House Passes Attorney-Client Privilege Bill

In the current Congress, the House Judiciary Committee reported the bill on Aug. 1, and the House passed it by voice vote on Nov. 13. The Senate Judiciary Committee held a hearing on it on Sept. 18. Whether the bill will progress further appears to depend on Senate Judiciary Committee Chairman Patrick Leahy (D-VT), who has said he wants to see whether the McNulty Memorandum solves the problem of improper DOJ tactics.

The McNulty Memo requires line prosecutors to obtain written authorization from the U.S. Attorney and sometimes an Assistant Attorney General before asking a corporation to waive privilege, and the DOJ says there have been very few such authorizations. But a Sept. 13, 2007 report prepared for the Coalition to Protect the Attorney-Client Privilege by E. Norman Veasey, former Chief Justice of Delaware, raises some doubt about the DOJ's contention. The report has been submitted to the Senate Judiciary Committee.

Issues About the Bill

A number of issues have been raised about the bill. The DOJ argues that it would prevent prosecutors from obtaining information gathered by corporate counsel from interviews of corporate employees. That's true: Counsel's interviews of employees usually are protected by the attorney-client privilege and the work product doctrine. Prosecutors still could obtain information the old-fashioned way, by issuing grand jury subpoenas for documents, interviewing corporate employees or questioning them before a grand jury, and giving immunity as necessary.

In most cases, the old-fashioned way would be significantly more labor-intensive and time-consuming; in some cases, potentially useful evidence might not be obtained. There is little reason to believe, however, that enactment of the bill would significantly reduce the DOJ's ability to discover and prosecute white-collar crime, and therefore little reason to believe that it would reduce deterrence of white-collar crime.

The DOJ also argues that the bill creates one set of rules for corporations and their employees and another set for everyone else. The bill is not limited to corporations, however, but applies to all organizations and their employees. The justification for the bill is that the DOJ has applied the kinds of abusive tactics the bill would prohibit far more to organizations than to individuals. Also, because organizations generally are more vulnerable than individuals are to such tactics, organizations need statutory protection in a way that individuals currently do not.

An organization, and particularly a public company, generally is more vulnerable than an individual because the pendency of an indictment and the uncertainty it creates as to the organization's future can destroy the public confidence that is critical to its activities or sources of revenue and may result in its destruction ' as the case of Arthur Andersen illustrates. To avoid an indictment and the likelihood of prolonged uncertainty and adverse publicity resulting from it, organizations commonly have yielded to the kinds of DOJ demands that the bill would prohibit. The DOJ's very success in obtaining waivers of corporate privilege has generated a great deal of public criticism, to which the bill responds. In contrast, the demands the DOJ has made of individual defendants in negotiating dispositions of their criminal exposure have not been widely regarded as abusive, have not been the subject of extensive public criticism, and, consequently, are not addressed in the bill.

Barring the DOJ?

The bill could be read, however, as barring the DOJ from requesting waivers of the attorney-client privilege by individuals affiliated with organizations. It is unclear whether that effect is intended. If the bill is intended to protect the attorney-client privilege of individual clients as well as organizational clients, it is unclear why it is limited to individuals affiliated with organizations. If the intent is to protect only the organizational privilege, it is unclear why the bill does not refer to the privilege being protected as an organizational privilege. Clarity could be achieved by tighter drafting.

Presumably, an individual who would be willing to waive his or her attorney-client privilege would also be willing to answer direct factual questions that do not implicate the privilege. Unless the prosecutors are investigating obstruction of justice or other conduct involving the individual's otherwise privileged communications with counsel, in which case the crime-fraud exception might defeat a claim of privilege, waiver of an individual's privilege is unlikely to be of much value to prosecutors.

Sandra Jordan, a professor, and Jennifer Gardner, a third-year student, at Pittsburgh Law School, note that the bill does not provide for any sanctions for violations, and argue that it is deficient in implicitly relying on the courts to fashion sanctions. Redress for violations of the bill is a particularly knotty issue because most organizations under criminal investigation want to avoid adverse publicity, prolongation of the investigation, public uncertainty about how it will end, and, of course, an indictment. Organizations under investigation also are unlikely to want to engage in a public battle with prosecutors over the propriety of their conduct.

Therefore, sanctions that would involve public proceedings in court are unattractive and likely to be sought only rarely. Sanctions that are available only after an indictment (e.g., dismissal, exclusion of evidence) are unlikely to be effective because most organizations will acquiesce in even improper prosecutorial demands if acquiescence is necessary to avoid an indictment. It does not follow that judicially administered sanctions (whether specified in the bill or left to the courts' discretion) should not be available, but that they are unlikely to provide adequate redress and deterrence.

