The Evolving Rules Governing the Use of Investigators

Despite the apparent breadth of these rules, courts have approved of a degree of deception by private investigators when that activity occurs under what the courts have deemed to be 'socially or economically desirable' circumstances. In Apple Corps Limited v. Int'l Collectors Society, 15 F. Supp. 2d 456 (D.N.J. 1998), for example, the court considered whether plaintiff's counsel violated New Jersey's ethical rules in an investigation of alleged trademark infringement. During the investigation, plaintiff's law firm and its investigators contacted the defendant and posed as consumers attempting to purchase infringing products. Interpreting New Jersey's version of DR 1-102(a)(4), the court found that the rule prohibiting deceit by an attorney 'does not apply to misrepresentations solely as to identity or purpose and solely for evidence gathering purposes.' The court observed that the 'prevailing understanding in the legal profession is that a public or private lawyer's use of an undercover investigator to detect ongoing violations of the law is not ethically proscribed, especially where it would be difficult to discover the violations by other means.' Similarly, another court found that DR 1-102(a)(4)'s prohibition against attorney misrepresentations did not prohibit attorneys from hiring investigators to pose as consumers, as this was 'an accepted investigative technique, not a misrepresentation.' Gidatex, S.r.L. v. Campaniello Imports, Ltd., 82 F. Supp. 2d 119 (S.D.N.Y. 1999). Both courts also rejected the argument that the attorney's conduct violated the 'no contact' rule. The court in Gidatex noted that the investigators 'did not interview the sales clerks or trick them into making statements they otherwise would not have made,' but simply 'recorded the normal business routine' in the defendant's showroom and warehouse. The New York County Lawyers' Association has expressly approved of the holdings in Apple and Gidatex, concluding that 'dissemblance' by attorneys is ethically permissible in a 'small number of exceptional circumstances,' including investigations of civil rights and intellectual-property rights violations. Formal Opinion No. 737 (May 23, 2007).

But not every court agrees: the Eighth Circuit, for example, found that plaintiff's counsel had indeed violated the 'no contact' rule by hiring an investigator who secretly recorded conversations with a salesman of a represented party about the subject of pending litigation. As a sanction, the court excluded all evidence obtained as a result of the recordings. Midwest Motor Sports v. Arctic Cat Sales, Inc., 347 F.3d 693 (8th Cir. 2003).

In our view, investigative contact by a law firm or its investigator should be permitted so long as it is pursued in good faith and with a legitimate evidence-gathering purpose (not, for example, in order to achieve an economic, commercial, or personal advantage), and so long as any deception is kept within strict confines designed to achieve a permissible goal. We see no principled basis for limiting permissible investigative contacts to investigations involving intellectual property, civil rights, or any other substantive subject matter.

Other Legal Limitations

Several investigative techniques are regulated by statute and by the courts in addition to attorney ethical rules. Last year's Hewlett-Packard scandal highlighted the drastic reputational and legal consequences that can flow from an investigation that is pursued in disregard of law. HP's investigation used a practice that has long been illegal: 'pretexting,' in which the investigator misrepresents his or her identity or purpose in order to obtain information that does not lawfully belong to the individual requesting it. After the HP case, various states and the federal government clarified legal prohibitions on the use of pretexting to obtain telephone records. Under the Telephone Records and Privacy Protection Act of 2006, 18 U.S.C.
' 1039, pretexting to obtain the telephone records of a third-party is now a federal crime. Other laws also prohibit defined forms of pretexting. For example, under the Gramm-Leach-Bliley Act, 15 U.S.C. ' 6821, it is illegal to use false statements to obtain customer information from a financial institution or from a customer of a financial institution, or to ask another to do so.

Electronic Surveillance and 'Cyber-Sleuthing'

It is also increasingly common that both the commission and investigation of business crimes involve the use of computers or other electronic sources of information. In 2005, the FBI estimated that computer-related crime cost United States businesses $67 billion per year. In 2008, the FBI's Internet Crime Complaint Center (IC3) processed over 200,000 complaints relating to Internet crime, and referred over 86,000 of these complaints to law enforcement agencies. As a result, attorneys and their investigators defending or investigating such conduct must be aware not only of the power of electronic and computer surveillance techniques but also of their legal limitations. Although there are not many reported decisions relating to the use of electronic or computer-related methods of information-gathering by investigators, judicial decisions in this area provide important guidance for attorneys.

