Get Out of Jail Free? Not Without The Attorney-Client Privilege

MonopolyWe have talked about attorney-client privilege, internal investigations and the GM ignition recall: Privilege, Corporate Silence and Saul Goodman,  How To Avoid Being GM’ed: The Wrongs and Rights of Clients and Lawyers and It’s Okay To Smell A Rat: Internal Investigations, Attorney-Client Privilege and the KBR Decision.

There was even a quote in Forbes.com: Of Snitches and Privileges.

And if you can’t get enough, now a short (16 minute) presentation to the Network of Trial Law Firms meeting in October:

How To Avoid Being GM’d from LFW on Vimeo.

 

 


Of Snitches and Privileges

500 Pearl Street and white-collar crime

500 Pearl Street and white-collar crime

White-collar writer Walt Pavlo of @Forbes and 500 Pearl Street quotes us this morning in his insightful @Forbes article about the attorney-client privilege.  In particular:

Federal prosecutors want to know who knew what, and when [about the GM ignition-switch problem].  However, GM’s lawyers and former lawyers are bound, like all lawyers, to uphold the attorney-client privilege.  A privilege clients enjoy with their lawyer to openly discuss matters with the assurance that their comments will not be disclosed to others.  While the media, Congress and the general public may want an individual(s) held accountable, that information should not come from GM’s lawyers who have been intrusted with confidential information.

Every defense attorney knows more than any judge, jury or prosecutor will ever know about their client.  That is a cornerstone of how our adversarial justice system works.  We have a right to an attorney and we disclose everything to that attorney trusting that we will be treated fairly by justice.  Can you imagine a trial where an attorney testifies against her own client?  Neither can I.  Corporate lawyers charged with compliance have a client also, the company.

“The purpose of the attorney-client privilege is to find out the truth, to openly discuss truth, to encourage the client to openly discuss the truth with his or or her lawyer,” according to white-collar defense attorney Jack Sharman of Lightfoot, Franklin, White LLC.   “At the back end of our justice system, at trial,” he continued, “there’s no doubt that the privilege restricts the availability of some information, some of which is important, but the privilege encourages candor at the front end.”

Having covered a few white-collar trials I can tell you that legal motions by both prosecution and defense lawyers to suppress trial evidence are as common as moths around a porch light.  In those cases,  getting to the truth at trial is a bit tougher since the incentive is to win, not necessarily to discover the truth.  So what good is truth at the front end?

“Your duty as a lawyer is to the client only, whether that is a company or an individual.” Sharman, who also has more of his own views on the GM fallout, said.  “When a lawyer tells the client that the information they are disclosing is protected, then that provides an environment, an incentive, for the person to speak the truth.”  While that “truth” may not be disclosed, it may be acted upon.  “If an employee tells a company lawyer that they have seen something inappropriate or unlawful, that does not prevent the lawyer from speaking up within the organization,”  Sharman said.  Perhaps this did or did not happen in the GM case but the internal report by Anton Valukas found no intentional cover-up at the company and the release of that information disclosed more truth about the case than had been previously disclosed.   So truth has its place and the privilege of confidentiality promotes speaking up rather than hindering it.

Read the full Forbes article here: The Role Of Lawyers In Compliance Should Not Include Snitching.


Privilege, Corporate Silence and Saul Goodman

"This attorney-client privilege issue gives me a headache."

“This whole attorney-client privilege issue gives me a headache.”

We are past Labor Day, and just as well.  Marked by the GM internal-investigation report’s criticism of some of the company’s internal lawyers, the summer was not kind to internal lawyers generally and to the attorney-client privilege particularly.  Consider, for example, the FCPA Blog‘s note on how life is tough for internal counsel.

Even more notably, there is apparently a federal criminal investigation of GM that includes the conduct of the lawyers:

Prosecutors could try to charge current and former GM lawyers and others with mail and wire fraud, the same charges Toyota faced, said a former official who worked on the Toyota case. But, they would need to have clear proof that the employees knew the cars were faulty and then deliberately withheld that, the former official said.

The investigation could be hindered by attorney-client privilege, according to legal experts, but that privilege can be waived by GM or pierced by a “crime-fraud” exception that allows disclosure of information intended to commit or cover up a crime or fraud.