The Ideal Sanction

The ideal type of sanction for a violation by a line prosecutor would be prompt, effective correction (and disciplinary action) by a more senior official within the DOJ. Achievement of that ideal might be furthered by: 1) a serious demand by one or both Judiciary Committees to the Attorney General that an effective internal procedure be established for prompt review of complaints of violations by line prosecutors; and 2) periodic written reports by the Attorney General to the Committee(s) on the operation of the procedure, and signals from the Committee(s) to the Attorney General that they are monitoring those reports. Such required reporting would increase the likelihood that the procedure within the DOJ for the accountability of line prosecutors is implemented and operated seriously. In all cases, the oversight procedure should be confidential, except that disciplinary actions against prosecutors and the facts that warranted them should be disclosed in the periodic reports (perhaps without identifying the complaining organizations).

The DOJ has expressed concern that the bill would diminish voluntary organizational disclosures of wrongdoing to it and other enforcement agencies. The bill expressly provides that it is not intended to prohibit an organization from making, or the government from accepting, an unsolicited offer to share internal investigation materials. The many amnesty programs of federal agencies provide powerful incentives for reporting wrongdoing, and companies seeking to make truly voluntary disclosures of facts certainly can find ways to do so that do not waive their attorney-client privilege or work-product protection. In addition, nothing in the bill prohibits the DOJ from considering favorably, in connection with a charging decision, an organization's unsolicited voluntary disclosure, or from maintaining a publicly announced policy of doing so.

In sum, the tactics prohibited by the bill plainly are useful to federal prosecutors and save them effort and time, but they tend to undermine confidence in the organizational attorney-client privilege and in the privacy of internal investigations, which are critical in organizations' efforts to comply with the law. The tactics also undermine trust and loyalty between organizations and their employees and the ability of potential and actual defendants in white-collar criminal proceedings to present their defenses effectively. The pending bill is a reasonable corrective measure.

Richard M. Cooper ([email protected]), a partner at Williams & Connolly LLP in Washington, DC, was Chairman of this newsletter's Board of Editors from 1996 to 2007.

The proposed Attorney-Client Privilege Protection Act of 2007 would prohibit the Justice Department and other federal agencies from: 1) demanding, requesting, or conditioning the treatment of a private party on the disclosure of communications protected by the attorney-client privilege or as attorney work product; and 2) taking into account when making any civil or criminal charging decision as to an organization or a person affiliated with it: a) any valid assertion of the attorney-client privilege or work-product protection; b) payment for attorneys' fees for an employee of the organization; c) a joint-defense or common-interest agreement between the organization and one of its employees; d) the sharing of information between the organization and one of its employees; or e) the organization's failure to take action adverse to an employee who has refused to cooperate with the government.

The bill (in identical Senate and House versions, S. 186 and H.R. 3013, 110^th Cong.) is a response to the widespread criticisms of Justice Department tactics toward business corporations and other organizations that have been subjects of criminal investigations. Under the Thompson Memorandum on Principles of Federal Prosecution (Jan. 20, 2003), available at www.usdoj.gov/dag/cftf/corporate_guidelines.htm, DOJ prosecutors, in assessing an organization's 'cooperation' and thus its eligibility for a non-prosecution or deferred-prosecution agreement, commonly took into account the kinds of conduct the bill would prohibit federal agencies from considering.

On Sept. 12, 2006, the Senate Judiciary Committee held an oversight hearing on DOJ's intrusions into the attorney-client privilege. On Dec. 8, 2006, Sen. Arlen Specter (R-PA), then Chairman of the Committee, introduced his proposed Attorney-Client Privilege Protection Act. On Dec. 12, 2006, the McNulty Memorandum, available at www.usdoj.gov/dag/speeches/2006/mcnulty_memo.pdf, superseded the Thompson Memorandum and modified DOJ's policy on demands for waivers.

In the current Congress, the House Judiciary Committee reported the bill on Aug. 1, and the House passed it by voice vote on Nov. 13. The Senate Judiciary Committee held a hearing on it on Sept. 18. Whether the bill will progress further appears to depend on Senate Judiciary Committee Chairman Patrick Leahy (D-VT), who has said he wants to see whether the McNulty Memorandum solves the problem of improper DOJ tactics.

The McNulty Memo requires line prosecutors to obtain written authorization from the U.S. Attorney and sometimes an Assistant Attorney General before asking a corporation to waive privilege, and the DOJ says there have been very few such authorizations. But a Sept. 13, 2007 report prepared for the Coalition to Protect the Attorney-Client Privilege by E. Norman Veasey, former Chief Justice of Delaware, raises some doubt about the DOJ's contention. The report has been submitted to the Senate Judiciary Committee.

Issues About the Bill

A number of issues have been raised about the bill. The DOJ argues that it would prevent prosecutors from obtaining information gathered by corporate counsel from interviews of corporate employees. That's true: Counsel's interviews of employees usually are protected by the attorney-client privilege and the work product doctrine. Prosecutors still could obtain information the old-fashioned way, by issuing grand jury subpoenas for documents, interviewing corporate employees or questioning them before a grand jury, and giving immunity as necessary.

In most cases, the old-fashioned way would be significantly more labor-intensive and time-consuming; in some cases, potentially useful evidence might not be obtained. There is little reason to believe, however, that enactment of the bill would significantly reduce the DOJ's ability to discover and prosecute white-collar crime, and therefore little reason to believe that it would reduce deterrence of white-collar crime.