The federal wiretap statute, 18 U.S.C. ' 2510 et seq., and many state wiretap laws patterned after it prohibit the 'interception' of wire, oral and electronic communications, including telephone and e-mail communications, without the consent of at least one of the parties to the communication. Courts generally have interpreted the statutes to prohibit only the interception of communications contemporaneously with their transmission. See Fraser v. Nationwide Mut. Insur. Co., 352 F.3d 107, 113 (3d Cir. 2003). Notably, though, some states have stricter wiretap laws. In New Hampshire, for example, a wiretap is unlawful unless all parties to the communication consent. New York penal law prohibits 'eavesdropping,' which means the unauthorized wiretapping, mechanical overhearing of a conversation, or intercepting or 'accessing of electronic communications' without the consent of at least one of the parties to the conversation. New York's prohibition on 'accessing of electronic communications' apparently goes beyond the federal statute by covering stored e-mails as well as intercepted transmissions.

In this era of home computers and e-mail, another practice that has received attention is the monitoring of communications through computers, and any attorney or investigator who seeks to engage in this conduct must proceed with a thorough understanding of applicable rules. A number of 'spyware' programs are now available that enable a user to capture every keystroke made on a computer and take intermittent snapshots of a computer screen. A number of courts have considered whether screenshot and keystroke capturing programs 'intercept' e-mail communications for purposes of the statutes. A Florida appeals court considered whether a wife violated Florida's wiretap law by installing on her husband's computer a 'Spector' sypware program that took intermittent snapshots of the computer screen, thereby capturing instant messages, chat-room conversations, and e-mails between the husband and another woman. The wife argued that the Spector program did not violate the statute because it did not 'intercept' communications contemporaneously with transmission. But the court excluded the evidence as unlawfully obtained, holding that the screenshots amounted to 'contemporaneous interception.' O'Brien v. O'Brien, 899 So.2d 1133 (Fla. App. 5th Dist. 2005). A federal district court in Ohio adopted the O'Brien court's reasoning in a decision under 18 U.S.C. ' 2511. Potter v. Havlicek, 2007 WL 539534 (S.D. Ohio Feb. 14, 2007). Decisions like these show some risks run by investigators or attorneys who rely on an overly narrow definition of 'intercepting.'

Stored communications on a shared computer, though, may enjoy less protection. A New Jersey court found that a wife did not violate the state's wiretap statute (modeled after the federal statute) by retrieving her husband's e-mails from the shared family computer without unauthorized use of his password. White v. White, 344 N.J. Super. 211, 781 A.2d 85 (N.J. Super. Ch. 2001). In sum, whether electronic information is unlawfully 'intercepted' will sometimes turn on fine questions as to exactly how and when the data was gathered and on whose behalf the investigation was undertaken. Attorneys and their investigators seeking to gather information in this fashion must proceed with care.

Conclusion

Investigators are a powerful and effective resource for attorneys, but only when used lawfully. To minimize the risk of trouble, attorneys must give careful consideration to the legal regimes under which the investigation is pursued, and keep close watch over the methods used.

Stanley S. Arkin ([email protected]), a member of this newsletter's Board of Editors, is senior partner at New York's Arkin Kaplan Rice LLP and the lead author of 'Business Crime' and 'The Prevention and Prosecution of Computer and Technology Crime.' Sean R. O'Brien ([email protected]) is a partner at the firm, and Sara Welch ([email protected]) is an associate.

Most attorneys involved in the investigation or defense of complex business crimes will turn to private investigators to assist them in developing the facts. Given the breadth and nature of many modern criminal investigations, the use of private investigators is almost becoming a necessity. Yet many basic rules governing their use are unclear or in flux, especially when it comes to monitoring or gathering electronic information. The consequences of an ill-supervised or, even worse, unlawful investigation can range from the exclusion of evidence to criminal prosecution, always with the risk of severe reputational damage to the client on whose behalf the work is performed. In this article, we identify some key issues to guide attorneys in this important area.

