Atlanta, Georgia
Introduction
Since 2002, following the high profile collapses of corporate giants like Enron and WorldCom, the Department of Justice (DOJ) has become more and more aggressive in its campaign against perceived corporate corruption and fraud, initiating hundreds of investigations a year, many of which lead to indictments and convictions of both corporations and their individual agents. In November 2009, in response to the financial crisis of 2008, President Obama made clear that the Government’s crackdown on white collar crime was here to stay when he established the Financial Fraud Enforcement Task Force (FFETF) to strengthen and continue the Government’s efforts to root out and punish corporate crime. Comprised of over twenty-five federal agencies, the FFETF is “the largest coalition ever brought to bear to confront fraud.” While the threat of criminal indictment of corporations was once rare, it is now increasingly becoming the norm.
As companies more frequently find themselves the targets of Government investigations, sometimes by multiple law enforcement authorities, and as the specter of criminal indictment looms over them like the sword of Damocles, the pressure to cooperate, in particular by investigating, sanctioning, or terminating employees, has intensified. The current culture of cooperation has its genesis in a succession of DOJ policy statements, starting with then-Deputy Attorney General Eric Holder’s 1999 memorandum entitled “Federal Prosecution of Corporations,” establishing guidance for federal prosecutors in determining whether to criminally charge a corporation. The Holder Memo permitted federal prosecutors to take into consideration a corporation’s “cooperation” in making charging decisions, and provided that a corporation’s willingness to waive the attorney-client and work product protections as well as the “corporation’s promise of support to culpable employees and agents, either through the advancing of attorneys fees, through retaining the employees without sanction for their misconduct, or through providing information to the employees about the Government’s investigation pursuant to a joint defense agreement,” all were factors prosecutors could consider in evaluating the adequacy of a corporation’s cooperation. While the Holder Memo authorized, but did not require, federal prosecutors to consider these factors, then-Deputy Attorney General Larry Thompson’s revised version of the Holder Memo, issued in 2003, “increase[d] emphasis on and scrutiny of the authenticity of a corporation’s cooperation,” and made clear that the principles set forth in the Holder Memo were mandatory. Under the Thompson Memo, federal prosecutors were required to view a corporation’s advancement of attorneys’ fees, retention of employees without sanction for their misconduct, willingness to enter into joint defense agreements with employees, and failure to waive the privilege, as weighing in favor of prosecution.
Although the most recent version of DOJ policy, the Filip Memo, prohibits prosecutors from seeking privileged information, and from taking into account a corporation’s advancement of attorneys’ fees or participation in joint defense agreements, the reality is that companies, in an effort to curry favor with the Government and avoid indictment, are still under enormous pressure to “cooperate,” which often means deciding which employees are the culprits and offering them up to the Government. Individual employees, officers, and directors at the center, and even on the fringes, of company internal and Government investigations are thus in a perilous position. They will often be faced with a Hobson’s choice of either submitting to an interview and possibly exposing themselves to personal criminal liability, or refusing and being sanctioned or even terminated. Counsel representing individual officers, directors, and employees caught in the crosshairs of internal and Government investigations must anticipate and guard against the many risks their clients face.
Talking to Investigating Counsel
Submitting to an interview by company counsel conducting an internal investigation is fraught with peril for individual employees. There can be no doubt that company counsel’s job is, first and foremost, to protect the company. Anything your client says to company counsel during an interview is likely to be relayed to the Government. Because the interview creates evidence that may be used against the employee, an employee who does submit to an interview must be adequately prepared. The ability to testify accurately may be hindered, however, where company counsel does not provide the employee with key documents prior to the interview or advise the employee and his or counsel what the areas of questioning will be.
This is particularly troublesome since inaccurate answers may give rise to obstruction of justice charges. The Government has taken the position that lying to or misleading corporate counsel during an internal investigative interview is tantamount to making a false statement to federal investigators and thus violates the federal obstruction of justice statutes. DOJ has in the past brought obstruction of justice charges against witnesses who made false statements to private counsel conducting an internal corporate investigation and where the witnesses knew that the statements would be given to the Government. The DOJ’s overly broad view of the obstruction statutes has thus “dramatically increased the risks for employees participating in such investigations.”
Joint Defense Agreements
Where an individual employee has or potentially could have exposure, cooperation may not be an option unless there is some guarantee that the statements made by him or her to company counsel are protected from disclosure. The most common way for individual counsel to protect his client from criminal exposure, while at the same time having access to important information about the corporation and the investigation, is through a joint defense agreement (or a “common interest agreement”), under which parties with separate counsel may communicate without waiving the underlying attorney-client privilege. Although a joint defense agreement may benefit the corporation by enabling it to gain valuable information from employees, the corporation may nevertheless be reluctant to enter into a joint defense agreement for fear that it will appear less cooperative.