The DOJ also argues that the bill creates one set of rules for corporations and their employees and another set for everyone else. The bill is not limited to corporations, however, but applies to all organizations and their employees. The justification for the bill is that the DOJ has applied the kinds of abusive tactics the bill would prohibit far more to organizations than to individuals. Also, because organizations generally are more vulnerable than individuals are to such tactics, organizations need statutory protection in a way that individuals currently do not.

An organization, and particularly a public company, generally is more vulnerable than an individual because the pendency of an indictment and the uncertainty it creates as to the organization's future can destroy the public confidence that is critical to its activities or sources of revenue and may result in its destruction ' as the case of Arthur Andersen illustrates. To avoid an indictment and the likelihood of prolonged uncertainty and adverse publicity resulting from it, organizations commonly have yielded to the kinds of DOJ demands that the bill would prohibit. The DOJ's very success in obtaining waivers of corporate privilege has generated a great deal of public criticism, to which the bill responds. In contrast, the demands the DOJ has made of individual defendants in negotiating dispositions of their criminal exposure have not been widely regarded as abusive, have not been the subject of extensive public criticism, and, consequently, are not addressed in the bill.

Barring the DOJ?

The bill could be read, however, as barring the DOJ from requesting waivers of the attorney-client privilege by individuals affiliated with organizations. It is unclear whether that effect is intended. If the bill is intended to protect the attorney-client privilege of individual clients as well as organizational clients, it is unclear why it is limited to individuals affiliated with organizations. If the intent is to protect only the organizational privilege, it is unclear why the bill does not refer to the privilege being protected as an organizational privilege. Clarity could be achieved by tighter drafting.

Presumably, an individual who would be willing to waive his or her attorney-client privilege would also be willing to answer direct factual questions that do not implicate the privilege. Unless the prosecutors are investigating obstruction of justice or other conduct involving the individual's otherwise privileged communications with counsel, in which case the crime-fraud exception might defeat a claim of privilege, waiver of an individual's privilege is unlikely to be of much value to prosecutors.

Sandra Jordan, a professor, and Jennifer Gardner, a third-year student, at Pittsburgh Law School, note that the bill does not provide for any sanctions for violations, and argue that it is deficient in implicitly relying on the courts to fashion sanctions. Redress for violations of the bill is a particularly knotty issue because most organizations under criminal investigation want to avoid adverse publicity, prolongation of the investigation, public uncertainty about how it will end, and, of course, an indictment. Organizations under investigation also are unlikely to want to engage in a public battle with prosecutors over the propriety of their conduct.

Therefore, sanctions that would involve public proceedings in court are unattractive and likely to be sought only rarely. Sanctions that are available only after an indictment (e.g., dismissal, exclusion of evidence) are unlikely to be effective because most organizations will acquiesce in even improper prosecutorial demands if acquiescence is necessary to avoid an indictment. It does not follow that judicially administered sanctions (whether specified in the bill or left to the courts' discretion) should not be available, but that they are unlikely to provide adequate redress and deterrence.

The Ideal Sanction

The ideal type of sanction for a violation by a line prosecutor would be prompt, effective correction (and disciplinary action) by a more senior official within the DOJ. Achievement of that ideal might be furthered by: 1) a serious demand by one or both Judiciary Committees to the Attorney General that an effective internal procedure be established for prompt review of complaints of violations by line prosecutors; and 2) periodic written reports by the Attorney General to the Committee(s) on the operation of the procedure, and signals from the Committee(s) to the Attorney General that they are monitoring those reports. Such required reporting would increase the likelihood that the procedure within the DOJ for the accountability of line prosecutors is implemented and operated seriously. In all cases, the oversight procedure should be confidential, except that disciplinary actions against prosecutors and the facts that warranted them should be disclosed in the periodic reports (perhaps without identifying the complaining organizations).

The DOJ has expressed concern that the bill would diminish voluntary organizational disclosures of wrongdoing to it and other enforcement agencies. The bill expressly provides that it is not intended to prohibit an organization from making, or the government from accepting, an unsolicited offer to share internal investigation materials. The many amnesty programs of federal agencies provide powerful incentives for reporting wrongdoing, and companies seeking to make truly voluntary disclosures of facts certainly can find ways to do so that do not waive their attorney-client privilege or work-product protection. In addition, nothing in the bill prohibits the DOJ from considering favorably, in connection with a charging decision, an organization's unsolicited voluntary disclosure, or from maintaining a publicly announced policy of doing so.

In sum, the tactics prohibited by the bill plainly are useful to federal prosecutors and save them effort and time, but they tend to undermine confidence in the organizational attorney-client privilege and in the privacy of internal investigations, which are critical in organizations' efforts to comply with the law. The tactics also undermine trust and loyalty between organizations and their employees and the ability of potential and actual defendants in white-collar criminal proceedings to present their defenses effectively. The pending bill is a reasonable corrective measure.

Richard M. Cooper ([email protected]), a partner at Williams & Connolly LLP in Washington, DC, was Chairman of this newsletter's Board of Editors from 1996 to 2007.