Filip’s Privilege Guidelines Draw Skeptics

Details of the Justice Department’s new “Filip Memo”—replacing the previous McNulty Memo, spelling out how companies’ cooperation in regulatory probes affects possible corporate indictments—are finally available.

The early verdict: a much-needed step in the right direction, which still doesn’t address the underlying challenges faced by companies trying to avoid prosecution.

Filip

Deputy Attorney General Mark Filip promised the new guidelines in July, amid fierce criticism of the McNulty Memo and threats from Congress that lawmakers would change the rules themselves if the Justice Department didn’t ease up. Most notably, the revised guidelines state that credit for cooperation won’t depend on a company’s waiver of attorney-client privilege or work-product protection, but rather on the disclosure of relevant facts.

Technically speaking, the guidelines aren’t a memo at all; rather, they are new rules in the U.S. Attorneys Manual and are binding on all federal prosecutors. Filip unveiled them Aug. 28. They are the latest in a series of policy changes since 2003, each one alleviating the burden against companies more than the last.

Warin

“The new guidelines are an articulation of the pendulum swinging back to a more rational, deliberate process in terms of extracting punishment against corporations,” says Joseph Warin, partner in the law firm Gibson Dunn & Crutcher. “The pendulum had moved drastically away from giving corporations any sort of cooperation credit in recent years.”

The Justice Department has long given companies leniency in exchange for cooperation during an investigation, since the companies themselves are often in the best position to provide needed evidence to prosecutors. This decade, however, companies have raised objections about the lengths to which they must go if they want to be deemed “cooperative”—chiefly, waiving legal privilege, and not paying legal fees for employees under investigation or indictment.

Powerful members of Congress had been threatening to impose their own solution to the mess, forcing Filip to publish his new rules.

“Corporations will receive the same credit for disclosing facts that are contained in unprotected materials as they would for disclosing the identical facts contained in protected materials,” Filip said. “The government will assess neither a credit nor a penalty based on whether the disclosed materials are protected by the attorney-client privilege or attorney work product.”

Prior Justice Department rules allowed federal prosecutors to request the disclosure of some information typically protected by attorney-client or work-product privilege, designated in the old guidelines as “Category II” information. The Filip rules forbid it, with two exceptions already established in existing law.

Other changes instruct prosecutors not to consider a corporation’s advancement of attorneys’ fees to employees in evaluating cooperation; clarify that participation in a joint defense agreement won’t render a company ineligible for cooperation credit; and bar prosecutors from considering whether a corporation has sanctioned or retained culpable employees in evaluating whether to give cooperation credit.

Filip said the new policy makes it “very clear” that “no corporation is obligated to cooperate or to seek cooperation credit by disclosing information to the government.”

“If a company didn’t put employees on leave or terminate them, they were deemed to be non-cooperative. Now we have a document to say that’s inappropriate—a way to push back.”

— Joseph Warin,

Partner,

Gibson Dunn & Crutcher

Warin says the changes signal that “corporations aren’t going to be skewered for every act that seems supportive of its employees.” That’s a departure from recent years, particularly under the 2003 Thompson Memo. Under that regime, Warin says, corporations under criminal investigation were forced to make snap judgments about what course to take, including how to deal with employees who might be implicated.

“If a company didn’t put employees on leave or terminate them, or if they had the audacity to fund their legal fees … they were deemed to be non-cooperative,” he says. “Now we have a document to say that’s inappropriate—a way to push back.”

Still Waiting on Culture Change

Wells

Others contend that the new guidelines on their own won’t do enough to reverse the “culture of waiver,” which they say extends beyond the Justice Department to other federal policies. One skeptic is Thomas Wells, president of the American Bar Association. “We see the new guidelines as a vast improvement over where we stood under the Thompson or McNulty Memos,” he says. “However, there are several reasons we still believe legislation is necessary.”

Foremost, he says, the Filip Memo has no bearing on other federal agencies, such as the Securities and Exchange Commission, the Environmental Protection Agency, and the Department of Housing and Urban Development. Those agencies all still have their own policies that “work to coerce waivers of attorney-client privilege.”

That’s one of the main reasons the ABA and several other groups have been pushing the Senate to pass S. 3217, the Attorney-Client Privilege Protection Act, which would be binding on all federal agencies. A companion bill, H.R. 3013 was passed by the House last year.

Sen. Arlen Specter, the ranking Republican on the Senate Judiciary Committee and the sponsor of the Senate bill, similarly called the revised guidelines “a step in the right direction,” but said they “leave many problems unresolved so that legislation will still be necessary.”