The notion of privilege has taken a beating in recent weeks, as shown in a New York Times “Dealbook” article (Keeping Corporate Lawyers Silent Can Shelter Wrongdoing) by Steven Davidoff Solomon, a professor of law at the University of California, Berkeley:

[U]nless a whistle-blower steps forward, the [attorney-client privilege] principle remains strong. Despite the widespread involvement of its legal staff, General Motors successfully invoked the privilege to help keep silent on the ignition scandal it eventually faced. Even the Justice Department changed its guidelines in 2008 to remove a provision that penalized companies for invoking the privilege.

The result is that companies have a great incentive to shift anything hinting at legal trouble to their in-house counsel to ensure that it is protected from disclosure. The in-house legal department thus becomes the “cover-up and damage control” arm of the company.

. . . .

Is it time to cut back privilege or even end it to prevent companies from hiding corporate crimes?

And, here’s further commentary from Lucian E. Dervan at the White Collar Crime Prof blog, focusing on the Delaware Supreme Court opinion in Wal-Mart Stores, Inc. v. Indiana Electrical Workers Pension Trust Fund IBEW,Del. Supr., No. 614, 2013 (July 23, 2014): Privilege, Corporate Wrongdoing, and the Wal-Mart FCPA Investigation.

It’s enough to make a law-abiding internal lawyer (and even the supporting-cast outside counsel) feel like Walter White’s lawyer, Saul Goodman, in Breaking Bad:

What’s to be done?

Here are my thoughts in 140 seconds:

We have written on GM and the privilege before: How To Avoid Being GM’ed: The Wrongs and Rights of Clients and Lawyers.  In particular:

It is by no means inconceivable that bills will be introduced seeking to impose, in GM-like situations, a Sarbanes-Oxley style “reporting” requirement on internal lawyers (or outside counsel, or both), coupled with a “private attorney general” concept and whistleblower bounties.  As in the SOX, internal-investigation world, if the matter is sufficiently serious, you may need two law firms: one firm that does an investigation and prepares a report that we all know will end up in the hands of the Government, and one firm that provides advice to the company (or the board, or a committee of the board) and over whose work we hope to maintain privilege.  We have addressed internal investigations and related problems before.

Indeed, it is instructive to compare the anti-privilege sentiment in its most pitchfork version with the recent decision of the D.C. Circuit in the KBR matter, which was a resounding reaffirmation of privilege in the internal-investigation context.  As we pointed out in It’s Okay To Smell A Rat: Internal Investigations, Attorney-Client Privilege and the KBR Decision:

It is noteworthy that the D.C. Circuit clarifies the rule such that it applies in all contexts: civil, criminal and administrative.  The attorney-client privilege is, to some degree, in derogation of the search for the truth, at least in the first instance.  Yet, lawyers learn things from clients that the lawyers then do not have to reveal because we believe that, on balance, “truth” is ultimately best served in an adversarial system by a tool that encourages clients to tell their lawyers the truth.

This is an often overlooked point.  Frequently, clients do not tell lawyers the whole truth, at least the first time a discussion arises. This is particularly the case in criminal representations, but it is not uncommon in the civil arena.  Sometimes, this reticence arises from a client’s knowledge of his, her or its wrongdoing, and a concomitant desire to hide or destroy evidence.

More often, however, that initial reticence arises from much more innocuous sources: embarrassment, shame, misunderstanding, fear of losing a job or worry about how superiors or colleagues might react.  In those contexts, it is the privilege itself that is most solicitous of the truth, and allows the truth to eventually out.

In fact, if you do smell a rat, sometimes there is all the greater need to speak in confidence:

The attorney-client privilege has engendered debate ever since its first articulation, and that debate is healthy.  We should not let the urgency of news items, however, obscure the broader good that the privilege can serve.  There are many things that, in our adversarial system, the Government does not get to know about my clients.  We could change the system to a more inquisitorial structure, but such a move goes against a host of cultural and constitutional mindsets that, however imperfectly, have preserved individual liberties, property rights and the rule of law for a long time.  There are few professional prospects more pleasant for a prosecutor or a regulator than an opportunity to strip you of the ability to speak in confidence to your lawyer.

