Subpoenas, privilege, and Balco – an interesting article here in the New York Times.
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Category: Privileges
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Bloomberg News is reporting here that DOJ officials are reconsidering their practice of requesting waivers of attorney-client privilege by corporations. But it also sounds like they aren’t ready to just plain ban this DOJ practice. Instead, it may just be a baby step in this direction.
One change mentioned is to require approval from top DOJ officials before seeking a waiver from a company of their attorney-client privilege. Approvals from high level DOJ officials are common in existing DOJ guidelines. For example, using RICO requires approval, as does some actions involving international affairs. But these actions that require approval are a far cry from the present practice of disregarding a basic common law privilege.
This is the second time that DOJ would be modifying the practice, with the first time requiring merely a set practice within each USA’s office. (see here) This new step would bring the issue to a higher level, but it certainly will not alleviate the problem.
For background on this issue see here, here, here and here.
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It is not every day that a company’s most recent general counsel and corporate ethics officer assert their Fifth Amendment privilege at the same hearing, but that’s what happened at the hearing before the House Energy & Commerce Subcommittee investigating Hewlett-Packard’s internal investigation that involved "pretexting" to obtain personal records. Ann Baskins, the general counsel during the investigation who the company announced was leaving her position just hours before the hearing, and Kevin Hunsaker both refused to answer questions. Asserting the Fifth Amendment is often a ground for being terminated, particularly when the person is the general counsel, and having the company cut you off from receiving any future benefits. Moreover, the Thompson Memo (here) states that one factor in determining whether to charge a company with a crime is "whether the corporation appears to be protecting its culpable employees and agents," which can include "the advancing of attorneys fees." The recent district court decision in U.S. v. Stein, involving former partners and employees of KPMG, held that the Thompson Memo’s position on the payment of attorney’s fees is unconstitutional.
The Stein decision may have an effect on whether the government views Baskins’ separation agreement (here) with H-P as an indication of a lack of cooperation by the company. In addition to receiving unvested stock options that will be worth $1 million, the agreement contains the following language:
To the extent doing so is consistent with the exercise of my rights under the federal and state Constitutions, I agree that I will cooperate with the Company in connection with any internal investigation, and the defense or prosecution of any claim that may be made against or by the Company (with the exception of any claims that may be asserted by the Company against me), or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company, including any proceeding, civil or criminal, before any arbitral, administrative, judicial, legislative, or other body or agency, including testifying in or in connection with any proceeding, to the extent such claims, investigations or proceedings relate to services performed or required to be performed by me, pertinent knowledge possessed by me, or any act or omission by me.
The key to this provisions is that an assertion of the Fifth Amendment by Baskins does not mean she has failed to cooperate with the company in connection with any investigations. The agreement further provides that "[t]he Company agrees to indemnify me to the fullest extent permitted by the Company’s bylaws and applicable law to include but not limited to Section 2802 of the California Labor Code," and that "the Company agrees to advance Expenses actually and reasonably incurred by me in connection with any Proceeding provided I acted in good faith and in a manner I reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, I had reasonable cause to believe my conduct was lawful." Baskins’ right to receive attorney’s fees permits her to assert the Fifth Amendment and still be viewed as acting in good faith, so her invocation of the privilege against self-incrimination at the Subcommittee hearing will not affect her right to have H-P pay the cost of her lawyers, which could be considerable over the next few months.
The Stein decision took dead aim at the Thompson Memo’s statement regarding attorney’s fees, and it may be that the U.S. Attorney’s Office does not want to pick this fight again, at least not while the district court’s decision is on appeal. The government’s credibility on Capitol Hill is not all that high at the moment, so it may not want to raise the issue of attorney’s fees at this time. It will be interesting to see if the two other former H-P executives, Hunsaker and security chief Anthony Gentilucci, who asserted the Fifth Amendment have similar agreements with the company. If so, then the government could raise the issue of cooperation with H-P, although I don’t think it is a particularly strong basis on which to judge whether a company is being cooperative. (ph)
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The first panel before the House Energy & Commerce Subcommittee investigating "pretexting" by Hewlett-Packard has come and gone, and all of them asserted their Fifth Amendment privilege and refused to answer questions. Among those who asserted the Fifth were H-P’s former general counsel, Ann Baskins, who announced her resignation shortly before the hearing, former chief ethics officer Kevin Hunsaker, and former security chief Anthony Gentilucci. In addition, all the private investigators who assisted in the pretexting for H-P asserted their self-incrimination privilege.