SERVE & PROTECT

The following excerpt is from the Department of Justice’s “Principles of Federal Prosecution of Business Organizations.”

Attorney-Client and Work Product Protections

The attorney-client privilege and the attorney work product protection serve an extremely

important function in the American legal system. The attorney-client privilege is one of the

oldest and most sacrosanct privileges under the law. See Upjohn v. United States, 449 U.S. 383, 389 (1981). As the Supreme Court has stated, “[i]ts purpose is to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice.” Id. The value of promoting a corporation’s ability to seek frank and comprehensive legal advice is particularly important in the contemporary global business environment, where corporations often face complex and dynamic legal and regulatory obligations imposed by the federal government and also by states and foreign governments. The work product doctrine serves similarly important goals.

For these reasons, waiving the attorney-client and work product protections has never

been a prerequisite under the Department’s prosecution guidelines for a corporation to be viewed as cooperative. Nonetheless, a wide range of commentators and members of the American legal community and criminal justice system have asserted that the Department’s policies have been used, either wittingly or unwittingly, to coerce business entities into waiving attorney-client privilege and work-product protection.

Everyone agrees that a corporation may freely waive its own privileges if it chooses to do so; indeed, such waivers occur routinely when corporations are victimized by their employees or others, conduct an internal investigation, and then disclose the details of the investigation to law enforcement officials in an effort to seek prosecution of the offenders. However, the contention, from a broad array of voices, is that the Department’s position on attorney-client privilege and work product protection waivers has promoted an environment in which those protections are being unfairly eroded to the detriment of all.

The Department understands that the attorney-client privilege and attorney work product

protection are essential and long-recognized components of the American legal system. What the government seeks and needs to advance its legitimate (indeed, essential) law enforcement mission is not waiver of those protections, but rather the facts known to the corporation about the putative criminal misconduct under review. In addition, while a corporation remains free to convey non-factual or “core” attorney-client communications or work product—if and only if the corporation voluntarily chooses to do so—prosecutors should not ask for such waivers and are directed not to do so. The critical factor is whether the corporation has provided the facts about the events, as explained further herein.

Source

Department of Justice Principles.

Moreover, Wells and others point out that the guidelines issued last month are the Justice Department’s fifth attempt in roughly 10 years to revise its policies on corporate prosecutions, starting with the 1999 Holder Memo. “We’re likely to have a new deputy attorney general again in the next year. Will we see a sixth re-incarnation?” Wells quips.

Gorman

Thomas Gorman, a partner with the law firm Porter Wright Morris & Arthur, says the new memo “makes a good start, but at the end of the day it highlights the problems and issues that arise more than it solves them.” All the same problems “still wind up on the table, but they’re repackaged,” he says.

He says companies that want to get cooperation credit will still feel unspoken pressure from prosecutors to turn over all materials from internal investigations. That gives the company two choices: waive privilege as usual, or collect the facts without lawyers to avoid privilege issues in the first place. Either way, says Gorman, “all the material becomes public. That’s the opposite of what privilege is for.”

Affirmation!

The same day Filip issued his new guidance, the Second Circuit Court of Appeals upheld a widely watched 2007 district court ruling credited as crucial in getting the Justice Department to revise its policies. The three-judge appeals panel affirmed the dismissal of charges against 13 former employees of KPMG, on the grounds that federal prosecutors violated the employees’ constitutional rights by coercing KPMG into cutting off the payment of their legal fees in order to avoid indictment.

District Court Judge Lewis Kaplan has waged a long battle with prosecutors since 2006, when he first rebuked prosecutors in U.S. v. Stein for their heavy-handed approach to KPMG and its ex-employees. That slap led to the McNulty Memo in 2006, which required federal prosecutors to secure high-level approval in Washington before asking a company to waive attorney-client and work-product privilege during an investigation. Kaplan then went on in 2007 to toss out the charges entirely.

In their opinion, the judges said KPMG’s decision to cut off the employees’ legal fees “amounted to state action.”

“The government thus unjustifiably interfered with defendants’ relationship with counsel and their ability to mount a defense, in violation of the Sixth Amendment,” the opinion states.

Wells says the Stein case helps demonstrate why legislation is still needed. “Despite the fact that the policy changed [under McNulty], the DOJ still pursued the appeal in the Stein case,” he says. “It’s a good example that what we’ve been saying constitutes the culture of waiver.”