Representing the Corporate Executive

The employment contract may provide for the right to:

• be represented by individual counsel, in the event of internal investigation of claims based upon employment by the corporation;
• receive copies of any Board of Directors' resolutions authorizing the advancement or indemnification of legal fees, any insurance policy which might provide for the payment or indemnification of legal fees, and a copy of any other relevant company policy;
• obtain upon request copies of any documents authored or reviewed by the officer or employee, including but not limited to e-mails which were sent to or from the executive; and
• obtain copies of any corporate business records relating to the claim or the investigation prior to any interview by the company.

When executives negotiate their employment agreement, they should consider asking for a provision that the corporation shall advance legal fees until it gives at least 30 days notice to the executive's law firm, and that such advancements shall continue during the pendency of any declaratory judgment action. This would enable the law firm to know that it will be paid and provide a remedy in case the company balks. For example, in the recent Hewlett Packard matter, HP's general counsel was able to negotiate for the advancement of legal fees. At the same time, she expressly agreed to cooperate with the HP's internal investigation 'to the extent doing so is consistent with the exercise of my rights under the federal and state Constitu-tions.'

Corporate Obligation to Warn

The company's lawyer, whether in-house or outside, has a duty to inform the executive that he or she represents the corporation and not the executive. While the company may treat the interview as confidential, it retains the right to decide to waive that confidentiality without the executive's consent. The executive may argue that corporate counsel was representing her personally, and so the corporation cannot unilaterally waive the privilege. When the disclosure was unclear, or when the investigative counsel also represented the executive (for instance, in an SEC deposition), courts have upheld the executive's right to object to disclosure of the executive's communications with the lawyer. But where the disclosure was clear, the executive cannot prevent the company from waiving the privilege ' for example, to avoid indictment of the company.

Representation During the Investigation

When separate counsel is first retained, he or she should discuss with the executive the potential conflict between the company and its executive, including issues raised by the Thompson Memorandum and the Seaboard Release (Securities and Exchange Act of 1934, Release No. 44969, Oct. 23, 2001). Obstruction, witness tampering, and document destruction policies should be discussed with the executive to prevent any unknowing violation of the relevant statutes, including the obstruction provisions under ' 303(a) of the Sarbanes Oxley Act (SOX) relating to auditors. Counsel should obtain and review the executive's tax returns and financial statements because the government's investigation might branch off into the executive's personal transactions. Counsel should debrief the executive about prior interviews by corporate counsel, government investigators or other employees or officers and obtain a company directory and the names of any employees who were involved in the matter but no longer work for the company.

Counsel should discuss whether and how the executive should be involved in current and future securities filings or certifications of financial statements. This may include requesting extensions on income tax returns or delaying the filing of financial statements until more knowledge is gained concerning the investigation. The executive should direct any questions about future securities filings or certifications to both corporate and individual counsel in order to establish a 'reliance on counsel' defense to any unknowing violation.

The executive's attorney should attempt to obtain as much information from corporate counsel as possible, including any rough drafts of a chronology of the matter under investigation. (Corporate counsel might well agree to share this information in order to avoid the unnecessary duplication of legal fees.)

The Inevitable 'Interview Opportunity'

If the executive had some involvement in the transaction under investigation, either in its execution or in accounting for it, she can expect to be interviewed by the company's attorneys. First, her counsel should make sure and advise her that they are the company's attorneys, not hers, and that the company may decide to turn over the results of that interview to the government or even testify about it. The executive's attorney should remind her that any false or misleading statements that she may give to the company's attorneys during this interview can be prosecuted under 18 U.S.C. ' 1001. See Department of Justice (DOJ) Press Release dated Sept. 22, 2004, discussing Computer Associates case, www.usdoj.gov/opa/pr/2004/September/04_crm_642.htm.

The executive's lawyer should meet with the company's attorneys in advance of the interview and try to obtain as much information as possible, including an outline of the areas to be covered, a notebook of the documents that will be discussed, and perhaps even a rough chronology of the events in question. The executive should consider conditioning the interview upon such cooperation. It often happens that the pressures of business have prevented the executive from undertaking a thorough review of the documents and facts relating to the investigation; if so, the executive's counsel should make this clear at the outset of the interview.

Counsel should obtain an agreement that the executive will be entitled to review all notes of the interview. It may help if counsel offers to correct the notes. Such review provides an opportunity to make sure that the notes accurately reflect and represent the limited prior review of documents and shortness of preparation time. In the event that the investigators refuse, counsel should confirm that refusal in writing and explain that, without such a review, neither the executive nor counsel are able to confirm the accuracy of their notes.

