The Fifth Amendment, Vicarious Liability, and the Attorney Client Privilege; How Cooperation and Waiver Can Leave Your Corporation Exposed
Emergency Envelopes, Volume 1, Issue 1
November 2005
© Copyright 2005. All rights reserved, Emergency Envelopes, Volume 1, Issue 1
Imagine you are a criminal defense attorney representing a client, Jane Doe. She receives a federal grand jury subpoena seeking her appearance for both testimony and various personal documents, including any home computer e-mails she may have relating to certain financial transactions. What are her options?
One option is that you can inform the prosecutor that, if called before the grand jury, Doe will assert her Fifth Amendment privilege against self-incrimination, and that she will refuse to turn over any personal documents for the same reason. A second option is for you to call the prosecutor and negotiate an arrangement in which Doe will sit for an interview with the federal prosecutor and any agent working on the investigation. In return for this voluntary interview, the prosecutor will agree not to use any of the information disclosed in that interview against Doe (qualified immunity). This "queen for a day" arrangement, however, still allows the government to follow-up on any leads and use what was said for purposes of impeachment.
Now imagine that this is the route that you have recommended to your client. On the day that your client is "queen," you show up at the United States Attorney's Office for an interview. After several hours of questioning, the prosecutor then says to your client, "I appreciate your cooperation by coming in today and voluntarily speaking with us. But in order to better understand the information you have provided to us, and fully understand why you made the decisions you did, I am going to ask that you agree to waive the attorney-client privilege, produce all correspondence with your lawyers, and tell me what they said to you about these transactions."
Sound crazy? It is. But this is precisely what is done with respect to corporations.
Waiver of the attorney-client privilege became a national issue in 1999 when then-Deputy Attorney General Eric Holder issued a policy memorandum to all federal prosecutors entitled "Bringing Charges Against Corporations." This memorandum became known as "The Holder Memo." In it, Holder set forth a number of factors that federal prosecutors should consider when contemplating whether to criminally charge a corporation. This policy document was revised and replaced by a January 20, 2003 memorandum by Larry D. Thompson, the Deputy Attorney General under John Ashcroft, entitled "Principles of Federal Prosecution of Business Organizations," that following tradition came to be known as "The Thompson Memo." Although the two memos are substantially similar, this article focuses on the Thompson Memo, as it is the DOJ policy currently in effect.
The Thompson Memo explains that "[g]enerally, prosecutors should apply the same factors in determining whether to charge a corporation as they do with respect to individuals." This policy statement goes on, however, to note that "due to the nature of the corporate ‘person,' some additional factors are present," including "[t]he corporation's timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents, including, if necessary, the waiver of the corporate attorney-client privilege and work-product protection."
The Thompson Memo discusses at great length why a waiver may be necessary. For instance, it states that "a corporation's cooperation may be critical in identifying the culprits and locating relevant evidence." It further points out, "[i]n some circumstances, therefore, granting a corporation immunity or amnesty or pretrial diversion may be considered in the course of the government's investigation." While the Memo states that waiver of the privilege is not required, it may be necessary in "appropriate circumstances."
Unbelievably, there is no guidance given on what those appropriate circumstances might be and it is left to the discretion of local decision-makers as to how to proceed. Indeed, the description of how waivers can be helpful would arguably apply in every federal investigation: "[s]uch waivers permit the government to obtain statements of possible witnesses, subjects, and targets, without having to negotiate individual cooperation or immunity agreements. In addition, they are often critical in enabling the government to evaluate the completeness of a corporation's voluntary disclosure and cooperation." Reading between the lines, the Memo can easily be interpreted to mean that there is no case in which seeking a waiver is not appropriate. At minimum, federal prosecutors are being given the message that "it never hurts to ask."
Although the Thompson Memo reiterates that corporations are not to be treated any more or less harshly than individual targets, the DOJ's current policy pronouncement has different impacts on corporations and individuals. A corporation, in a legal sense, is more vulnerable than a two-legged defendant for at least two important reasons: (1) an organization has no Fifth Amendment privilege against self-incrimination; and (2) an organization is vicariously liable for the actions of its agents. The attorney-client privilege is one of the few areas in which an organization has comparable rights with individual targets.