After the dismissal of the witnesses, Rep. Joe Barton, the chairman of the full committee, said that he had never seen an entire panel take the Fifth Amendment and lamented the inability of the Subcommittee to gather information. It is clear, however, that holding a hearing while there are ongoing federal and state criminal investigations, including an assertion by the California State Attorney General that crimes took place, is almost a guarantee that witnesses who were involved in the alleged misconduct will assert their constitutional privilege before knowing where the criminal investigations are going. It may be hard for Congress to hear this, but criminal liability is much more important to a witness than what a committee or subcommittee wants to hear. For those interested in listening to the hearing, it is available on the Subcommittee website (here). (ph)
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The attention in the Hewlett-Packard investigation will turn to Congress on September 28 when a subcommittee of the House Energy & Commerce Committee grills chairwoman Patricia Dunn, general counsel Ann Baskins, outside counsel Larry Sonsini, and security manager Anthony Gentilucci. Outside private investigator Ronald DeLia, who has been linked to the "pretexting" that is the ostensible subject of the hearing, will assert his Fifth Amendment privilege (see Bloomberg story here). An article in The Recorder (here) lists the various white collar crime practitioners who have been retained by Dunn, Baskins, Sonsini, and H-P’s chief ethics officer, Kevin Hunsaker. I assume the company is paying for all the attorneys, and it is likely that some — or even all — of the other board members have retained counsel.
An interesting question will be whether Baskins, Sonsini, and Hunsaker, if he is asked to testify, will assert the attorney-client privilege in response to questions at the hearing. A New York Times article (here) quotes from an e-mail Hunsaker sent that explains the reason why he was taking over supervision of H-P’s internal investigation: "Ann Baskins has asked me to oversee the investigation into this in order to protect the attorney-client privilege in the event there is litigation or a government inquiry of some sort." Well, the government inquiry is here, and there may well be a privilege waiver already.
Even if the witnesses attempt to assert the attorney-client privilege, it is not entirely clear that Congress recognizes such a claim to prevent testimony. There have been instances in the past in which Congressional committees rejected attorney-client privilege claims on the ground that the Legislative Branch does not recognize common law privileges, as opposed to a constitutional privilege such as the Fifth Amendment. For example, in hearings related to the Ferdinand and Imelda Marcos regime, a committee recommended contempt for lawyers who asserted the privilege, although the contempt citation ultimately rested on the basis that there was no attorney-client relationship. A recent article in the American Criminal Law Review entitled "Congressional Investigations and the Role of Privilege" discusses the issues (43 Am. Crim. L. Rev. 165 (2006)). There is a chance that a broad attorney-client privilege claim by Baskins or Sonsini could trigger a move to hold either in contempt, although I expect that the parameters of their testimony will be worked out in advance.
