EFTA01128846.pdf

Volume 10, Number 10 • November 2003 Ten Tips for Court-Imposed Waiver of the Joint-Defense Handling Sensitive Privilege Investigations By Jacqueline C. Wolff and Alan Vinegrad Practical Advice You Need ost defense attorneys enter into joint-defense agreements with the under- in the Sarbanes-Oxley Era standing that even if one of the signatories decides to withdraw from the agreement and cooperate with the government, the confidentiality provi- By Robert W. Tarun sions survive. Such agreements routinely include language like this: "In the event that any client ... engages in negotiations or enters into any agree- The Enron, Tyco and WorldCom ment with any third party that is in any respect ... inconsistent with the continued scandals have greatly heightened sharing of information under this Agreement, such client shall be deemed to have the fiduciary duties of directors withdrawn from this Agreement and shall refrain from disclosing to the third party and officers and the scrutiny paid any joint-defense materials. to them. The spotlight on corpora- No attorney who has entered into this Agreement shall be disqualified from cross- tions and their managers is likely examining any client to this Agreement ... because of ... [this] Agreement; howev- to shine brightly for years to er, nothing herein shall permit any attorney to cross-examine another attorney's come. This article offers ten prac- client utilizing any joint-defense material contributed by that client." tical tips for handling sensitive Two recent decisions — by the Eleventh Circuit and the Northern District of investigations in an era where California — have called provisions like these into question: United States LI. shareholders, prosecutors, regula- Almeida, 341 F.3d 1318 (11th Cir. 2003); and United States v. Stepney, 246 E Supp.2d tors and courts are likely to scruti- 1069 (N.D. Cal. 2003). Any defense attorney who is considering entering into such nize the response of organizations an agreement should think twice — especially if some party may choose, down the to inevitable episodes of suspect- road, to cooperate with the government. ed corporate misconduct. For years it has been well established that "a joint defense agreement cannot be L Consider whether an out- waived without the consent of all parties to the privilege" since allowing unilateral side law firm with little or no waiver "would 'whittle away' the privilege? United States U. Weissman, 1996 WL relationship to the company 737042 at *26 (S.D.N.Y. Dec. 26, 1996) (emphasis added); In the Matter of Grand will better serve the objectives fifty Subpoena Duces Tecum Dated November 16, 1994, 406 E Supp 381, 394 ofan independent investigation (S.D.N.Y. 1975). Further, "a waiver by one party to a joint defense agreement does In matters potentially implicit not waive any other party's privilege over the same communications." Securities ng senior corporate executives Investor Protection Corp. v. Stratton Oakmont, Inc., 213 B.R. 433, 436 (S.D.N.Y. the Board of Directors or Audit continued on page 5 continued on page 2 In This Issue We're Online! Business Crimes Bulletin Court-Imposed Waiver now has its own Web site. of Me JointiDelense Features include: Privilege 1 Ten Tips for • Searchable archives handling Sensitive • calendar of Events ktuesiigations 1 • current and past issues by article or in hill PDF format State Proceedings • Feedback on articles and Confidentiality • Subscription management Agreements with the Federal Government 3 Visit us at Business Crimes www.ljnonline.com/ Bulletin 7 alm?buscrimes SlVDICIONad InTheCourts 8 EFTA01128846 Joint-Defense Privilege to prepare a coherent defense to this continuedfrom page I massive case. In order to ensure that Business Crimes 1997). The only exception is when each Amendment of the defendants' rights were protected, Sixth sao PUBLISHER Malone A. Weiner the parties subsequently become the court ordered that any joint - ASSOCIATE PUBLISHLR Sala PADS. adversaries in litigation. Id. Even then, defense agreements would have to CHAIRMAN OF EHE BOARD Richard M. Cooptr Williams /*Connolte .1 the waiver is only as to each other. be memorialized in writing and sub- Washington. DC 57224477DN OAKMONT mitted for in camera review. EDITORIN.CHIEF /thus Nits ASSOCIATE EDITOR Bradley I. Bondi In Stratton Oakmont, the govern- The agreement provided that any MANAGING EDITOR Wendy Kaplan Ampohl signatory could withdraw at any ART DIRECTOR draw C. OWelll.Barke ment argued that it was entitled to GRAPHIC DESIGNER Tools E Ilancila joint-defense material because the par- time, each signatory accepting the BOARD Of EDITORS ties to the joint defense agreement risk that