Sometimes, corporate attorneys will agree to receive information through the executive's attorney instead of a direct interview with the executive. In other cases, they will furnish documents and information in exchange for the interview. To withhold relevant information from an executive in an interview with serious personal consequences is inherently unreasonable and would justify refusing to be interviewed. Unfortunately, turning down the interview may result in the executive's being placed on leave or even terminated.

Ironically, the same government that seeks to coerce cooperation by corporate officers in an internal investigation cannot do the same with its own employees. Garrity v. New Jersey, 385 U.S. 493 (1967) (coerced statements by public employees through threat of dismissal violates the Fifth Amend-ment; see infra, p. 1). Further, the FBI and Justice Department, which argue against the advancement of legal fees to corporate officers, routinely advance legal fees to agents prosecuted for wrongdoing, eg, Ruby Ridge. See DOJ Release No. 97-342 (Aug. 21, 1997).

The government may attempt to interview the executive under the guise of a civil audit or investigation. In such cases, the results of the interview may be suppressed. See, Tweel v. United States, 550 F.2d 297 (5^th Cir. 1997); U.S. v. Schrushy, 366 F.Supp.2d 1134 (N.D. Ala. 2005).

Parallel Proceedings

In many cases, there will be civil complaints either before or shortly after the filing of criminal complaints. The executive's counsel should use these proceedings to attempt to obtain discovery that might be of assistance in the criminal case.

The government will undoubtedly seek to stay those proceedings, but such stays are not always granted. See Navigating Parallel Proceedings. 236 N.Y.L.J. No. 15 (July 21, 2006).

Joint-Defense Agreement

The executive should attempt to enter into a joint-defense agreement with the corporation. Unfortunately, many corporations are no longer willing. The executive and his attorney should consider entering into joint-defense agreements with other executives. This can facilitate the exchange, the indexing and compilation of documents and the gathering of other information through shared investigators. A joint-defense agreement does not mean that all information has to be exchanged; it merely protects what is exchanged.

Charles ('Chuck') M. Meadows, Jr. ([email protected]), who is a Certified Public Accountant as well as a lawyer, is a partner at Meadows, Owens, Collier, Reed, Cousins & Blau, L.L.P. in Dallas.

As a result of the Seaboard Release (SEC, 2001) and the Thompson Memorandum (see p. 1), potential conflicts in representing both a corporation and its officers and executive employees have become more frequent. The corporation, in order to avoid prosecution and limit its exposure to civil damages, must promptly conduct an internal investigation and turn over the results of that investigation to the appropriate governmental agency as soon as possible. This may not be the best way to defend executives exposed to criminal liability.

Anticipating the Need for Separate Counsel

Just as it is too late to buy fire insurance after the house has burned, it is often too late for executives to secure certain contractual rights once an investigation has begun. But the corporation may be more willing to enter into employment agreements and/or Corporate By-Laws or company policies that will provide for those rights and privileges in advance.

The employment contract may provide for the right to:

• be represented by individual counsel, in the event of internal investigation of claims based upon employment by the corporation;
• receive copies of any Board of Directors' resolutions authorizing the advancement or indemnification of legal fees, any insurance policy which might provide for the payment or indemnification of legal fees, and a copy of any other relevant company policy;
• obtain upon request copies of any documents authored or reviewed by the officer or employee, including but not limited to e-mails which were sent to or from the executive; and
• obtain copies of any corporate business records relating to the claim or the investigation prior to any interview by the company.

When executives negotiate their employment agreement, they should consider asking for a provision that the corporation shall advance legal fees until it gives at least 30 days notice to the executive's law firm, and that such advancements shall continue during the pendency of any declaratory judgment action. This would enable the law firm to know that it will be paid and provide a remedy in case the company balks. For example, in the recent Hewlett Packard matter, HP's general counsel was able to negotiate for the advancement of legal fees. At the same time, she expressly agreed to cooperate with the HP's internal investigation 'to the extent doing so is consistent with the exercise of my rights under the federal and state Constitu-tions.'

Corporate Obligation to Warn

The company's lawyer, whether in-house or outside, has a duty to inform the executive that he or she represents the corporation and not the executive. While the company may treat the interview as confidential, it retains the right to decide to waive that confidentiality without the executive's consent. The executive may argue that corporate counsel was representing her personally, and so the corporation cannot unilaterally waive the privilege. When the disclosure was unclear, or when the investigative counsel also represented the executive (for instance, in an SEC deposition), courts have upheld the executive's right to object to disclosure of the executive's communications with the lawyer. But where the disclosure was clear, the executive cannot prevent the company from waiving the privilege ' for example, to avoid indictment of the company.