The lawyers who will be witnesses have to be equally careful about guarding the attorney-client privilege, regardless of how Congress views its right to reject a common law privilege claim. Under California law, which covers Baskins and Sonsini, they are required to "maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client." (Cal. Bus. & Prof. Code Sec. 6068(e)(1)) It’s that "at every peril" language that could put them at risk if Congress were decide to push the privilege issue, however unlikely that may be. In their testimony, the California lawyers have to be especially careful in what they say. (ph)
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A group of former senior Department of Justice officials, including former Attorney Generals Griffin Bell and Dick Thornburgh, and former Solicitor Generals Ted Olson, Ken Starr, and Seth Waxman, sent another letter (available below) to Attorney General Alberto Gonzales asking that the Department revise the Thompson Memo "to state affirmatively that waiver of attorney-client privilege and work-product protections should not be a factor in determining whether an organization has cooperated with the government in an investigation." The letter comes in advance of a hearing before the Senate Judiciary Committee on September 12 on "The Thompson Memorandum’s Effect on the Right to Counsel in Corporate Investigations." Virtually all of the former Department officials are now in private practice, and many of their firms represent corporate clients. Moreover, two signatories, Ted Olson and Seth Waxman, were in the Department when the Thompson Memo and its predecessor, the Holder Memo, were issued. It would be interesting to learn whether they took the same position on this issue during their time in government. A Legal Times story (here) discusses the letter sent to A.G. Gonzales. (ph)
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Two reporters for the San Francisco Chronicle, Mark Fainaru-Wada and Lance Williams, have been ordered to testify before a federal grand jury about the leak of the grand jury testimony of major league baseball players who testified in 2003 about receiving steroids from Balco (Bay Area Laboratory Co-operative). Among those whose testimony reached the reporters is San Francisco Giants slugger Barry Bonds, who stated to the grand jury that he did not knowingly use steroids provided by his personal trainer who also worked at Balco. Bonds is now the target of a separate grand jury investigation into possible perjury, and the Department of Justice has also been investigating the leak for well over a year. Fainaru-Wada and Williams published the book Game of Shadows that asserted Bonds used steroids for a number of years, which apparently triggered baseball’s investigation of steroid use and may have stimulated the perjury investigation.
U.S. District Judge Jeffrey White issued an opinion (In re Grand Jury Subpoenas to Mark Fainaru-Wada and Lance Williams available below) rejecting the reporters’ assertion of a journalist privilege to maintain the confidentiality of sources, and found that the grand jury subpoenas were not "unreasonable or oppressive" under Federal Rule of Criminal Procedure 17(c). The decision to enforce the subpoenas is consistent with the decisions reached in the Special Counsel’s investigation of the leak of Valerie Plame’s identity as a CIA agent in which former New York Times reporter Judith Miller spent almost three months in jail on a civil contempt before I. Lewis Libby released her from the promise of confidentiality. See In re Grand Jury Subpoena, Judith Miller, 438 F.3d 1141 (D.C. Cir. 2006). Among those filing affidavits in support of the two reporters were former baseball commissioner Fay Vincent and well-known journalist and author Carl Bernstein.
The reporters are unlikely to testify before the grand jury and could end up in jail for civil contempt, a fate that has already befallen Bonds’ former personal trainer, Greg Anderson, who refused to testify in the perjury investigation. While Judith Miller’s source released her from the confidentiality agreement, that is probably less likely to occur here because of the substantial legal risks that person (or persons) faces. The leak of grand jury material is punishable as a criminal contempt under Rule 6(e)(7). Moreover, during the government’s investigation, it appears that all parties to the Balco case with access to the leaked grand jury testimony have stated they did not disclose it, so revealing the source of the information could well open that person up to additional charges of perjury, obstruction of justice, and making a false statement (Sec. 1001). The two reporters may be in jail for quite a while if the case is being investigated by the new grand jury empaneled in July in the Bonds perjury investigation because the civil contempt lasts for the panel’s term, which could be until January 2008 (assuming it’s not extended another six months). (ph)
Download order_denying_motion_to_quash_subpoenas_fainaruwada.pdf
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One might find voice samples being requested by the government in street crime cases, especially ones where the accused is thought to have made a threatening telephone call or a statement at the scene of the crime. But in a white collar case?
Yes, AP reports here that a judge has allowed the government to obtain voice samples from three individuals charged in the "theft of trade secrets from The Coca-Cola Co." case. This case originates when Pepsi turned over evidence to Coca-Cola that someone was trying to sell them alleged trade secrets.
In the case of United States v. Dionisio, 410 U.S. 1 (1973), the Supreme Court held that requiring a grand jury witness to produce voice exemplars would not violate constitutional rights under the Fourth and Fifth Amendments.