his or her attorney might MANTLES. AMEN Arlda balm A Coln ILI' became adversaries in a subsequent then he conflicted out of represent- New York ION IS. BISHOP Assonance of (knelled litigation. The court rejected the gov- ing him or her at trial. The court rec- Toed Examiners ognized that in this type of multi - Aratin.IX ernment's argument, stating the fact MICHAEL E. CUSS Hamel Hawn AClrk 511' that the signatories had be -tome adver- defendant case, deals with the gov- Houston ALAN M COHEN OSklinra It Myas saries did not mean that the "rest of ernment could occur at any time for New York the world suddenly becomes entitled any number of defendants and axu.n A IEFIU Williams ft Connolly ILP Washington. DC to privileged intbrmation." Id. at 438. enforcing disqualification could cre- isMONS. IEID boos Machin Zals Roraima. Under the standard no -waiver pro- ate a revolving door of attorneys Chicago kr Kr I. CRIITRA IR. • •Stillinn 6 Cromwell IIP vision, a client runs the risk of hav- leading to adjournments and preju- New York dice to all parties. Were one party to HINNUTT) W. GOLDSTEIN hid. Frank Hurts ing his or her attorney disqualified Shrives A Dalkon because of an inability to use joint - testify for the government, all the New York TAMEST GRAHAM lerno. Day. Sans a IN.N. defense information during cross- remaining defense attorneys could Wahiawa 1W examination. Nevertheless, courts be disqualified. jgraLICSON M. GM Irastruat M.:Mang Baltimore have generally not second-guessed The court also rejected the stan- RfIVEYEGPIEN Sidaftustra Munn lealtad IIP the client's assumption of this risk. dard provision in which the signato- Wallington. 1W MICHAEL TOIREALL Mentrinoti Trail 6 Emery Potential defendants are so disadvan- ries simply agree not to use joint - Boston taged vis-a-vis the government in defense information to crass-exam- MAIDS LANG riga A Mckenzie Wallington. 1W evidence -gathering that the risk of ine a party who withdraws from the ROHM) H. LUNE AMES SAktit PC. potentially lasing one's lawyer is agreement. "This method of waiving PhilsdelPhis IRVIN It NATHAN WPM St Ironer small compared with the risk of not conflict ... stands in tension with the Wallington. 1W ROBERT PLOTEN Paul. Hating,. lofty having the facts with which to pre- general principle that where an attor- Walker OP pare an effective defense. Indeed, at ney has actually obtained confiden- Wallington. DC STEVEN f. RUCH Marla Mips ti least one court has even deemed the tial information relevant to her repre- Not Toth acceptance of this risk tantamount to sentation of a client, the law pre- IOSEPfl E MACE It Tots. Ilunvitt It Thibeendi lip Sandra a waiver of any conflict. United States sumes she cannot avoid relying on ROPTII W SARIN Liam 6 Watkins LIP v. Anderson, 790 F. Supp. 231, 232 the information — however indirect- Chloral TUSTIN Is THORNTON hart Pactke) (W.D. Wash. 1992). ly or unintentionally — in forming Wallington. 1W STANLEY A. IWARDY. „ Ray. Deny 6 Hoard. ALP THE STEPNEY AND ALMEIDA CASES legal advice and trial strategy." 246 Stamlold CI The Stepney and Almeida deci- ESupp.2d at 1085. Instead, the court, LAURENCE A. URGESSON Xinfand A film Warthington. 1W sions, however, chart a very different citing the ALI-ABA model joint - GREGORY I. W1LLACE Kam Sehola, Daman course. Both cases held that when a defense agreement, ruled that any Haase Handler. LIP New York party to a joint -defense agreement signatory who withdraws from a JACQUELINE C. NOM •Cortraltot1a Burling testifies on behalf of the government, joint -defense agreement and testifies Not York MICHAEL T zurAW Iltloitte Touche that party may be cross-examined may be crass-examined with any Washington. DC with statements he or she made pur- material he contributed to the joint suant to the joint -defense agreement. defense and that joint -defense agree- Susumu Coate Bulletin* (ISSN I090.117) is published by law Journal trawntletrk a dhltron od NIKIICAll Laren Motet In Stepney, the government charged ments "must contain" a provision 0 2001 NIP IP Comport. All rights usenet No rcptoducuon rd ant ponkm of this issue is allowed Millar samisenm almost 30 defendants in a series of specifically waiving confidentiality hum the publitha Telephone. indictments with 70 counts, including should a signatory choose to testify. Editorial email Cinulation pmtil participation in a street gang. Defense Almeida involved two parties to a counsel, some of whom had never &Wilt's, ennui Bulletin 16100D-245 joint -defense agreement, one of larradotals Pause Mating ris Philadelphia, IN met prior to the indictments, entered whom decided to cooperate with the POSTWASILII: Sold address dungy to: into joint-defense agreements