Category: Legal Ethics

Former Deputy AG Ed Meese Calls for Passage of Specter Bill

December 7th, 2006

In a press release of the Heritage Foundation, former Attorney General Edwin Meese III calls for Congress to pass the Specter bill – "The Attorney Client Privilege Protection Act of 2006." (For details on this bill, see here) He states that:

"The principles embodied in the Attorney-Client Privilege Protection Act of 2006 strike the right balance between the needs of law enforcement and the fundamental civil rights embodied in the attorney-client privilege and related protections for individual employees."

"The Justice Department should act promptly to adopt the substantive provisions of the legislation through administrative means and eliminate the need for Congress to enact legislation on this subject."

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Specter Proposes Legislation on the Attorney-Client Privilege

December 7th, 2006

Senator Arlen Specter proposed a bill today to "provide appropriate protection to attorney-client privileged communications and attorney-work product." This legislation titled "The Attorney Client Privilege Protection Act of 2006," has nine findings including that "[w]aiver demands and other tactics of Government agencies are encroaching on the constitutional rights and other legal protections of employees."

In part (b) it provides the purpose of the Act:

"It is the purpose of this Act to place on each agency clear and practical limits designed to preserve the attorney-client privilege and work product protections available to an organization and preserve the constitutional rights and other legal protections available to employees of such an organization."

The Act explicitly states that "[i]n any Federal investigation or criminal or civil enforcement matter, an agent or attorney of the United States shall not" –

"(1) demand, request, or condition treatment on the disclosure by an organization, or person affiliated with that organization, of any communication protected by the attorney-client privilege or any attorney work product;…."

Clearly this legislation is important. It took an act of Congress to subject federal prosecutors to ethics rules (The McDade Act). Unfortunately, it will now take an act of Congress to require that prosecutors cease improperly using pressure to secure waivers of the attorney-client privilege. Marty Pinales, President of the National Association of Criminal Defense Lawyers stated – " DOJ’s high-handed practice of forcing companies at gunpoint to abrogate attorney-client privilege and sacrifice employees’ ability to speak candidly with company lawyers without fear that their statements will be handed over to the government is as grossly unfair to the corporation and shareholders as it is to the company’s employees.” (see here).

A Copy of this new proposed legislation is here –

Download attorneyclient_privilege_protection_act_12_6_06_hen06g74_xml.pdf

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Attorney-Client Privilege – The “Revised Holder Memo”

December 1st, 2006

The Heritage Foundation’s event of yesterday on "The Future of the Attorney-Client Relationship in White-Collar Prosecutions" included opening remarks by Former Attorney General Ed Meese followed by remarks by two former Deputy Attorney Generals – George J. Terwilliger III and Larry Thompson. Obviously, the interest of the audience was in what Larry Thompson would say regarding the memo that bears his name.

Meese starting by noting the importance of the attorney-client privilege. He expressed his hope that DOJ would resolve this issue internally to avoid possible legislation. Terwillinger followed with comments that included his perspective on some of the flaws in the memo. He did not, however, reject a selective waiver approach. Thompson, the final speaker, emphasized the importance of cooperation in investigations. But he also emphasized that the attorney-client privilege is sacrosanct.

It was clear that the way the memo has been used by DOJ in recent years was not the way Larry Thompson had intended for its use when it was written. The waiver of the privilege was for the very rare case. But the most important comment by Thompson was his recognition that this memo needs revision.

And that revision is likely to be coming soon. As reported in the Washington Post it looks like both DOJ (Deputy AG Paul McNulty) is considering internal modification of the memo and Senator Arlen Specter is considering legislative change to finally end the practice of having corporations waive their attorney-client privilege.

Legislation is really the best way to proceed here. DOJ has been told time and again to stop asking or implying a benefit or detriment premised on the waiver of the attorney-client privilege. The only thing that has happened in response to the outcry, is a minor memo that merely looks for consistency internally in each office. With 94 offices it means basically no oversight. The problem with now letting DOJ try to remedy this with an internal policy is that it will not provide the permanent consistency necessary to protect this important common law privilege. More importantly, DOJ guidelines are not enforceable at law. So if they fail to abide by any guideline that they write, it will only be as good as DOJ wants it to be. Additionally, every new Attorney General might revise the possible memo or just ignore it. Thus, what is happening now in deferred prosecution agreements could happen again, even if a DOJ guideline was instituted.

For a department that strives for consistency at sentencing, it seems odd for them to be advocating for mere adoption of internal guidelines that would not provide consistency when it comes to the application of a basic common law principle. Senator Spector is right to move ahead on this one.

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The Thompson Memo – More to Come

November 28th, 2006

The ABA Net has a piece praising its efforts in enforcing the attorney-client privilege despite a DOJ policy in the corporate sphere – a provision within the Thompson Memo. See also what Professor Alan Childress of the Legal Profession Blog says in this interesting post on the present status of the Thompson Memo. But the key will be to hear what Larry Thompson will say when he speaks at the Heritage Foundation this coming Thursday (see here). This blog will be covering that event.

