General Counsels Under Siege

In this age of heightened enforcement, regulators often seek to assign blame for corporate misconduct to the highest-profile executives within the company as a way to multiply the publicity of a prosecution and its deterring effect. Recently, this tactic has more frequently targeted general counsels. 

Due to their executive and fiduciary responsibilities for compliance, “corporate lawyers are seen more and more often as key players and, as a result, prime targets,” Veta Richardson, president and CEO of the Association of Corporate Counsel, said during a panel discussion at the ACC's annual conference in Denver last week.

One of the highest profile prime targets of what some are calling an unfair campaign against general counsels is Lauren Stevens, former vice president and associate general counsel for GlaxoSmithKline. In the case of U.S. v. Stevens, federal prosecutors charged her with criminal obstruction of justice for her role in defending the company against fraud allegations. They say the case is the latest and most pronounced in a series of cases that illustrate the Department of Justice's toughening stance against general counsels and willingness to hold them responsible as gatekeepers. “If you're not familiar with the Stevens case, you ought to be,” said Daniel Small, a partner at law firm Holland & Knight and a panel member at the conference.

The case stemmed from an indictment brought against Stevens in connection with the company's alleged off-label marketing of its weight-loss drug, Wellbutrin. The Justice Department argued that Stevens, as a signatory of a series of letters from Glaxo in response to a Food and Drug Administration inquiry, falsely denied that the company had promoted Wellbutrin for off-label use.

In one of several odd twists to the case, a Massachusetts magistrate judge ordered Stevens to produce a large volume of privileged documents under the “crime-fraud exception,” finding that Glaxo's intention to perpetuate a crime trumped attorney-client privilege. The government ultimately charged Stevens with obstruction of justice, falsification and concealment of documents, and making a false statement.

Where privilege was once seen as sacrosanct, “transparency now is the talisman of our age,” noted Amar Sarwal, vice president and chief legal strategist of the ACC. In the government's eyes, “if you're not showing everything, you must be hiding something.”

One judge agreed that the pursuit of Stevens was an overreach of the government's authority. Maryland District Judge Roger Titus in May dismissed the case and all charges against Stevens before it even reached the grand jury, ruling that the documents squarely were within the attorney-client privilege and never should have been disclosed. “I conclude on the basis of the record before me that only with a jaundiced eye and with an inference of guilt that's inconsistent with the presumption of innocence could a reasonable jury ever convict this defendant,” Judge Titus wrote.

“It was one of the few times a judge stood up and said, ‘Enough. This is too much,'” said Drew McKay, executive vice president, general counsel, and secretary of The Fairfax Group, a risk management firm.

“Transparency now is the talisman of our age. In the government's eyes, ‘if you're not showing everything, you must be hiding something.'”

—Amar Sarwal,

Vice President, Chief Legal Strategist,

Association of Corporate Counsel

Judge Titus found that, while Stevens' responses to the FDA “may not have been perfect,” they were sent in the course of her “bona fide legal representation of a client and in good faith reliance of both external and internal lawyers for GlaxoSmithKline.” Judge Titus also stressed that Stevens obtained the advice of numerous inside and outside counsel in connection with her responses to the FDA and that “every decision that she made and every letter she wrote was done by a consensus.”

While Stevens ultimately won the case, the charges have sent a shock wave though the in-house counsel community. “When they start focusing on the general counsel, it distorts the entire defense of the case from the corporation's standpoint,” said John Villa, a partner in law firm Williams & Connolly.

Strength comes in numbers. The more in-house counsel that file legal briefs in cases like Stevens, the more the legal community will gain control to push back against regulators, panel members stressed.

When Counsel Needs Counsel

Several panel members agreed the ruling provides some important lessons for in-house counsel faced with a government investigation. First, engaging the advice of outside counsel when faced with a government inquiry is critical, given that advice of counsel is a statutory defense.

Christopher Santomassimo, general counsel, secretary, and chief compliance officer, North America, for Agfa Corporation, said in-house counsel especially should seek the help of outside counsel “when you have a critical issue that involves potential criminal conduct where prosecution is likely.”

The case also demonstrates how important it is to create a paper trail. “Documenting your investigation as carefully as you can is important so that you have something to go to the government with,” said Small.

JUDGE TITUS OPINION

Below is an excerpt from United States vs. Lauren Stevens in which Judge Roger Titus shares his thoughts:

With the 20/20 vision of hindsight, and that's always the place to be in terms of wisdom, the Massachusetts Order was an unfortunate one, because I now have benefitted from a trial in which these documents that were ordered produced were paraded in front of me, and the prosecutors were permitted to forage through confidential files to support an argument for criminality of the conduct of the defendant. What those records demonstrate to the Court is, first of all, that access should not have been granted to them in the first place. But that's not for me to decide. That's already been decided by a magistrate judge in Massachusetts. But they also show that this was a client that was not engaged to assist a client to perpetrate a crime or fraud. Instead, the privileged documents in this case show a studied, thoughtful analysis of an extremely broad request from the Food and Drug Administration and an enormous effort to assemble information and respond on behalf of the client. The responses that were given by the defendant in this case may not have been perfect; they may not have satisfied the FDA. They were, however, sent to the FDA in the course of her bona fide legal representation of a client and in good faith reliance of both external and internal lawyers for GlaxoSmithKline.

Source: Transcript Comments by Maryland District Judge Roger Titus.

Documentation was the lynchpin, for example, in proving that Stevens did not intend to perpetuate a crime. “The privileged documents in this case show a studied, thoughtful analysis of an extremely broad request from the Food and Drug Administration and an enormous effort to assemble information and respond on behalf of the client,” Judge Titus wrote.

Documentation is all the more important in companies where the general counsel wears multiple hats. For example, where does privilege start and where does privilege stop as general counsel and chief compliance officer? How are you delineating those titles based on your presence in a meeting you've been asked to attend?

“A lot of times, we don't know what our purpose is [in a meeting],” said Rebecca Lorance, litigation counsel at Dell. “We are just asked to show up.” If you believe that conversation to be privileged, declare what your purpose is either orally or in writing, she advised.

Panel members also discussed how general counsels can respond effectively to internal investigations that target a senior executive, especially when the general counsel reports to that executive. Importantly, policies and procedures need to be established in advance of a conflict arising. “This is not something you can do at the last minute,” said McKay.

Some questions to consider: Who should be on the team that conducts the investigation? Should it include members of the legal department? Members of other departments? Outside attorneys, auditors, or others? Who should the general counsel report to in this situation?

Judge Sven Holmes, chief legal officer at KPMG, stressed that general counsels never should confuse their role as a supporter of management with their responsibility to the company at large. “The chief legal officer is responsible for brand,” he said. “That ultimately is what you are protecting.”