to try Amplest. lags Media government. At trial, the attorney for lot? III( Blitl *Wile 1730. Phihdelphite PA 19103 the non -cooperating defendant Aarad SobserMtion: SATS Jacqueline C. Wolff and Alan sought to crass-examine the coopera- Vinegrad are members of the White Puhlithof Monthly by: tor with statements he made during lam:Journal Narakiten Collar Defense Practice at Covington : 617 ralt Boulevard. Suite 1710, PNIactelphla, Pa 19101 & Burling, New York. continued on page 6 wpm lintsnline emu 2 sawsv luormline cusrmalmtrusgiimtra Ninertims Taos EFTA01128847 State Proceedings sure of McKesson HBOC's work prod- third party, and intends only to effect uct to former employees who were a limited waiver as to the Office with and Confidentiality under indictment. respect to the Subject Documents While federal courts are snuggling only ... The Office agrees to maintain Agreements with the with the tension between cooperation the confidentiality of the Subject Federal Government and confidentiality, the state of Documents in the manner provided Oklahoma indicted VirotidC.om despite by Rule 6(e) of the Federal Rules of By Avl S. Garbow the company's cooperation with the Criminal Procedure with respect SEC and U.S. Attorney in New York. to the documents and testimony pro- When management or the Board of The trend toward parallel state pro- vided to a grand jury, and the Office Directors suspects passible miscon- ceedings means that federal courts will not disclose the Subject duct within the company, they can- may be powerless — absent new pre- Documents at any time, except (1) ... not respond with sound business emptive legislation — to protect confi- the Office agrees to make the Subject judgment unless they have good dentiality in return for cooperation Documents available to SEC repre- information about what happened. In with federal prosecutors and agencies. sentatives only in the event that the serious cases, they probably need Wort:Dam AND MCKESSON: SEC enters into a confidentiality outside counsel to investigate, report, agreement with counsel to the CRACKS IN 'DIE ARMOR and recommend remedies. The gov- Committee regarding the Subject On June 12, 2002, Cynthia Cooper, ernment has long encouraged com- Documents; and (2) to the extent the a WorldCom vice president for inter- panies to disclose the results of these Office, in its sole discretion, deter- nal audits, informed the chairman of internal investigations by offering the mines that disclosure is required by its Audit Committee about the series hope of leniency in charging or sen- law or court order; such as, for exam- of questionable transfers during 2001 tencing. On Sept. 22, 2003, the ple, pursuant to Rule 16 ... or 118 and 2002 that would grow into a S.3.8 Attorney General added a "stick- to billion accounting scandal. Within 2 U.S.C. SI 3500." (Oct. 9, 2002 letter this -carrot" approach when he fmni Charles Davielow (Wilmer) to weeks, WorldCom announced that it announced the Justice Department's had retained Wilmer Cutler & David Anders (USAO/SDNY)) new policy of charging the most seri- Pickering to conduct an independent (emphasis added).) ous criminal offenses that are readily internal investigation. "The Staff will maintain the confi- provable, with a limited exception in The company president published dentiality of the Confidential MateriaLs cases where a defendant provided an open letter to President Bush pursuant to this agreement and will substantial assistance. not disclose them to any third party, affirming WorldCom's commitment to While companies frequently elect to working with the federal investigators, except to the extent that the Staff disclose to the federal government and its Chairman of the Board similar- determines that disclosure is otherwise under these, and related, policies, ly pledged his cooperation before the required by law or would be in fur- whether or not third parties can get therance of the Commission's dis- House of Representatives' Financial the information disclosed to the gov- Services Committee Hearing on July 8, charge of its duties and responsibili- ernment is a rapidly evolving open 2002. The Wilmer team agreed to ties." (Oct. 10, 2002 letterfrom Charles question. The key issue in this debate Davidow to SEC) ((emphasis added).) allow government investigators to be is a company's ability to predict, and present during some of their employ- SUPBOENA DUCKS TECUM in actuality to control, the ultimate dis- ee interviews, and also agreed to cer- Wilmer Cutler & Pickering issued its persion of its confidential information tain governmental requests to limit internal investigative report (here- once disclosed to the federal govern- the