As well-stated by Saul Goodman:


How To Avoid Being GM’ed: The Wrongs and Rights of Clients and Lawyers

A general malaise?

A general malaise?

The GM internal-investigation report  about ignition-switch problems raises a host of issues, one of which is its unusually sharp criticism of GM internal lawyers.  Criticism of lawyers is nothing new, of course.  Lawyer-jokes always blame lawyers; lawyers’ spouses frequently blame lawyers; clients sometimes blame lawyers.

But public reports drafted by lawyers infrequently blame lawyers, so this one merits attention, most especially by internal lawyers in large organizations; by the outside counsel who serve them; and by the businesspeople who are the true clients.

 

What are the key takeaways?

The Normal, Uneasy.   Skim the report.  (Just skim it — it’s too long to read cover to cover without heroin.  If you have heroin, you have other issues besides ignition recalls and attorney ethics).  On a practical, professional level, what’s your reaction?

One reaction is, Not much.  It is remarkable how normal the actions of GM’s outside counsel and internal lawyers seem, and how characteristic of the operation of large organizations that are at once diffuse, sprawling and “siloed” (to use the term du jour).  Anybody who works in or serves a large organization will recognize the course of events, the mis-allocation (or absence) of resources, the personal dynamics and the outcomes described the GM report.  Despite expressions of editorial shock and Congressional indignation, the lawyer-narrative laid out in the GM report is, in many important ways, more normal than aberrant.

 

Advising on this quarter's numbers.

Advising on this quarter’s numbers.

The Uneasy Normal, Uneasier.  Prepare for a change in the public perception — and, perhaps, in regulation — of commonplace concepts of attorney-client privilege and the general confidentiality of lawyers’ work.  Prepare also for a coordinate change in internal-lawyers’ reporting obligations within the corporation.  Perceptions of  lawyers are mixed, and we should generalize with caution, but jury consultants regularly note the suspicion and distrust with which lawyers are viewed —  especially lawyers for big companies.  Elsewhere, we have explained how laypeople see corporate counsel as mob lawyers.

 

 

Preparing for summer hearings.

Preparing for summer hearings.

Summertime, and the Congressional Livin’ Is Easy.  Congress is composed of laypersons who are political animals and who are no great respecters of privilege and confidentiality.  As a former oversight-and-investigations lawyer for a House committee, I can testify: summer is the high season for O&I hearings.  Nothing is going on legislatively, O&I hearings don’t require lobbyists or constituents, it is hot as hell but most House and Senate hearing rooms have good air-conditioning these days and, if you get some hearings under your belt in June and July, you’ll have plenty as a Member to talk about in your district or state.

It is by no means inconceivable that bills will be introduced seeking to impose, in GM-like situations, a Sarbanes-Oxley style “reporting” requirement on internal lawyers (or outside counsel, or both), coupled with a “private attorney general” concept and whistleblower bounties.  As in the SOX, internal-investigation world, if the matter is sufficiently serious, you may need two law firms: one firm that does an investigation and prepares a report that we all know will end up in the hands of the Government, and one firm that provides advice to the company (or the board, or a committee of the board) and over whose work we hope to maintain privilege.  We have addressed internal investigations and related problems before.

[Full disclosure moment: My law firm does a lot of products-liability work, all of it on the defense side (that is, on behalf of the people who make the products that allegedly cause the complained-of injury).  We are not involved in the matters described in the report, but we have in the past represented and continue today to represent automotive manufacturers.  I do little products work; the primary way I judge a car is by its air-conditioning.  Nevertheless, consider my biases as you read].

 

Doubts about who the client is?

Doubts about who the client is?

A change in the way we view lawyers and their roles.  We may be faced with an evolving re-definition of that law school chestnut: Who is the client?  Is the client now the Government?  This is a critical threshold question. In the narrative laid out in the GM report, the “client” of the internal lawyers and of the outside counsel is not the government, or a government agency or a regulator.  The client is not the buyer of a GM car or the passenger in a GM car.  The client is not a Member of Congress, an editorial writer or a blogger.  The lawyer — at least while she or he is acting as counsel — owes a duty only to the client, a client which, in this situation, is a non-natural person called a “corporation.”