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The Stein case (KPMG related) has been a subject of a good number of posts on this blog. (e.g., here and here). Here is one to add to this collection, as Joan Rogers has an extremely thorough and thoughtful article in the ABA/BNA Lawyers’ Manual on Professional Conduct. The ABA and BNA have been kind enough to allow this blog to provide direct access to this article. (Download PDFArtic.pdf)
The article dissects Hon. Lewis Kaplan’s decision and provides extensive commentary on the decision. It also places it in context with happenings on this issue in the ABA and the New York State Bar Association.
The Wall Street Jrl reports here of other happenings on this case.
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In the usual case in which a grand jury issues a subpoena for documents, the recipient determines what is responsive and, if necessary, asserts any attorney-client privilege and work product protection claim by refusing to turn over the records. At that point, the ball is in the government’s court to either challenge the claimed privilege or protection, or to assert the crime-fraud exception to undermine the claim. A recent decision by the Sixth Circuit in In re Grand Jury Subpoenas 04-124-03 and 04-124-5 (here) essentially follows that model when a third party held the documents and was willing to turn them over to the government despite a privilege claim by the target of the investigation.
The investigation concerns Venture Holdings and possible looting of the company by its former owner, Larry Winget, before it went into bankruptcy. As a result of the bankruptcy, new ownership took control of Venture (called "New Venture" in the opinion), and when a grand jury investigation began regarding questionable transactions at Venture, New Venture received a subpoena for documents that it was more than happy to comply with, including waiving any corporate attorney-client privilege. At this point, Winget stepped in and claimed that records held by New Venture included documents covered by his personal attorney-client privilege. The district court accepted the government’s suggestion that a "taint team" made up of a prosecutor and investigator with no connection to the case — behind the so-called "Chinese Wall" — review the documents and determine which ones were subject to a privilege claim. Under the government’s proposal, if the taint team determined that a document was not privileged, it would go straight to the personnel assigned to the grand jury investigation without a chance for Winget to challenge that decision, at least not until after disclosure of the document.
It was this step in the process that cause the Sixth Circuit to reject the taint team and instead permit the privilege claimant to make the initial determination on the privileged nature of the documents, as if the subpoena were served directly rather than on a cooperative the third party. The court expressed some hesitation about the fairness of the proposed government review, stating:
It is reasonable to presume that the government’s taint team might have a more restrictive view of privilege than appellants’ attorneys. But under the taint team procedure, appellants’ attorneys would have an opportunity to assert privilege only over those documents which the taint team has identified as being clearly or possibly privileged. As such, we do not see any check in the proposed taint team review procedure against the possibility that the government’s team might make some false negative conclusions, finding validly privileged documents to be otherwise; that is to say, we can find no check against Type II errors in the government’s proposed procedure. On the other hand, under the appellants’ proposal, which incidentally seems to follow a fairly conventional privilege review procedure employed by law firms in response to discovery requests, the government would still enjoy the opportunity to challenge any documents that appellants’ attorneys misidentify (via the commission of Type I errors) as privileged. We thus find that, under these circumstances, the possible damage to the appellants’ interest in protecting privilege exceeds the possible damage to the government’s interest in grand jury secrecy and exigency in this case. Therefore, we reverse the district court, and hold that the use of a government taint team is inappropriate in the present circumstances. Instead, we hold that the appellants themselves must be given an opportunity to conduct their own privilege review; of course, we can presently make no ruling with respect to the merits of any claimed privilege that may arise therefrom.
Government taint teams have been used primarily in law office search cases in which documents seized are within the government’s control, and there has been quite a bit of controversy about them because the same incentives identified by the Sixth Circuit are present. While In re Grand Jury Subpoenas is a subpoena case, so the court is merely putting the privilege claimant in the same position he would have been in if the he received the subpoena directly, the court’s rationale regarding taint teams could be applied to challenges to searches involving privileged documents. (ph)
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