scope of their inquiries (or in inafter "WorldCom Report") on March ment. In In re: WorldCom, Inc. some cases, not to interview certain 31, 2003, and WorldCom's Board pub- Securities Litigation, 02 Civ. 3288 persons). The Special Investigative licly released it on June 9, 2003. Less (DLC) (S.D.N.Y.) (WorldCom), one Committee of WorldCom's Board than 2 weeks later, Arthur Andersen, a district court recently adopted a agreed to provide certain interview party in the WorkICom civil fraud United States Attorney's Office (USAO) memoranda and the underlying col- actions — in the Southern District proposal creating tiers of disclosure of lection of documents to both the U.S. of New York, served a subpoena the company's work product. In U.S. v. Attorney's Office in the Southern continued on page 4 Bergonzi, et al, No. 03.10024 (9th Go District of New York and to the SEC. (McKesson), the United States and the LAW JOURNAL NEWSLETTERS These agreements, the terms of which cooperating corporation appealed the REPRINT SERVICE were memorialized in a series of let- lower court's decision to order disclo- Reprints of this article or any other artide ters, specified: published by LAW JOURNAL NEWSLETTERS -By agreeing to produce the are available in bulk quantities Avi S. Garbow, a former federal prosecutor and an associate in Hale Subject Documents, the Committee Call Syndia Torres at or does not intend to waive any protec- e-mail and Dorr LLP's Washington, DC, fora free quote. office, has a complex civil litigation tion of the work-product doctrine or Reprints are available in paper and PDF format. and white-collar practice. the attorney-client privilege as to any Nantrixr 2033 BUMACW Crime. 111111Clill EFTA01128848 State Proceedings MCKESSON'S CONFIDENTIALITY York, who was "disappointed that we AGREEMENTS were not told that charges were immi- continuedfrom page 3 nent as we have enjoyed a coopera- McKesson aLso involved the creation duces tecum upon Wilmer essentially and disclosure of an internal investiga- tive relationship with the Attorneys seeking all documents, including tive report. Soon after McKesson General of other states." After fully drafts and attorney notes, related to HBOC publicly disclosed accounting cooperating with the federal agencies the WorldCom Report. Wilmer refused irregularities uncovered by its auditors, and disclosing its Report pursuant to to comply with the subpoena. Arthur the company's Audit Committee confidentiality agreements, WorldCom Andersen moved to compel produc- retained Skadden, Arps, Slate, Meagher now faces its first criminal charges tion, arguing that WorldCom waived & Flom to conduct an independent arising from the scandal. any attorney-client privilege or work internal investigation. McKesson Oklahoma was not alone. New product protection by publicly entered into confidentiality agreements Mexico hired Milberg Weiss LIP to announcing its intention to release the with the SEC and the United States handle a trio of securities fraud law- Report, by allowing government Attorney for the Northern District of suits against WorldCom and its former investigators to participate in its inves- California containing terms nearly executives seeking over $80 million, tigation, and by disclosing the materi- identical to those in WorldCom, and and other states including West al to the government. Bernard Ebbers, pledged to turn over a copy of its inter- Virginia, Oregon, Alabama, and a defendant in a pending related crim- nal investigative report (the "McKesson Arkansas are waiting in the wings. inal action, joined the motion, adding Report') and back-up materials. This parallel enforcement activity that disclosure was required by Rule comes on the heels of a new SEC and Jay Gilbertson and Albert Bergonzi, 16 and Brady v. Matyland, 373 U.S. state joint enforcement initiative former executives of HBOC, were 83 (1963). The U.S. Attorney and the indicted and moved under Rule 16 announced by SEC Chairman William S.E.C. joined Wilmer in opposing the Donaldson on Sept. 14, 2003. This and Brady to compel production of motion primarily on the basis of the cooperative enforcement initiative is the McKesson Report. McKesson existence of confidentiality agree- presumably responsible for the nearly intervened and opposed production ments governing the disclosure. simultaneous announcements on on the grounds that the Report and Shortly thereafter, the U.S. Oct. 28, 2003 by the SEC and the Interview Memoranda were protected Attorney's Office obtained the con- Commonwealth of Massachusetts by the attorney-client privilege and sent of Arthur Andersen, Ebbers, and of civil fraud charges against the work product doctrine. Judge