If a joint defense agreement is entered into, individual counsel should not rely on oral statements, but should make sure any agreement is memoralized in writing. Though not required to invoke the joint-defense exception, a writing “is the most effective method of establishing the existence of a common interest agreement.” Counsel should therefore execute a written agreement before significant communications are exchanged. Among other things, the joint defense agreement should state explicitly that the parties have a common interest, and should identify the information that will be shared. Before engaging in any communications under the agreement, counsel should acknowledge that the communication is pursuant to the joint defense agreement, and should mark all documents provided pursuant to a joint defense agreement as confidential, work product, and joint defense privileged.
Whether the joint defense rule protects communications made between employees and corporate counsel is subject to some debate, however. For example, in United States v. Keplinger, which involved the prosecution of a research laboratory and its employees for falsifying the results of animal toxicity studies, two of the employee-defendants argued that communications they made to corporate counsel were privileged because they were made in the course of cooperating about a matter of common interest. Although the Seventh Circuit resolved the issue of whether corporate counsel could testify regarding those communications on other grounds, it noted that it had “serious doubts whether [the corporation] and the individual defendants really shared a ‘common purpose’ in the sense necessary to support application of the joint defense doctrine.”
Of course, counsel should consider entering into joint defense agreements with other witnesses and targets of the investigation where appropriate. Joint defense agreements with other individual employees, officers, or directors will enable counsel to share information, develop common strategies, and adequately prepare for Government interviews. Counsel may also gain a broader view of the Government’s investigation through such joint defense agreements. Counsel must consider the various risks, however, including that parties to the agreement may share confidential privileged information with the Government or otherwise use it against the client, parties to the agreement may not fully share information, and the exchange of information may provide the basis for civil claims between parties to the agreement.
Conclusion
Representation of employees (who may face individual criminal exposure) during a corporate internal investigation is often like navigating a minefield. In advising these individuals, counsel must first determine whether consenting to interviews or otherwise cooperating with internal investigators is in the client’s best interest. Counsel must weigh his client’s personal risk of criminal liability against the potential risk of termination from employment and other discipline if his client does not cooperate. If the employee does cooperate in the internal investigation, counsel should recognize that, absent a joint defense agreement, his client’s statements may, and probably will, be turned over to the Government and could be used as evidence against the client in any future criminal prosecution. In determining whether to cooperate, counsel must also consider the risk of that any misstatements made by his client may give rise to liability for obstruction of justice. Finally, counsel should weigh the advantages and disadvantages of joint defense agreements both with the corporation and with other targets, as such agreements may mitigate some of these risks.
These and other corporate scandals that rocked the investment world in 2001 and 2002 prompted then-President George W. Bush to establish the Corporate Fraud Task Force, whose mission was “to strengthen the efforts of the Department of Justice and Federal, State, and local agencies to investigate and prosecute significant financial crimes, recover the proceeds of such crimes, and ensure just and effective punishment of those who perpetrate financial crimes.” Executive Order 13271, 67 F.R. 46091 (2002).
For example, in FY 2008, the DOJ’s Fraud Section opened 93 new investigations, filed 80 complaints, indictments, or informations, entered into 80 deferred or non-prosecution agreements, and charged 160 defendants, 156 of which were convicted. See DOJ’s Fraud Section Activities Report (2008), http://www.justice.gov/criminal/fraud/documents/reports /2008/actrpt08.pdf. In 2007, it opened 133 new investigations, filed 159 complaints, indictments, or informations, entered into 8 deferred prosecution agreements, charged 215 defendants, and obtained 155 convictions. See DOJ’s Fraud Section Activities Report (2007), http://www.justice.gov/criminal/fraud/documents /reports/2007 /actrpt07.pdf. The government’s recent crackdown on health care fraud has likewise resulted in a spate of investigations and indictments. According to the DOJ, by the end of 2010, federal prosecutors had opened 1,116 criminal health care fraud investigations, filed criminal charges in 488 cases involving 931 defendants, and convicted a total of 726 defendants for health care fraud-related crimes. See The Department of Health and Human Services and The Department of Justice Health Care Fraud and Abuse Control Program Annual Report for Fiscal Year 2010, http://oig. hhs.gov/publications/docs/hcfac/hcfacreport 2010.pdf.
Sewell Chan, Financial Crisis Was Avoidable, Inquiry Finds, The New York Times (January 26, 2011) at A1; see also Executive Order 13519, 74 F.R. 60123, 60125 (Nov. 17, 2009) (establishing FFETF to “replace, and continue the work of, the Corporate Fraud Task Force created by Executive Order 13271 of July 9, 2002”).
First Year Report – Financial Fraud Enforcement Task Force, http://www.stopfraud.gov/ docs/FFETF-Report-LR.pdf.
D. Solomon and A.M. Squeo, Crackdown Puts Corporation, Executives in New Legal Peril, The Wall Street Journal (June 20, 2005) at A1.
See Christopher A. Wray & Robert K. Hur, Corporate Criminal Prosecution in a Post-Enron World: the Thompson Memo in Theory and Practice, 43 Am. Crim. L. Rev. 1095, 1138 (2006) (noting that “[a]lthough criminal prosecution of companies is relatively rare, the consequences for the unlucky few are so catastrophic that many companies under investigation have elected to maximize their chances of survival by providing prompt and authentic cooperation”).