Representation During the Investigation

When separate counsel is first retained, he or she should discuss with the executive the potential conflict between the company and its executive, including issues raised by the Thompson Memorandum and the Seaboard Release (Securities and Exchange Act of 1934, Release No. 44969, Oct. 23, 2001). Obstruction, witness tampering, and document destruction policies should be discussed with the executive to prevent any unknowing violation of the relevant statutes, including the obstruction provisions under ' 303(a) of the Sarbanes Oxley Act (SOX) relating to auditors. Counsel should obtain and review the executive's tax returns and financial statements because the government's investigation might branch off into the executive's personal transactions. Counsel should debrief the executive about prior interviews by corporate counsel, government investigators or other employees or officers and obtain a company directory and the names of any employees who were involved in the matter but no longer work for the company.

Counsel should discuss whether and how the executive should be involved in current and future securities filings or certifications of financial statements. This may include requesting extensions on income tax returns or delaying the filing of financial statements until more knowledge is gained concerning the investigation. The executive should direct any questions about future securities filings or certifications to both corporate and individual counsel in order to establish a 'reliance on counsel' defense to any unknowing violation.

The executive's attorney should attempt to obtain as much information from corporate counsel as possible, including any rough drafts of a chronology of the matter under investigation. (Corporate counsel might well agree to share this information in order to avoid the unnecessary duplication of legal fees.)

The Inevitable 'Interview Opportunity'

If the executive had some involvement in the transaction under investigation, either in its execution or in accounting for it, she can expect to be interviewed by the company's attorneys. First, her counsel should make sure and advise her that they are the company's attorneys, not hers, and that the company may decide to turn over the results of that interview to the government or even testify about it. The executive's attorney should remind her that any false or misleading statements that she may give to the company's attorneys during this interview can be prosecuted under 18 U.S.C. ' 1001. See Department of Justice (DOJ) Press Release dated Sept. 22, 2004, discussing Computer Associates case, www.usdoj.gov/opa/pr/2004/September/04_crm_642.htm.

The executive's lawyer should meet with the company's attorneys in advance of the interview and try to obtain as much information as possible, including an outline of the areas to be covered, a notebook of the documents that will be discussed, and perhaps even a rough chronology of the events in question. The executive should consider conditioning the interview upon such cooperation. It often happens that the pressures of business have prevented the executive from undertaking a thorough review of the documents and facts relating to the investigation; if so, the executive's counsel should make this clear at the outset of the interview.

Counsel should obtain an agreement that the executive will be entitled to review all notes of the interview. It may help if counsel offers to correct the notes. Such review provides an opportunity to make sure that the notes accurately reflect and represent the limited prior review of documents and shortness of preparation time. In the event that the investigators refuse, counsel should confirm that refusal in writing and explain that, without such a review, neither the executive nor counsel are able to confirm the accuracy of their notes.

Sometimes, corporate attorneys will agree to receive information through the executive's attorney instead of a direct interview with the executive. In other cases, they will furnish documents and information in exchange for the interview. To withhold relevant information from an executive in an interview with serious personal consequences is inherently unreasonable and would justify refusing to be interviewed. Unfortunately, turning down the interview may result in the executive's being placed on leave or even terminated.

Ironically, the same government that seeks to coerce cooperation by corporate officers in an internal investigation cannot do the same with its own employees. Garrity v. New Jersey , 385 U.S. 493 (1967) (coerced statements by public employees through threat of dismissal violates the Fifth Amend-ment; see infra , p. 1). Further, the FBI and Justice Department, which argue against the advancement of legal fees to corporate officers, routinely advance legal fees to agents prosecuted for wrongdoing, eg, Ruby Ridge. See DOJ Release No. 97-342 (Aug. 21, 1997).

The government may attempt to interview the executive under the guise of a civil audit or investigation. In such cases, the results of the interview may be suppressed. See , Tweel v. United States , 550 F.2d 297 (5 th Cir. 1997); U.S. v. Schrushy , 366 F.Supp.2d 1134 (N.D. Ala. 2005).

Parallel Proceedings

In many cases, there will be civil complaints either before or shortly after the filing of criminal complaints. The executive's counsel should use these proceedings to attempt to obtain discovery that might be of assistance in the criminal case.

The government will undoubtedly seek to stay those proceedings, but such stays are not always granted. See Navigating Parallel Proceedings. 236 N.Y.L.J. No. 15 (July 21, 2006).

Joint-Defense Agreement

The executive should attempt to enter into a joint-defense agreement with the corporation. Unfortunately, many corporations are no longer willing. The executive and his attorney should consider entering into joint-defense agreements with other executives. This can facilitate the exchange, the indexing and compilation of documents and the gathering of other information through shared investigators. A joint-defense agreement does not mean that all information has to be exchanged; it merely protects what is exchanged.

Charles ('Chuck') M. Meadows, Jr. ([email protected]), who is a Certified Public Accountant as well as a lawyer, is a partner at Meadows, Owens, Collier, Reed, Cousins & Blau, L.L.P. in Dallas.