Vicarious Liability Subjects Corporations to a Broad Spectrum of Criminal Liability
Corporations, as fictitious entities, are vulnerable to all the acts of their employees under the doctrine of respondeat superior. The Supreme Court first held, in 1909, that a corporation could be held criminally liable for the acts or omissions of its agents. 1 Vicarious liability attaches when an organization's agent (1) acts within the scope of his employment; and (2) benefits the corporation. 2 A corporate entity can easily find itself subject to criminal vicarious liability. It can be held liable for the conduct of any employee or agent, not just those in positions of authority. 3 A corporation can also be liable for the acts of its subsidiaries' employees and agents. 4 Despite a corporation's liability being dependent on the conduct of its employees and agents, corporations can still be found guilty even if its agents were acquitted of the same offense. 5 Corporations also can be held liable for acts of their employees that were done against company orders. 6
Corporations also find themselves exposed to criminal liability based on the "collective knowledge" doctrine. This doctrine holds a corporation accountable for the collective knowledge of its employees, even if no one employee held all of the knowledge required to satisfy a "knowing" element in a criminal offense. As one court explained: "[A] corporation cannot plead innocence by asserting that the information obtained by several employees was not required by any one individual who then would have comprehended its full import. Rather, the corporation is considered to have acquired the collective knowledge of its employees and is held responsible for their failure to act accordingly." 7 While this article does not address the propriety of the collective knowledge doctrine, there is no question that it subjects corporations to criminal liability where there is literally no one in the organization that ever intended to commit a crime. 8
The bottom line is that there are a number of ways that a corporation could find itself facing potential indictment and not all of them involve clear-cut situations of "corporate greed" or "executive misconduct" demanding prosecution. While there may be instances in which a prosecutor could wisely exercise discretion and decline to bring charges against a company based on the isolated actions of an employee, these situations do provide a prosecutor with leverage in that "technically," the corporation could be prosecuted if it did not "cooperate." 9 But what if by "cooperate," the prosecution insisted that the company waive the privilege with respect to not just the rogue employee's conduct, but also related to a company procedure that the company does not believe is illegal? Truth be told, there are probably very few companies that are absolutely free from any threatened criminal prosecution when one considers the standard for criminal vicarious liability. But does that make it appropriate for prosecutors to essentially extort cooperation from those corporations in the form of an attorney-client privilege waiver? Clearly not. But the Thompson Memo provides for no means to prevent such practices. As the next section illustrates, vicarious liability exacerbates a corporation's vulnerability because the corporation lacks any Fifth Amendment protection.
The Fifth Amendment Protection Against Self-Incrimination for Individuals
In pertinent part, the Fifth Amendment to the United States Constitution requires that "no person . . . shall be compelled in any criminal case to be a witness against himself . . . ." 10 Even before it ever became a part of our Constitution, the right against self-incrimination was essential to our collective sense of justice. While there are several reasons we hold the right against self-incrimination to be a legal core value, there is no single, clearly articulated justification that explains why we hold the concept so dear. Many of the reasons that have been articulated can be reduced to two central themes: first, a concern for personal integrity and privacy; and second, protecting individuals from the power of the government. To overcome these concerns, the government can grant immunity to a witness for giving testimony or producing documents. Otherwise, the individual retains the Fifth Amendment privilege against self-incrimination even when providing incriminatory evidence.
The Fifth Amendment privilege extends beyond oral testimony. It also applies to the production of documents, but it functions differently when it comes to documentary evidence than when testimonial evidence is at issue. Documents are often requested by a subpoena duces tecum, the tool by which a grand jury can compel testimony and the production of documents when it is investigating a potential crime.
Whether or not any Fifth Amendment protection attaches to an individual's production of documents pursuant to a subpoena involves an analysis under the act of production doctrine. Developed in Couch v. United States, 11 Fisher v. United States, 12 and Andresen v. Maryland, 13 the doctrine ignores the proprietary aspects of documents. Instead, the act of production doctrine queries whether there will be testimonial aspects of handing over the documents, for which immunity must be granted. While people are no longer protected "against compelled production of preexisting materials that are incriminatory in content," they are protected against incriminating inferences that can be drawn from the act of producing them. 14 "Compliance with [a] subpoena tacitly concedes the existence of the papers demanded and their possession or control by the [target of the investigation]." 15
Producing documents alone does not violate the Fifth Amendment when the accused turns them over, unless the accused is impliedly admitting something incriminating by producing them, or providing the government with evidence it would not have otherwise obtained. In either case, the government must provide immunity. 16 Most recently, the Supreme Court explained in Hubbell v. United States, 17 that the act of producing self-incriminating documents has a compelled testimonial aspect worthy of Fifth Amendment immunity. 18 In short, the primary thrust of Hubbell was that the Fifth Amendment protects a witness from being prosecuted for crimes discovered only through the documents that were turned over. 19 It is clear that the Fifth Amendment continues to protect natural persons from their own self-incriminatory documents.