See Thompson Memo, http://www.justice.gov/dag/cftf/corporate_guidelines.htm. The Thompson memo was roundly criticized by both the legal and business communities, see Andrew Weissmann & Ana R. Bugan, The McNulty Memorandum, The National Law Journal (February 5, 2007), and deemed by one federal district judge to violate the Fifth and Sixth Amendments, see United States v. Stein, 435 F. Supp. 2d 330 (S.D.N.Y. 2006), aff’d, United States v. Stein, 541 F.3d 130 (2nd Cir. 2008). In 2006, it was replaced by the McNulty Memo, which drew a distinction between “Category I” information (purely factual information relating to wrongdoing) and “Category II” information (attorney-client communications or non-factual attorney work product), and authorized prosecutors to consider only a corporation’s response to the government’s request for waiver of privilege for Category I information in determining whether a corporation has cooperated in the government’s investigation. The McNulty Memo also admonished prosecutors not to take into account whether a corporation was advancing attorneys’ fees to employees or agents under investigation and indictment. See McNulty Memo, http://www.justice.gov/dag/speeches /2006/ mcnulty_memo.pdf.
The Filip Memo makes clear that in determining the extent to which a corporation will be given credit for cooperation, the emphasis should be on whether the corporation has disclosed “relevant facts” about the alleged misconduct, rather than whether the corporation has disclosed information and materials protected by the attorney-client or work-product privileges. The Filip Memo expressly prohibits prosecutors from requesting waivers of “core” attorney-client communications or work product and from giving cooperation credit to the corporation for waiving such privileges. It further disallows consideration of the corporation’s indemnification for or advancement of attorneys’ fees, joint-defense agreements with employees, or the corporation’s decision not to sanction employees in evaluating the extent to which a corporation has cooperated. Prosecutors may, however, request approval to consider a corporation’s advancement of legal fees in “special situations.” The Filip Memo may be found at http://www.usdoj.gov/criminal/fraud/policy/Chargingcorps.html.
Philip S. Kushner, Internal Investigations: What is at Stake for Employers and Employees?, The Champion (April 2010) (noting that “corporate counsel hired to perform internal investigations often seek to prevent employees from being prepared for their interviews by, for example, not describing the areas of inquiry and not making key documents available to the employee or her counsel”).
Douglas E. Whitney, Navigating the Perils of Internal Investigations in Light of the DOJ’s Expansive Theory of Obstruction of Justice, White Collar Crime Committee Newsletter (February 2008).
Id.; see also United States v. Ring, 628 F.Supp.2d 195, 223 (D.D.C. 2009) (allegations that lobbyist intentionally provided misleading information to outside counsel that he knew might be communicated to federal officials sufficient to charge lobbyist with obstruction of justice, even though attorneys with whom lobbyist communicated were private counsel rather than federal investigators); United States v. Kumar, 2006 WL 6589865 (E.D.N.Y. 2006) (executive charged with obstruction for lying during internal investigation conducted by private outside counsel). Although the defendant in Ring had been advised that his statements would be part of the proffer the company made to the government, see 628 F.Supp.2d at 203, the defendant in Kumar was not given any such warnings by private counsel conducting the interview.
See Lisa A. Matthewson, Joint Defense Agreements in the Corporate Context: No Guarantees, The Champion (September/October 2005).
Matthewson, supra (noting that while cooperating may expose individual employees to liability, “refusing to cooperate with the corporation’s investigation may also mean losing access to corporate documents and other information critical to preparing a defense”).
Minebea Co., Ltd. v. Papst, 228 F.R.D. 13 (D.D.C. 2005). See also City of Kalamazoo v. Michigan Disposal Service Corp., 125 F. Supp. 2d 219 (W.D. Mich. 2000) (“In determining whether the particular facts of a case establish the existence of an attorney-client relationship in a joint defense situation, the federal courts rely heavily on the provisions of any written joint defense agreement establishing the rights and duties of the parties and their counsel.”); Avocent Redmond Corp. v. Rose Electronics, Inc., 516 F.Supp.2d 1199 (W.D. Wash. 2007) (finding no joint defense agreement was ever entered into where it was undisputed that Rose and Cybex never signed a written joint defense agreement and the lawyers emphatically denied the existence of any such agreement).
Daniel Webb, Robert W. Tarun, & Steven F Molo, Corporate Internal Investigations (Law Journal Seminars Press, 1993-present), at § 5.05[5], § 5.05[8], § 5.06[4].
Id.; see also Intex Recreation Corp., 471 F.Supp.2d at 16 (noting that even if a common interest agreement has been proved to exist, the party seeking to rely on the doctrine must still “demonstrate that the specific communications at issue were designed to facilitate a common legal interest; a business or commercial interest will not suffice”). An agreement in and of itself is thus neither necessary nor sufficient to invoke the joint-defense privilege. In re Sandwich Islands Distilling Corp., 2009 WL 3055199 (Bkrtcy. D.Hawai‘i 2009). Rather, the party seeking to rely on the doctrine must provide evidence of a “coordinated legal strategy” between itself and another party or parties. Intex Recreation Corp., 471 F.Supp.2d at 16.