WorldCom to a proposed resolution Putnam Investments. Significantly, Jenkins granted the defendants' of the pending motion to compel. Chairman Donaldson noted that in motion to compel. See US v. Bogonzi, Specifically, the parties agreed to: "1) the past 2 years, the SEC's Division of 216 F.R.D. 487 (N.D. Cal. 2003). a rolling, tri-part production of the Enforcement has granted more than McKesson appealed, and later Wilmer documents, pursuant to a 250 requests from state and local gov- appealed a similar order obtained at confidentiality agreement and protec- ernment entities for access to the the request of subsequently indicted tive order, and 2) a staggered sched- SEC's investigative files. defendants. The appeals were con- ule for depositions, which would The proliferation of state causes of solidated, and briefing is to be com- allow certain depositions to proceed action will shift the debate over confi- pleted on Jan. 30, 2004 under the forthwith but also ensures that (a) dentiality to the state courts, where terms of a pending status report. depositions of the defendants are the common law may hold the privi- stayed (at least) pending production ThE OKLAHOMA INDICTMENT leges waived or destroyed notwith- of mast of the Wilmer documents, While the parties in WorldCom and standing any confidentiality agree- and (b) Government witnesses are McKesson were briefing the discover- ment approved by a federal district not deposed until they have testified ability issue regarding their respective court. Moreover, the confidentiality at any criminal trial." (Sept. 4, 2003 internal reports, Oklahoma Attorney agreements entered into in Wodeltom letter from William Johnson and General Drew Edmondson approved and McKesson, for example, arguably Meredith Kotler (USAO/SDNY) to the State criminal charges against permit disclosure to states that elect to Hon. Denise L. Cote). WorldCom, Inc. and several of its for- prosecute their own securities actions, Judge Cote gave her imprimatur to mer executives. Edmondson's office particularly if such state actions are this ad-hoc compromise, which provided no advance notice of the couched in terms of a joint initiative served the government's parochial charges to the federal investigative with the federal government. Whereas interests in its criminal case, team already assembled in the the federal government may seek to but failed to safeguard WorldCom's WorldCom matter, and he explained retain the ability to disclose in certain potential long-term interest in his decision to file criminal charges circumstances, companies should, at a confidentiality or advance the law against WorldCom by calling the minimum, preserve their interests by toward a solution of the recurring record $750 million WorldCom civil requiring notice of any third party conflict between protecting confi- settlement "totally inadequate." The requests for confidential information dentiality and cooperating with law charges drew the immediate ire of enforcement. U.S. Attorney James Comey in New continued on page 8 4 www 1ponline convalmixoctime. tiotvitha NO3 EFTA01128849 Ten Tips Sarbanes-Oxley Act of 2002 (the Act) on the facts of each situation. See broadened the reach of obstruction of Webb, Tarun and Mob, Corporate continuedfrom page 1 justice statutes. See 18 U.S.C. Internal Investigations, S 11.03 (Law Committee should consider whether 1519 (2002). To ensure that the cor- Journal Seminars Press 2003). counsel conducting investigations poration and its employees are not In the Sari-Ames-Oxley era, stake- should be from a law firm that the investigated or prosecuted for holders and government agencies company regularly uses as outside obstruction of justice, counsel in an may view an oral report with skepti- counsel or that derives a material investigation should take prompt cism in the wake of serious allega- amount of revenues from the compa- steps to secure and preserve relevant tions of corporate misconduct. A writ- ny. For example, in the Enron case, original documents. In tran.snational ten report better assures that the com- the firm had collected more than $100 investigations, counsel should careful- pany, the board of directors and rele- million in legal fees from Enron, and ly consider whether the transfer of vant committees will undertake a full its partners had provided legal advice documents from their original location review of the issues, understand the in the transactions it later investigated. will provide jurisdiction over docu- prescribed legal advice, and imple- Issues of independence and self-inter- ments that would not otherwise exist. ment recommended remedial action. est clouded the credibility of the law