What are the possibilities here –

Thompson could hold firm on his Memo and advocate for continuation of waiving the attorney-client privilege.

or –

Larry Thompson, a man of the highest of professional standards, could easily say that the provision in this memo was to encourage corporate cooperation, but that it was never intended to be used the way the DOJ presently uses it. It is important to remember here that the waivers coming from the Memo come predominantly in deferred prosecution agreements. Many of these agreements are post-the-Thompson stay at DOJ.

Even without Larry Thompson taking a stance on his memo, it will be nice to hear his reflection on what was intended and whether some things that happened here were unintended consequences.

Stay tuned.

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Milberg Weiss Prosecution Meanders On

November 28th, 2006

The trial of plaintiff class action firm Milberg Weiss on conspiracy, RICO, and fraud charges is set to begin in January 2008. At a scheduling conference with U.S. District Judge John Walter, prosecutors said that the government may add charges against the firm, which could involve fraudulent billings by experts. If new charges are added, that could postpone the trial even further, making it more difficult for Milberg Weiss to remain in business with the threat of a possible criminal conviction. It is not clear at this point whether the government has any cooperating witnesses providing information about questionable payments to experts. The investigation has been dragging on for over six years now, and unless the payments occurred within the past five years there may be statute of limitations problems, except if it is part of a larger RICO or conspiracy charge. A Los Angeles Times article (here) discusses the status of the case. (ph)
Collateral Consequences of White Collar Conviction

November 20th, 2006

Former Mayor Bill Campbell (Atlanta) is feeling the collateral consequences of his recent federal conviction. Although he was convicted of tax crimes, and acquitted of other charges against him (see here), it did not stop the Georgia Supreme Court from suspending him from the practice of law (See Atlanta Jrl Constitution here). Although a bricklayer comes out of prison a bricklayer, and a welder remains a welder, a white collar offender often is precluded after prison from resuming the livelihood that he or she had prior to the conviction.

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When Your Attorney Turns You In

October 11th, 2006

Salvatore Favata will enter a guilty plea to a mail fraud charge and settled an SEC civil enforcement action for selling "private money note investments" purportedly to raise money for his mortgage firm, National Consumer Mortgage, LLC, that was essentially a Ponzi scheme. According to the SEC Litigation Release (here), Favata "raised more than $30 million from over 200 investors by offering rates of return from 30-60 percent on the investment. In fact, investor funds were used to pay Favata’s gambling debts in excess of $10 million, personal debts and monthly living expenses, including leased luxury vehicles, lavish house parties and community music festivals." Note once again that the promise of outsized returns is too good to be true because it isn’t. Favata is scheduled to appear on the criminal charge on October 16, and a press release issued by the U.S. Attorney’s Office for the Central District of California (here) states that he is expected to receive the maximum five year prison sentence authorized under the mail fraud statute.

The interesting part of the case is a line near the end of the USAO release stating, "The investigation of Favata’s fraud started in April when Favata’s attorney reported the criminal conduct to the United States Attorney’s Office." It’s not clear what basis the attorney had for disclosing the information to prosecutors, especially if it was confidential information gained in the course of the attorney-client relationship. If the attorney provided legal services that were used by Favata to commit the fraud, then the attorney could be compelled to testify under the crime-fraud exception, but that does not appear to be the case from the wording of the release. Assuming the attorney is licensed in California, then under Rule 3-100(B), "A member may, but is not required to, reveal confidential information relating to the representation of a client to the extent that the member reasonably believes the disclosure is necessary to prevent a criminal act that the member reasonably believes is likely to result in death of, or substantial bodily harm to, an individual." While many states, and now the ABA, permit disclosure of client fraud, California appears to apply the older approach limiting disclosure only if there is a risk of death or serious harm by the client. It may be that the attorney represented the mortgage company rather than Favata personally, so it might have waived the privilege when the misconduct came to light. The release, however, states that it was "Favata’s attorney" and not the company’s counsel. However it came to light, a Ponzi scheme has been stopped, although like weeds in a garden another one will pop to the surface again soon. (ph)
Legal Profession Blog

October 5th, 2006

A new member of Paul Caron’s ever-expanding empire — could he be the Alexander the Great of the law blog world one day? — is the Legal Profession Blog (here). Its editors are S. Alan Childress of Tulane, Michael S. Frisch from the D.C. Bar and a PR teacher at Georgetown, and Jeffrey M. Lipshaw of Tulane. The blog just started up a couple weeks ago, and for anyone interested in issues related to the legal profession, this is the place to go (along with the Legal Ethics Forum). Please be sure to check it out. (ph)
H-P’s Mea Culpas

