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The Incredible Shrinking Privilege

By Laurence A. Urgenson and Audrey Harris
September 01, 2003

The headlines reporting multi-million dollar corporate guilty pleas often miss a point widely understood among white-collar practitioners: The driving force behind the corporate plea is often not the merits of the government's charge, but the corporation's need to reach a global settlement resolving administrative and criminal sanctions that could put the company out of business. Considering the role of prosecutorial discretion and the draconian consequences of a corporate conviction, corporations often have little choice but to plead guilty and cooperate with the government. Recently, the feds have raised the ante in this process by defining “cooperation” to include waiving the attorney-client privilege. Thus, corporations and counsel alike are forced into a Hobson's choice where at least partial waiver may be inevitable. Waiver law in the majority of circuits is stark – disclosure to the government is waiver as to third parties, at least as to the material disclosed. Therefore, the civil plaintiff that inevitably follows the government's investigative path finds fertile fodder in otherwise privileged, confidential, and often sensitive corporate documents that, but for the government's disclosure requirement, would be protected by privilege.

New Ground Rules from the DOJ

Deputy Attorney General Thompson's expansion of the Principles of Federal Prosecution of Business Organizations (the “Thompson Memorandum”) in early 2003 places an “increased emphasis on and scrutiny of the authenticity of a corporation's cooperation,” which includes “the corporation's timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents, including, if necessary, the waiver of corporate attorney-client and work product protection.” The Thompson Memorandum advises prosecutors to consider whether a company agreed to a “waiver of the attorney-client and work product protections, both with respect to its internal investigation and with respect to communications between specific officers, directors and employees and counsel” in “assessing the adequacy of a corporation's cooperation.” Therefore, the motivation to stand tall on privilege and principle may be dwarfed by the corporation's charge to counsel to satisfy the guidelines – and hopefully avoid draconian penalties, if not criminal prosecution.

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