Letter From The President Of The New York City Bar Association

2007-12-01 00:00

To The Readers Of The Metropolitan Corporate Counsel :

The attorney-client privilege has been under attack for some time and the City Bar Association has recently responded to several violations of this bedrock principle. Earlier this year, we criticized the government's attempt to deny access to counsel for detainees at the Guantanamo detention facility. More recently, and in a completely different context, we objected to the federal government's interference with the attorney-client privilege when it pressures companies and other organizations to waive their privilege as a condition of cooperation during investigations by the government into corporate fraud. In seeking a legislative solution to this serious problem, the City Bar supports passage of the Attorney-Client Privilege Protection Act of 2007 (U.S. Senate Bill 186).

The issue was the focus of two recent decisions in the KPMG tax shelter case in the Southern District of New York. In that case, Judge Lewis Kaplan found that the government coerced KPMG to cut off or fail to pay defendants' legal fees provided under the accounting firm's partnership policies and stressed that if KPMG wished to be deemed cooperative and avoid indictment as an entity, it had to sever all ties with the target employees. Judge Kaplan held that such tactics, deployed under the authority of the Thompson Memorandum, were violations of the individual employee's Fifth and Sixth Amendment rights. The Thompson Memorandum set forth the Department of Justice's policies regarding charging decisions by prosecutors in corporate fraud prosecutions.

Judge Kaplan's decision illustrates the "culture of waiver" that has permeated investigations by the government and the pressure a company faces to forgo protections of the attorney-client privilege. The "culture of waiver" seriously undermines the confidential attorney-client relationship in the corporate community. Thus employees have reason to suspect that anything said to a company attorney can and will be used against them, either by their employer, or potentially, a prosecutor. As a result, individual employees may refuse to say anything at all. In turn, internal corporate investigations, which aim at detecting possible wrongdoing and encourage employees to comply with the law, may be wholly unsuccessful.

Recently, the Justice Department attempted to remedy certain provisions of the Thompson Memorandum that encouraged prosecutors to make routine demands for waivers. The resulting McNulty Memorandum, issued in December 2006, made certain changes that are a step in the right direction but do not ultimately obviate the need for a legislative solution to the problem of compelled waivers. The McNulty Memorandum still allows prosecutors to force companies to take punitive actions against their employees in return for cooperation credit, including the potential demand that a company terminate individual employees. More important, the Memorandum continues to encourage companies to "voluntarily" waive their attorney-client privilege and work product protections in return for cooperation credit and less harsh treatment. By doing so, the Memorandum does not actually relieve the enormous pressure companies now feel to waive the privilege even when their waiver is not explicitly demanded. Thus, while prosecutors may not explicitly require waivers from companies as they did previously, companies continue to be under pressure to waive "voluntarily" in order to obtain cooperation credit. The request for a waiver remains implied and the "culture of waiver" has not abated.

We support the proposed legislation because it would take the issue of privilege waive off the table entirely and would end government consideration of whether or not a corporation has advanced legal fees to its employees. In addition, the legislation would prohibit a federal prosecutor from pressuring any company to disclose confidential information protected by the privilege. Equally important, it would prohibit federal prosecutors from pressuring companies to refuse to contribute to the legal defense of an employee or enter into a joint defense. In addition, prosecutors could not pressure employers to terminate or discipline an employee for exercising his or her constitutional or other legal rights. Finally, the legislation would also apply to other entities that investigate companies, including the Securities and Exchange Commission and the Internal Revenue Service.

The proposed legislation would strike the proper balance between effective law enforcement and the preservation of attorney-client protections. Clearly, the legislation could accomplish what no memorandum or court decision has done up to this point: eliminate the climate of implied waive and change the culture that was created and continued by the Thompson and McNulty Memoranda respectively. Finally, it would restore the attorney-client privilege to its rightful place in the legal firmament.


Barry Kamins