Protecting Privilege

When Judge Lewis A. Kaplan of the Southern District of New York equated the use of the 2003 Thompson Memo to a "proverbial gun" prosecutors held to the head of accounting firm KPMG during a tax shelter investigation, he helped grease the wheels in the fight to restore attorney-client privilege.

"Those who commit crimes--regardless of whether they wear white or blue collars--must be brought to justice," Kaplan wrote in his June 2006 opinion. "The government, however, has let its zeal get in the way of its judgment. It has violated the Constitution it is sworn to defend."

Attendees at a recent Martindale-Hubbell forum titled "Managing Attorney-Client Communi-cations in a Time of Eroding Privilege" echoed Judge Kaplan's concerns about the dilution of privilege.

"If you were betting on it, you'd have to bet more often than not you're going to lose in a court in a battle to try and protect privileged documents," said forum participant Neil Lang, a partner at Sutherland Asbill & Brennan.

While Kaplan's decision and several other recent developments signify a shift in the debate over privilege, attendees stressed that corporate counsel must forge proactive strategies to protect privilege in this uncertain environment.

Sooner Than Later

Both in-house and outside counsel agreed that one of the most effective steps to avoid privilege waiver is to go to the Feds at the first hint of trouble. When a company voluntarily hands over relevant information early in the game, regulators are less likely to request full disclosure of privileged communications.

"In my experience it's better when the government finds out about a problem from you than if they find out about it themselves," Lang said. "Because if you have to start an investigation after the fact, it will be less effective."

Terence Murphy, chairman, CEO and former general counsel of MK Technology, an export controls management consultancy, agreed.

"It makes a gigantic difference if you make a voluntary self-disclosure than if the Feds get you first," Murphy said. "It's not just a matter of good practice, but it could well risk malpractice if you don't."

While providing prosecutors with access to relevant information and the company's employees may reduce the chances of a waiver of privilege, there is no bulletproof strategy. But putting these policies into place can at least tip the odds in the company's favor.

Tom Newkirk, partner at Jenner & Block, suggested that it never hurts to ask outright exactly what the agency wants immediately after self-reporting a problem. "Say, 'I'll organize the hot documents for you and give you a tour,'" he advised as a way to demonstrate complete cooperation in light of a problem.

In addition to the advantages of self-reporting potential problems, another means to avoid a waiver of privilege is to hire outside counsel at the onset of an investigation because courts tend to perceive work done by outside counsel as purely legal advice, which is entitled to privilege protection. In contrast, courts are more likely to characterize documents prepared by in-house counsel as business advice, which is not protected.

"In the minds of judges and prosecutors, there is a distinction between inside and outside counsel," Newkirk said. "Judges in particular are far more respectful of material that's provided through outside counsel, rather than what's generated by inside counsel."

Accidents Happen

But beyond striving to maintain the privilege, attendees also agreed it's essential to have a strategy in place in case a privileged document accidentally falls through the cracks.

"Inadvertent disclosure is by its very definition a mistake," said Alexander Thomas, a partner at Reed Smith. "And mistakes happen."

The biggest problem with inadvertent disclosure is that many courts use the slip-up to conclude the privilege was involuntarily waived. However, in making this determination, courts will first look at what counsel has done to safeguard confidential information. That means in-house counsel will have to convince the judge that the company took reasonable precautions to protect the accidentally disclosed information and followed all proper policies such as separating legal advice from business advice.

"Consistency is important," Thomas said. "If you can get the judge to understand you have all of these policies in place, you observed them as much as you could, you acted reasonably and yet still this inadvertence happened, then you have a better chance of recovering."

In-house counsel also have a better chance of recovering privileged documents if they are labeled as such.

"When you're in front of a judge, the first thing they are going to look for is did they identify this as privileged communication," said Matt Sheldon, partner at Reed Smith. "Courts like to help those who help themselves."

One way a company can do that is by vigilantly separating business and legal advice. While labeling documents as legal opinion is an old strategy, it still helps demonstrate to a court that you care about protecting a given document.

Privilege Pendulum

While courts continue to sort out the waiver issue, the DOJ took a voluntary step back on Dec. 12 with the McNulty Memo. Drafted by Deputy AG Paul McNulty, the memo suggests prosecutors should seek approval from the deputy attorney general before asking for a waiver of privilege.

In addition Sen. Arlen Specter recently introduced a bill called the Attorney-Client Privilege Protection Act of 2006, which would prohibit prosecutors and government agencies from demanding privilege waivers when investigating a company and prevent them from taking waiver into account when assessing a company's cooperativeness.

The status of these proposals, though, is unclear--forcing in-house counsel to continue to proceed under the assumption that prosecutors will continue to aggressively ask corporate counsel to turn over privileged documents.

"There are no guarantees in this world," Lang said, "but putting best practices in place makes your odds a

little better."

Staff Writer

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