The Fifth Amendment Protection Against Self-Incrimination in the Corporate Context
Corporations do not receive the protection of the Fifth Amendment's self-incrimination clause. Beginning at the turn of the 20th century, in the seminal case of Hale v. Henkel, 20 the U.S. Supreme Court decided that corporations could not invoke the protections of the Fifth Amendment because these organizations exist at the pleasure of the state and for the public good. That rationale, however, has subsequently been re-placed by an understanding that corporations do not represent any individual person. Thus, the self-incrimination clause, which prevents a witness from testifying against him or herself, does not apply to the corporation. Despite this shift in the underlying theory, the law is consistent: corporations do not receive self-incrimination protection.
The Corporation's Only Shield: The Attorney-Client Privilege
The dual curse of vicarious liability and a lack of a Fifth Amendment privilege forces corporations to rely almost exclusively on the attorney-client privilege as their primary source of protection against an overreaching government. The attorney-client privilege is one of the oldest protections for all criminal defendants. 21 It is deeply rooted in the common law — even Federal Rule of Evidence 501 states that "the privilege of a witness . . . shall be governed by the principles of common law as they may be interpreted by the courts of the United States in the light of reason and experience." 22
From its early beginnings in English common law to its use in current American legal arenas, the attorney-client privilege has been based on a long-standing principle that this privilege is "in the interest and administration of justice." 23 Generally considered "absolute" unless waived by the client, the "attorney-client privilege may well be the pivotal element of the modern American lawyer's professional functions." 24 And its protection is much stronger than the work-product doctrine, which can be overcome by a showing that "relevant and non-privileged facts remain hidden in an attorney's file and where production of those facts is essential to the preparation of one's case." 25
Consider the following. Corporation INC, a privately-held company, is served with a subpoena seeking information about INC's CFO (Jane Doe) and certain allegedly fraudulent transactions. In the course of an internal investigation, INC discovers that Ms. Doe did, in fact, make certain improper transactions on the company's behalf. INC fires Jane Doe, conducts an internal investigation, and expresses a desire to cooperate with the government to put this problem behind the company. The government, however, claims that in the spirit of cooperation INC must provide it with the internal investigation to determine if there is any other wrongdoing.
Under the government's view of cooperation, corporations must help the government catch "the bad guys." Presumably, if the corporation is cooperating, there is at least one "bad guy." But does that always mean the corporation and the government agree who the "bad guys" are or how many there are? What if INC believes that the former CFO is a "bad guy," but concludes that there are no additional "bad guys" to be caught with respect to the fraudulent transactions? Just because the government takes a different view, does that mean there are additional "bad guys" to be caught?
It is highly unlikely that there would be any need for this debate (or criminal defense attorneys for that matter) if guilt and innocence were always clear cut. The vast majority of cases, however, especially in the corporate context, lie on a spectrum somewhere between guilt and innocence. The behavior at issue "is often difficult to distinguish from the gray zone of socially acceptable and economically justifiable business conduct." 26 It is precisely because of this "gray area" that defense attorneys need the freedom to investigate, research, hypothesize, and, ultimately, argue its defense to the government without a penalizing affect to the client. The question of whether there in fact are more "bad guys" is complicated by the Thompson Memo's insistence on a "timely" disclosure in order to obtain credit for cooperation. "Inherent in this approach is that the prosecutor's initial view of the case must be accepted as fact and not be opposed by counsel for the individual or corporation; to do so is to act at the client's peril." 27
Over the last several years, the government has asserted that cooperation is only requested when a corporation has already admitted to doing something wrong. Soon-to-be former Deputy Attorney General James Comey has publicly stated that, "[one] must remember that waiver of the [attorney-client] privilege is voluntary and may only be necessary if the corporation chooses to cooperate in order to obtain leniency from the Government and/or the Court." 28 But obtaining leniency from the government and/or the court seems to imply that the corporation has conceded that it did something wrong. That may not be necessarily true. Often, a corporation has only admitted to doing something the government thinks is wrong. In these instances, a corporation may be willing to cooperate with the government, but it may also still believe that the law does not apply to the facts as the government contends. For instance, INC and the government may not disagree on the facts, but they do disagree on whether the facts violate the law. In these instances, is it still fair for the government to request a waiver? Should the corporation suffer for protecting itself?