September 23rd, 2006

Hewlett-Packard CEO Mark Hurd held a press briefing — no media questions were allowed so it was not very enlightening — in which he described his role in the company’s internal investigation that involved "pretexting" to obtain private data on journalists, directors, and officers. In addition to apologizing for H-P’s conduct, Hurd’s eight minute statement (audio available here) describes his peripheral involvement in the investigation and admits that he was asleep at the switch when he received but did not review a report of the process. By not allowing questions, Hurd avoided having his story challenged, a situation that is less likely to prevail at the House Energy and Commerce Subcommittee hearing on September 28 at which he will testify. In addition, Patricia Dunn will step down immediately as chairwoman of the board, rather than waiting until January 2007 as previously announced. She has clearly become scapegoat number one, but others will likely follow in that role. (AP story here)

Hurd’s statement contains an interesting admission regarding the first investigation of the internal investigation, in May and June when issues were raised about the propriety of the company’s conduct. Hurd states that a law firm performed that investigation, although he does not identify it, and then goes on to describe the recent investigation by Morgan, Lewis & Bockius as "more comprehensive." What was wrong with the earlier investigation? Were limitations placed on the law firm that conducted it to limit the scope of the inquiry, similar to the restrictions placed on Vinson & Elkins back in 2001 when it undertook an "investigation" of the allegations of wrongdoing at Enron leveled by Sherron Watkins? In an e-mail exchange between Larry Sonsini and former H-P board member Tom Perkins, Sonsini says that outside counsel conducted an investigation and gave the internal investigation that included "pretexting" a clean bill of health. Was that investigation done by Wilson Sonsini, H-P’s long-time outside counsel? If Morgan Lewis can discover problems in only two weeks, why didn’t the other law firm ferret them out? If Wilson Sonsini did that first investigation, then Sonsini’s assertion to Perkins might be a bit disingenuous by referring to a law firm that was in fact his own.

Hurd states that all the facts related to the leak investigation may never be known because of the extensive use of outside parties. Hurd emphasized that the leaks from H-P that trigger this entire mess were a violation of the company’s ethics policy, but that cannot justify unleashing an investigation apparently subject to such little oversight that H-P says it may never know what happened. (ph)
H-P Lawyer at the Ethical Edge

September 20th, 2006

A series of e-mails involving Hewlett-Packard’s general counsel’s office have come to light that shows the important role played by the company’s lawyers, particularly its chief ethics counsel, Kevin Hunsaker. Hunsaker appears to have been responsible for oversight of the internal investigation of leaks at the company that included "pretexting" to obtain private information about a number of journalists, directors, and corporate officers. According to a New York Times article (here), Hunsaker sent an e-mail to Anthony Gentilucci, H-P’s manager of global investigations, asking how an outside private investigator obtained cellular and home telephone records used to track contacts with journalists and whether it was proper. Gentilucci responded, "“I think it is on the edge, but above board. We use pretext interviews on a number of investigations to extract information and/or make covert purchases of stolen property, in a sense, all undercover operations.” Hunsaker responded, "I shouldn’t have asked . . . ."

When the chief ethics officer at a company responds in that way, don’t you think that might indicate a potential problem with the company’s conduct? And, why would anyone — particularly a person with legal and ethics training — commit to e-mail a statement like "I shouldn’t have asked"? That is the ethics counsel’s job.

In April 2006, Hunsaker sent another e-mail to Gentilucci seeking to confirm the legality of the investigation that included obtaining the private records. The response appears to be that it is not illegal to engage in suc conduct. To this point, then, it appears that H-P’s position, as determined by its general counsel’s office, is that "pretexting" is legal. I’m not sure, however, that conclusion is entirely accurate. It may well be that "pretexting" is not illegal, in that the law is very unclear as to whether it is a crime when conducted in the manner that H-P did, rather than to use the information for another illegal purpose, such as identity theft or blackmail. But just because conduct is not illegal does not mean that it is legal. More importantly, it seems that the person charged with overseeing H-P’s ethical compliance might view obtaining private information about a person by engaging in conduct that is at least disingenuous, and potentially fraudulent, was unethical even if not illegal.

Law is not ethics, and even momentary reflection should indicate that "pretexting" is wrong when done for the reasons H-P did it. When the goal of serving the client/company’s interests becomes paramount, then viewing things as proper when they are not clearly illegal becomes the norm, perhaps even for a person charged with ethics compliance. By the way, it may be that the conclusion that "pretexting" is not illegal is flawed, which would raise an interesting "advice of counsel" issue of charges are ever filed. For those interested in an excellent legal analysis of the ethical relationship between a lawyer and outside experts, including private investigators, check out Professor David Hricik’s article, "Conflicts and Confidentiality: The Ethical and Procedural Issues Concerning Experts," available on SSRN (here). (ph)