In-House Counsel

In-house counsel can now add one more complication: the Department of Justice's (DOJ) recently issued “Yates Memorandum.” Taking its name from Deputy Attorney General Sally Yates, the memo is an update to the DOJ's Principles of Federal Prosecution of Business Organization, which are memorialized within the United States Attorney's Manual (USAM), the principal internal policy guide for DOJ attorneys across the nation. The Yates Memo actually marks just the latest chapter in a long history of the DOJ wrestling internally with how to treat the attorney-client privilege in the context of corporate investigations and credit for those businesses that cooperate with the government.

While the Yates Memo makes no formal changes to the DOJ's position on privilege with respect to cooperation credit for businesses, its practical implications could be far-reaching. To address those implications fully, a little history is in order.

The Yates Memo: A Genealogy

The Yates Memo is just the latest DOJ policy announcement related to the prosecution of business organizations over the last 17 years, and privilege issues have loomed large in each of the policy's iterations.

The Holder Memo (1999)

In 1999, then-Deputy Attorney General Holder issued the first official guidance related to prosecution of business organizations. The Holder Memo noted that many of the same factors that the DOJ followed when considering whether to charge an individual ( e.g. , sufficiency of evidence, likelihood of success at trial, deterrent, rehabilitative, and other consequences at trial) applied equally to the charging decision for business organizations. The Holder Memo also set out the following eight principles that prosecutors should consider when dealing with corporate targets: 1) The nature and seriousness of the offense; 2) The pervasiveness of wrongdoing within the corporation, including complicity or condoning by management; 3) The corporation's history of similar conduct and enforcement; 4) The timely and voluntary disclosure of wrongdoing, including, if necessary, waiver of the attorney-client privilege and the work product protection; 5) The adequacy of the corporation's compliance program; 6) The corporation's remedial actions; 7) The collateral consequences to shareholders and employees; and 8) The adequacy of non-criminal remedies. Holder Memo, ' II.

The Holder Memo noted that privilege waiver was not an “absolute requirement,” but prosecutors could request a waiver in “appropriate circumstances” and could consider “the willingness of a corporation to waive the privileges when necessary to provide timely and complete information as only one factor in evaluating the corporation's cooperation.” Holder Memo, ' VI.B.

The Thompson Memo (2003)

In 2003, the DOJ revised the Holder Memo in the wake of well-publicized corporate scandals such as Enron and WorldCom. The revisions were generally modest, but the pointed and skeptical tone toward corporate cooperation had a significant effect on attorney-client privilege issues.

The Holder Memo was advisory, and characterized as guidance that should generally inform a prosecutor's charging decision. By contrast, the revised policy ' authored by Deputy Attorney General Larry Thompson and known as the Thompson Memo ' made consideration of the factors mandatory. The Thompson Memo also noted that the “main focus of the revisions” was “increased emphasis on and scrutiny of the authenticity of a corporation's cooperation.” Thompson Memo, 1.

While the revised policy retained the Holder Memo's language about attorney-client privilege waiver not being an “absolute requirement,” it ushered in a new era in which fear of being labeled uncooperative ' and the charging and sentencing implications attendant to such a stigma ' led to more waivers requested and more waivers obtained.

The McCallum Memo (2005)

Criticism of the Thompson Memo and its erosive effect on the attorney-client privilege grew over the next two years. In response, the DOJ issued a memorandum from then-acting Assistant Attorney General Robert McCallum, titled “Waiver of Corporate Attorney-Client and Work-Product Protections.” The one-page McCallum Memo directed U.S. Attorneys and other DOJ department heads to establish a written review process in their districts or divisions, a directive apparently designed to ensure supervisory approval before requesting a privilege waiver.

Whatever the intent, the McCallum Memo did nothing to quell criticism of the DOJ waiver policy. That criticism grew louder as the late U.S. Sen. Arlen Specter (R-PA) introduced legislation to prohibit waiver of the attorney-client privilege as a prosecutorial consideration. See 152 Cong. Rec S11439 (Dec. 7, 2006). Equally important, abuse of a related aspect of the policy came to light in United States v. Stein, 435 F. Supp. 2d (S.D.N.Y. 2006). In a series of rulings, the Stein court eventually dismissed indictments against KPMG employees after finding that prosecutors violated the employees' Fifth and Sixth Amendment rights by coercing KPMG to condition its payment of employees' legal fees on the employees' willingness to cooperate with the government.

The McNulty Memo (2006)

In December 2006, the DOJ changed course with the McNulty Memo. Written by then-Deputy Attorney General Patrick McNulty, the memo explicitly superseded and replaced the Thompson and McCallum Memos. With respect to privilege waivers, the revamped policy created a two-tiered system distinguishing between “purely factual information, which may or may not be privileged, relating to the underlying conduct” (Category I) and “attorney-client communications or non-factual attorney work product' (Category II). McNulty Memo ' VII.B.2.

The new policy set out a cumbersome procedure, including a multi-factor balancing test, for line prosecutors to obtain privilege-waiver approval when they had a “legitimate need” for the information to carry out their duties. Id . Once a prosecutor performed that balancing test, the memo required a further two-step process: For Category I information, the prosecutor must obtain written authorization from the U.S. Attorney, who must consult with the Assistant Attorney General before granting the request. For Category II information, the prosecutor must complete the first step, but also obtain written approval from the Deputy Attorney General ' the DOJ's second in command.

The Filip Memo (2008)

Less than two years later, Deputy Attorney General Mark Filip issued his own eponymous memo that again changed the DOJ's privilege-waiver policy in the context of corporate investigations. Amid several modest changes, the Filip Memo explicitly prohibited prosecutors from requesting attorney-client communications or non-factual attorney work product (the McNulty Memo's “Category II information”). The only exceptions were if defendants asserted an advice-of-counsel defense or where counsel-corporation communications were in furtherance of a crime.

In addition, the Filip Memo provided that a corporation's cooperation credit no longer depended on the waiver of privilege and work-product protections. Instead, such credit turned on the willingness and sufficiency of the corporation's disclosure of relevant facts to aid the government's investigation.

Coincidentally, on the same day the Filip Memo was released, the U.S. Court of Appeals for the Second Circuit issued a unanimous opinion affirming the district court's decision in Stein to dismiss criminal charges against former KPMG employees. United States v. Stein , 541 F.3d 130 (2d Cir. 2008). The court upheld the district court's ruling that the U.S. Attorney's Office violated the employees' Sixth Amendment rights by requiring KPMG to condition paying the employees' legal fees on the employees' cooperation. Id.

Next month, the authors discuss the Yates Memo and the current status of the attorney-client privilege.

Ty E. Howard is a partner in the Nashville office of Bradley Arant Boult Cummings LLP and the chair of the firm's Government Enforcement practice group. He can be reached at [email protected]. Todd Presnell is a partner resident in the same office. Presnell has significant experience in the area of evidentiary privileges, and maintains a blog, http://www.presnellonprivileges.com, on the subject. He can be reached at [email protected].