Documents kept out of the jurisdic- 7. Assume any written report firm's internal investigation. tion must still be preserved since the may ultimately be released to the If there is a serious question inferences that would he drawn from public whether the outside law firm or the spoliation are invariably disastrous. Counsel must take all steps to pro- investigation counsel in that law firm 4. Make clear to employees that tect the privileged nature of a report, will have the necessary objectivity investigating counsel do NOT rep- the underlying interviews, other factu- and independence, the better course resent them al investigation and legal research. is to retain an experienced law firm Many employees mistakenly believe Still, counsel should assume that in with minimal or no historic relation- that interviewing counsel represent the current prosecutorial, regulatory ship to the company or management. their interests during investigation and shareholder climate, any written 2. Carefully define the scope of interviews. Counsel must give Upjohn report will be released at some the investigation at the outset. warnings to officers and employees, point to government agencies or The client (the corporation, the making clear the nature and purpose parties other than the client. The Board of Directors or Audit of the investigation, whom counsel "Federal Prosecution of Business Committee) and investigating counsel represents (ie, the corporation and not Organizations" policy (Department of must take great care to define the the officer or employee), the privi- Justice: January 20, 2003) states that scope of the investigation at the out- leged nature of the interview, and one of the nine factors in reaching a set of the engagement. If the scope is who retains the privilege (ie, the cor- decision as to the proper treatment of drawn too narrowly, stakeholders and poration). Otherwise, there is a clear a corporate target is the corporation's government authorities will dismiss risk of litigation over use, waiver and timely and voluntary disclosure of the purpose, objectivity and use of the admissibility of interview statements. wrongdoing and its willingness to report, or later criticize any failure to Memoranda of interviews should cooperate in the investigation of its review possible misconduct that was reflect the Upjohn preamble that inves- officers and employees, including, if outside the narrowly drawn scope. If tigating counsel have provided to necessary, the waiver of corporate drawn too broadly, an investigation interviewees. attorney-client and work product pro- can be aimless and continue indefi- 5. Ensure that investigating coun- tection. The Commentary to this nitely with no meaningful benefit to sel avoid or at least minimize pub- important policy provides that certain the client. The client mandate should lic statements about the internal factors may be weighted more or less be reduced to writing and allow for investigation than others depending upon law expanding or redefining the investiga- Investigating counsel conduct enforcement priorities. Prosecutors tion if unforeseen issues arise. internal investigations in order to and regulators have been increasingly 3. Promptly take steps to secure provide confidential legal advice to aggressive in seeking written reports all relevant documents. clients. If counsel or the client makes of corporate investigations, and coun- Many corporate internal investiga- public statements about the investi- sel should anticipate this passibility tions arise at a point when a govern- while conducting an investigation and gation, courts may conclude that it ment inquiry or investigation is preparing a written report. was motivated by business necessi- known, imminent or probable. The ties and public relations and is not a Understand that a report should be written for multiple Robert W. Tarun, a former Executive privileged. See In re Kidder Peabody audiences. Assistant U.S. Attorney in Chicago, is a Securities Litigation, 168 F.R.D. 459, Given the likelihood that a written partner at Latham tic Watkins LIP, 465-455 (S.D.N.Y. 1996). report may ultimately reach the where he concentrates on commercial 6 Keep in mind that a written public, counsel should draft it with litigation, corporate internal investiga- report will in many cases be great care and with all potential tions and white-collar criminal defense. appropriate. audiences in mind. Stakeholders of a He has conducted investigations in 25 Whether a company is best served states and 30 foreign countries. by a written or oral report will turn continued on page 6 Nown*cr t033 Human: Csimm 5 EFTA01128850 Joint-Defense Privilege edged that "in light of