In this situation, however, INC cannot get credit because according to DOJ policy statements, "for a corporation to get credit for cooperation, it must help the Government catch the crooks." 29 There also appears to be disagreement on what constitutes a waiver. In an illustrative example outlined by Deputy Attorney General Comey involving a $1 billion accounting error, he hypothesizes that the company "will immediately provide a briefing on what they have learned and will bring in all the witnesses the government will need to figure out exactly what happened." 30 Comey gives this as an example of where the company would still obtain leniency, despite no waiver. 31 But how is that considered "no waiver?" Indeed, Comey explains: "[c]ooperation doesn't just mean complying with subpoenas. It means — and I hate to sound like a broken record — telling the Government what the corporation knows about what happened, who did it, and how they did it. In short, we expect cooperating corporations to help us catch the bad guys." 32 Yet telling the government this information will likely entail the corporation's attorney disclosing what she learned in an internal investigation — unquestionably privileged information.
In these times, when the citizenry is willing to hand over additional power to our government in the hopes of more security, it is paramount that we be vigilant in ensuring that that power is not abused. Numerous commentators are warning about various prosecutorial abuses. Darryl K. Brown stated that, "[t]he criminal justice system is flawed not only because of the particular form and affects of its political responsiveness, but also because prosecutors have essentially no formal external checks on their discretion." 33 In a corporate criminal setting, the prosecutors' power is enhanced by the fact that companies oftentimes make decisions based on business realities. In other words, corporations are not likely to use their shareholders' money to fight on account of the "principle of the matter," even if the company has a solid legal defense. In many instances, it makes more business sense to plead to something, pay a fine, and put the matter behind so that the company can focus on the future and protect shareholder value, rather than subject the corporation, its employees, suppliers, shareholders, and customers to the chaos that a criminal investigation engenders. This business reality does little to deter prosecutors from resorting to overkill approaches; indeed, it may encourage them.
Among the means of preventing (perhaps minimizing is the more realistic goal) the potential for prosecutorial overreaching is maintaining the sanctity of the attorney-client privilege. It allows those suspected of committing a crime to speak freely and obtain advice from competent counsel. This article is not intended to belabor prosecutorial excesses. Instead, the implicit presumption underlying current DOJ policy is that federal prosecutors always act responsibly. Experience has shown that this presumption is false — and the consequences are having far reaching negative effects on one of the most venerated principles of American jurisprudence and on corporations across the country.
1.. New York Cent. & Hudson River R.R. Co. v. United States, 212 U.S. 481, 495 (1909).
2.United States v. Jorgenson, 144 F.3d 550, 560 (8th Cir. 1998); United States v. McDonald & Watson Waste Oil Co., 933 F.2d 34, 42 (1st Cir. 1991).
3.. United States v. Joselyn, 206 F.3d 144, 159 (1st Cir. 2000); United States v. Hangar One, Inc., 563 F.2d 1155, 1158 (5th Cir. 1977).
4.. United States v. NYNEX Corp., 814 F. Supp. 133, 139 (D.D.C. 1993).
5.. Standard Oil Co. of Texas v. United States, 307 F.2d 120, 127 (5th Cir. 1962).
6.. United States v. Hilton Hotels, 467 F.2d 1000, 1004 (9th Cir. 1972); United States v. Basic Constr. Co., 711 F.2d 570, 573 (1983); United States v. Cadillac Overall Supply Co., 568 F.2d 1078, 1090 (5th Cir. 1978).
7.. United States v. Bank of New England, N.A., 821 F.2d 844, 856 (1st Cir. 1987) (quoting United States v. T.I.M.E.-D.C., Inc., 381 F. Supp. 730, 738 (D.C. Va 1974)).