Professor Peter Henning is generally right on the money with regard to white-collar matters, but he jumps the gun when he so quickly blames lawyers in this kind of situation:

 

In the aftermath of the savings and loan scandal, Judge Stanley Sporkin asked how a once-prominent financial institution could engage in a pattern of misconduct. “Where were the professionals when these clearly improper transactions were being consummated?” he asked.

For General Motors, the negligence and incompetence that resulted in at least 13 deaths and multiple injuries from a faulty ignition switch is equally troubling. Numerous lawyers were on the scene, but none took responsibility for making sure their client did not continue to keep defective cars on the road.

Most people, when they pay for a lawyer, want that lawyer to be their lawyer and not someone else’s.  Indeed, that concept of loyalty is a foundation of the conflict-of-interest rules (rules, by the way, far more demanding than what is considered normal in the marketplace).  Under current law and rules, and with few exceptions, lawyers internal and external have neither a duty nor a warrant to serve multiple masters simultaneously.  The most relevant provision is Rule 1.13  (“Organization As Client”) of the ABA Model Rules of Professional Conduct, which are restrictive about what a lawyer representing an organization may and may not reveal.

Even the “reporting up” obligations, which are limited, are focused on the client:

If a lawyer for an organization knows that an officer, employee or other person associated with the organization is engaged in action, intends to act or refuses to act in a matter related to the representation that is a violation of a legal obligation to the organization, or a violation of law that reasonably might be imputed to the organization, and that is likely to result in substantial injury to the organization, then the lawyer shall proceed as is reasonably necessary in the best interest of the organization. Unless the lawyer reasonably believes that it is not necessary in the best interest of the organization to do so, the lawyer shall refer the matter to higher authority in the organization, including, if warranted by the circumstances to the highest authority that can act on behalf of the organization as determined by applicable law.

This question is distinct, of course, from what is wise, merciful or sane from a business or spiritual standpoint, and one could make an argument that losing track of the ignition problem was “likely to result in substantial injury to the organization.”  But if the question is, Where were the lawyers?, the answer is, They were right there.

 

A file too far.

A file too far.

A Forest-and-Trees Cliche.  In future litigation, if wholesale problems still get lost in the retail landscape, they will imperil your job.  If the GM report is accurate, there was never a genuine “visibility” problem about the ignition switch.  “Visibility” was not the problem.  “Irritability” was the problem.  Lawyers tend to deal with the irritant at hand; they put out the fire first that is closest and hottest.  They are trained to do so — first in law school, by “spotting issues” instead of looking at a scenario as a whole, and then in private practice, with the demarcation of work into mostly fenced-off fields (called “cases”) and of compensation into fractions of time (called “tenths of an hour”).  In addition, for internal lawyers, a combination of too many demands, insufficient resources and a corporate focus on the monthly or the quarterly has the same grinding effect.  An in-house friend, a accomplished lawyer at a large corporation with a good reputation, says that her only criticism of her job is that she never — ever — has time to actually think.

So what, as a practical matter, can we do — internal lawyers, outside counsel and businesspeople?

Grow Real Ethics.  There is no substitute for actual ethics, opposed to consultant-thick compliance programs and ever-muddied regulation.  We have written on the compliance versus ethics problem before.

Senior Citizens Unite.  Older lawyers – internally and externally — have to speak up.  Young lawyers lack professional and financial traction, as noted in at least one instance in the GM report.

 

Team A v. Team B

Team A v. Team B

Be A Spook.  When faced with “serial” litigation, try the CIA Team B approach of pitting two teams — one internal, one external – against each other on the same topic or issue.  (Outside law firms are useful for this exercise, if there is money in the budget).  As a way of addressing the Soviet strategic threat, Team B has had many critics, but alternative, competitive thought is always worth considering (and is always more expensive).

Misery Loves Company.  Outside lawyers are proficient at CYA.  Consider ways to put your outside law firms more firmly on the ethical hook.

 * * * *

Without the right budget and the right approach, none of this may matter, but give it some thought.  By itself, the fact that we all believe that we are serving our clients won’t keep us from getting “GM’ed.”