General Ethical Limitations

Any work performed on behalf of an attorney, including work performed by investigators, will be subject to the rules of ethics. Because the use of investigators often involves surreptitious activity or deception, attorneys supervising investigators must be careful not to run afoul of the ethical rules against deceptive conduct. In New York, for example, DR 1-102(a)(4) provides that 'a lawyer or law firm shall not engage in conduct involving dishonesty, fraud, deceit, or misrepresentation,' and under DR 7-102(a)(5), a lawyer may not 'knowingly make a false statement of law or fact.' Moreover, the investigator may interact with individuals or entities represented by counsel with respect to the subject matter of the investigation, and DR 7-104(a)(1) generally prohibits not only lawyers but also their representatives from communicating with the clients of other lawyers. The New York rules have equivalents in most other jurisdictions.

Despite the apparent breadth of these rules, courts have approved of a degree of deception by private investigators when that activity occurs under what the courts have deemed to be 'socially or economically desirable' circumstances. In Apple Corps Limited v. Int'l Collectors Society , 15 F. Supp. 2d 456 (D.N.J. 1998), for example, the court considered whether plaintiff's counsel violated New Jersey's ethical rules in an investigation of alleged trademark infringement. During the investigation, plaintiff's law firm and its investigators contacted the defendant and posed as consumers attempting to purchase infringing products. Interpreting New Jersey's version of DR 1-102(a)(4), the court found that the rule prohibiting deceit by an attorney 'does not apply to misrepresentations solely as to identity or purpose and solely for evidence gathering purposes.' The court observed that the 'prevailing understanding in the legal profession is that a public or private lawyer's use of an undercover investigator to detect ongoing violations of the law is not ethically proscribed, especially where it would be difficult to discover the violations by other means.' Similarly, another court found that DR 1-102(a)(4)'s prohibition against attorney misrepresentations did not prohibit attorneys from hiring investigators to pose as consumers, as this was 'an accepted investigative technique, not a misrepresentation.' Gidatex, S.r.L. v. Campaniello Imports, Ltd. , 82 F. Supp. 2d 119 (S.D.N.Y. 1999). Both courts also rejected the argument that the attorney's conduct violated the 'no contact' rule. The court in Gidatex noted that the investigators 'did not interview the sales clerks or trick them into making statements they otherwise would not have made,' but simply 'recorded the normal business routine' in the defendant's showroom and warehouse. The New York County Lawyers' Association has expressly approved of the holdings in Apple and Gidatex, concluding that 'dissemblance' by attorneys is ethically permissible in a 'small number of exceptional circumstances,' including investigations of civil rights and intellectual-property rights violations. Formal Opinion No. 737 (May 23, 2007).

But not every court agrees: the Eighth Circuit, for example, found that plaintiff's counsel had indeed violated the 'no contact' rule by hiring an investigator who secretly recorded conversations with a salesman of a represented party about the subject of pending litigation. As a sanction, the court excluded all evidence obtained as a result of the recordings. Midwest Motor Sports v. Arctic Cat Sales, Inc. , 347 F.3d 693 (8th Cir. 2003).

In our view, investigative contact by a law firm or its investigator should be permitted so long as it is pursued in good faith and with a legitimate evidence-gathering purpose (not, for example, in order to achieve an economic, commercial, or personal advantage), and so long as any deception is kept within strict confines designed to achieve a permissible goal. We see no principled basis for limiting permissible investigative contacts to investigations involving intellectual property, civil rights, or any other substantive subject matter.

Other Legal Limitations

Several investigative techniques are regulated by statute and by the courts in addition to attorney ethical rules. Last year's Hewlett-Packard scandal highlighted the drastic reputational and legal consequences that can flow from an investigation that is pursued in disregard of law. HP's investigation used a practice that has long been illegal: 'pretexting,' in which the investigator misrepresents his or her identity or purpose in order to obtain information that does not lawfully belong to the individual requesting it. After the HP case, various states and the federal government clarified legal prohibitions on the use of pretexting to obtain telephone records. Under the Telephone Records and Privacy Protection Act of 2006, 18 U.S.C.
' 1039, pretexting to obtain the telephone records of a third-party is now a federal crime. Other laws also prohibit defined forms of pretexting. For example, under the Gramm-Leach-Bliley Act, 15 U.S.C. ' 6821, it is illegal to use false statements to obtain customer information from a financial institution or from a customer of a financial institution, or to ask another to do so.