8.. In addition, a corporation may be held liable for misprision, the offense of concealing and failing to report a crime, which is a crime in and of itself. Title 18 of the United States Code, Section 4 states that "[w]hoever, having knowledge of the actual commission of a felony cognizable by a court of the United States, conceals and does not as soon as possible make known the same to some judge or other person in civil or military authority under the United States, shall be fined under this title or imprisoned not more than three years, or both."
9.. See Timothy Stoltzfus Jost & Sharon L. Davies, The Empire Strikes Back: A Critique of the Backlash Against Fraud and Abuse Enforcement, 51 Ala. L. Rev. 239, 258 (1999) (among the primary grievances of healthcare providers are prosecutors that "impose, or at least threaten, enormous and punitive fraud and abuse sanctions for trivial offenses.").
10.. See Akhil Reed Amar & Renee B. Lettow, Fifth Amendment First Principles: The Self Incrimination Clause, 93 Mich. L. Rev. 857, 860-98 (1995) (describing the interpretation of the Fifth Amendment's language, particularly "person," "compelled," "any criminal case," and "witness").
11.. 409 U.S. 322 (1973).
12.. 425 U.S. 391 (1976).
13.. 427 U.S. 463 (1976).
14.. Thomas Kiefer Wedeles, Note: Fishing for Clarity in a Post-Hubbell World: The Need for a Bright-Line Rule in the Self-Incrimination Clause's Act of Production Doctrine, 56 Vand. L. Rev. 613, 623 (2003); Fisher, supra note 12 at 411 (immunity applies unless the existence of the documents is a "foregone conclusion" such that their production will not add anything to the government's case).
15.. Fisher, supra note 12, at 410.
16.. Id. 18 U.S.C. §§ 6002-6003 (2002) (immunity). Statutory immunity provisions must provide, at the minimum, immunity coextensive with the right itself. Kastigar v. United States, 406 U.S. 441, 448 (1972).
17.. 530 U.S. 27 (2000).
18.. Id. at 44.
19.. Id. at 44-45.
20.. 201 U.S. 43 (1906).
21.. See American College of Trial Lawyers, The Erosion of the Attorney-Client Privilege and Work Product Doctrine in Federal Criminal Investigations, Approved by the Board of Regents, March 2002, at 4 (citing 8 John Henry Wigmore, Evidence in Trials at Common Law § 2290, at 542 (McNaughton Rev. 1961)).
22.. Fed. R. Evid. 501; see also Upjohn Co. v. United States, 449 U.S 383, 389 (1981).
23.. Hunt v. Blackburn, 128 U.S. 464, 470 (1888). See also American College of Trial Lawyers, The Erosion of the Attorney-Client Privilege and Work Product Doctrine in Federal Criminal Investigations, Approved by the Board of Regents, March 2002 at 4 (citing 8 John Henry Wigmore, Evidence in Trials at Common Law § 2291, at 545-49 (quoting decisions from the 1700s and 1800s that expound on the importance of the privilege)).
24.. American College of Trial Lawyers, The Erosion of the Attorney-Client Privilege and Work Product Doctrine in Federal Criminal Investigations, Approved by the Board of Regents, March 2002 at 5 (quoting Geoffrey C. Hazard, Jr., An Historical Perspective on the Attorney-Client Privilege, 66 Cal. L. Rev. 1061, 1061 (1978)).
25.. Hickman v. Taylor, 329 U.S. 495, 511 (1947).
26.. United States v. U.S. Gypsum Co., 438 U.S. 422, 441 (1978). See also Pamela H. Bucy, Indemnification of Corporate Executives Who Have Been Convicted of Crimes: As Assessment and Proposal, 24 Ind. L. Rev. 279, 293 (1991) (explaining that various rules and regulations create "a gray area between legal and illegal conduct.").
27.. American College of Trial Lawyers, The Erosion of the Attorney-Client Privilege and Work Product Doctrine in Federal Criminal Investigations, Approved by the Board of Regents, March 2002 at 2.
28.. "Interview with United States Attorney James B. Comey Regarding Department of Justice's Policy on Requesting Corporations under Criminal Investigations to Waive the Attorney Client Privilege and Work Product Protection" in the November 2003 United States Attorneys' Bulletin at p.3.
29.. Id. at 2.
30.. Id.
31.. Id.
32.. Id.
33.. Darryl K. Brown, Cost-Benefit Analysis in Criminal Law, 92 Calif. L. Rev. 323, 331 (2004).
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