at and even unconstitutionality of some provisions in the Holder and Thompson Memos, the McCallum and McNulty Memos provided changes intended to maximize prosecutorial effectiveness in white-collar investigations, while protecting constitutional rights. (77) After further criticism of the provisions directing prosecutors to consider waiver of the attorney-client privilege in their corporate charging decisions, the DOJ again altered its charging policy, attempting to replace the focus on waiver with a focus on the disclosure of relevant facts. (78) The Revised DOJ Guidelines, however, do not forbid prosecutors from considering waiver of the privilege in the corporation's favor and continue to encourage corporate prosecution on many of the same factors as the previous Memos. (79) In this sense, the DOJ corporate charging policies were and remain a precarious balancing act of prosecutorial vigor and restraint.
In the simplest terms, the DOJ corporate charging policies tailor traditional prosecutorial strategies for prosecuting individuals to corporations. (80) As all of the Memos and the Revised DOJ Guidelines recognize, "indicting corporations for wrongdoing enables the government to address and be a force for positive change of corporate culture, alter corporate behavior, and prevent, discover, and punish white-collar crime." (81) Moreover, the Holder Memo and its successors encourage cooperation as the means to avoid indictment; all of the DOJ charging policies explicitly direct prosecutors to consider the value of a corporation's voluntary disclosure in determining corporate liability. (82) While the four Memos cast this evaluation partially in terms of privilege waiver, the Revised DOJ Guidelines address the same considerations from a "disclosure of facts" approach, which frequently may involve waiver of the privilege. (83) Cooperation is often essential to the success of a white-collar prosecution, since it significantly accelerates the investigation of complex business records and may allow the government to obtain all or part of the corporation's internal investigation results. (84) Yet, despite encouraging cooperation, the DOJ charging policies provide no guarantee that with cooperation the corporation will avoid indictment. (85) All the DOJ charging policies, however, recognize "the important public benefits that may flow from indicting a corporation in appropriate cases," most significantly "deterrence on a massive [or as the Revised DOJ Guidelines put it, 'broad'] scale." (86) This Note now directs its attention to the previous charging policy to the Revised DOJ Guidelines: the McNulty Memo.
2. The McNulty Memo
The McNulty Memo stood as the DOJ policy on the prosecution of business organizations from December 12, 2006 to the introduction of the Revised DOJ Guidelines on August 28, 2008. Like the Thompson Memo before it, the McNulty Memo recognized that "waiver ... is not ... a prerequisite to a finding that a company has cooperated in the government's investigation." (87) Additionally, both Memos recognize that waivers will significantly facilitate the investigation (88) and "may be critical in enabling the government to evaluate the accuracy and completeness of the company's voluntary disclosure." (89) While the McNulty Memo retained the Thompson Memo's nine-factor analysis to guide prosecutors' corporate charging decisions, the McNulty Memo implemented noteworthy adjustments in regards to the attorney-client privilege and work-product protections that set it apart from its predecessors.
Unlike the Thompson Memo, the McNulty Memo required prosecutors to demonstrate a legitimate need for privileged information to fulfill their law enforcement obligations. To do so, prosecutors needed to go beyond demonstrating that a waiver is "desirable or convenient," and meet a four factor balancing test:
Whether there is a legitimate need depends upon: (1) the likelihood and degree to which the privileged information will benefit the government's investigation; (2) whether the information sought can be obtained in a timely and complete fashion by using alternative means that do not require waiver; (3) the completeness of the voluntary disclosure already provided; and (4) the collateral consequences to a corporation of a waiver. (90)
If a legitimate need existed, the McNulty Memo then instructed prosecutors to "seek the least intrusive waiver necessary to conduct a complete and thorough investigation...." (91) The McNulty Memo directed prosecutors first to request "purely factual information, which may or may not be privileged, relating to the underlying misconduct." (92) This factual material, to which the Memo refers as Category I information, consists of items that likely implicate both the privilege and work-product protections,...
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