Electronic Surveillance and 'Cyber-Sleuthing'

It is also increasingly common that both the commission and investigation of business crimes involve the use of computers or other electronic sources of information. In 2005, the FBI estimated that computer-related crime cost United States businesses $67 billion per year. In 2008, the FBI's Internet Crime Complaint Center (IC3) processed over 200,000 complaints relating to Internet crime, and referred over 86,000 of these complaints to law enforcement agencies. As a result, attorneys and their investigators defending or investigating such conduct must be aware not only of the power of electronic and computer surveillance techniques but also of their legal limitations. Although there are not many reported decisions relating to the use of electronic or computer-related methods of information-gathering by investigators, judicial decisions in this area provide important guidance for attorneys.

The federal wiretap statute, 18 U.S.C. ' 2510 et seq., and many state wiretap laws patterned after it prohibit the 'interception' of wire, oral and electronic communications, including telephone and e-mail communications, without the consent of at least one of the parties to the communication. Courts generally have interpreted the statutes to prohibit only the interception of communications contemporaneously with their transmission. See Fraser v. Nationwide Mut. Insur. Co., 352 F.3d 107, 113 (3d Cir. 2003). Notably, though, some states have stricter wiretap laws. In New Hampshire, for example, a wiretap is unlawful unless all parties to the communication consent. New York penal law prohibits 'eavesdropping,' which means the unauthorized wiretapping, mechanical overhearing of a conversation, or intercepting or 'accessing of electronic communications' without the consent of at least one of the parties to the conversation. New York's prohibition on 'accessing of electronic communications' apparently goes beyond the federal statute by covering stored e-mails as well as intercepted transmissions.

In this era of home computers and e-mail, another practice that has received attention is the monitoring of communications through computers, and any attorney or investigator who seeks to engage in this conduct must proceed with a thorough understanding of applicable rules. A number of 'spyware' programs are now available that enable a user to capture every keystroke made on a computer and take intermittent snapshots of a computer screen. A number of courts have considered whether screenshot and keystroke capturing programs 'intercept' e-mail communications for purposes of the statutes. A Florida appeals court considered whether a wife violated Florida's wiretap law by installing on her husband's computer a 'Spector' sypware program that took intermittent snapshots of the computer screen, thereby capturing instant messages, chat-room conversations, and e-mails between the husband and another woman. The wife argued that the Spector program did not violate the statute because it did not 'intercept' communications contemporaneously with transmission. But the court excluded the evidence as unlawfully obtained, holding that the screenshots amounted to 'contemporaneous interception.' O'Brien v. O'Brien , 899 So.2d 1133 (Fla. App. 5th Dist. 2005). A federal district court in Ohio adopted the O'Brien court's reasoning in a decision under 18 U.S.C. ' 2511. Potter v. Havlicek, 2007 WL 539534 (S.D. Ohio Feb. 14, 2007). Decisions like these show some risks run by investigators or attorneys who rely on an overly narrow definition of 'intercepting.'

Stored communications on a shared computer, though, may enjoy less protection. A New Jersey court found that a wife did not violate the state's wiretap statute (modeled after the federal statute) by retrieving her husband's e-mails from the shared family computer without unauthorized use of his password. White v. White , 344 N.J. Super. 211, 781 A.2d 85 (N.J. Super. Ch. 2001). In sum, whether electronic information is unlawfully 'intercepted' will sometimes turn on fine questions as to exactly how and when the data was gathered and on whose behalf the investigation was undertaken. Attorneys and their investigators seeking to gather information in this fashion must proceed with care.

Conclusion

Investigators are a powerful and effective resource for attorneys, but only when used lawfully. To minimize the risk of trouble, attorneys must give careful consideration to the legal regimes under which the investigation is pursued, and keep close watch over the methods used.

Stanley S. Arkin ([email protected]), a member of this newsletter's Board of Editors, is senior partner at New York's Arkin Kaplan Rice LLP and the lead author of 'Business Crime' and 'The Prevention and Prosecution of Computer and Technology Crime.' Sean R. O'Brien ([email protected]) is a partner at the firm, and Sara Welch ([email protected]) is an associate.