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As the government’s demands for waiver of privilege in white-collar prosecutions have sparked the ire of attorneys worried about the sanctity of client communications, the waiver issue in the Milberg Weiss Bershad & Schulman case is presenting an especially prickly problem. The recent announcement that a grand jury had indicted the securities class action giant and two of its partners was a triumph for prosecutors in the ongoing investigation. The government alleges that the firm paid clients more than $11 million in kickbacks to serve as plaintiffs in as many as 150 class action and derivative lawsuits. But Milberg Weiss’ case, while in some ways typical of recent corporate corruption prosecutions, also involves a key distinction-because it is a law firm-which some experts say makes the potential infringement on attorney-client communications all the more grave. “The privilege issues are much more complicated, much more expansive,” said Jonathan Polkes, a former federal prosecutor who practices white-collar defense at New York’s Weil, Gotshal & Manges. “You’re talking about a defendant that lives and dies by privilege.” The issue of waiver in what have become run-of-the-mill prosecutions against corporations has raised the hackles of both defense and plaintiffs’ attorneys. In April, American Bar Association President Michael Greco issued a statement saying that the attorney-client privilege was “under attack” by prosecutors coercing corporations to waive their protections to qualify for leniency by the government. In addition, a bipartisan group of lawmakers is considering asking the U.S. Department of Justice to change its policy of demanding waivers as evidence of defendants’ cooperation. After U.S. Attorney Debra Wong Yang in the Central District of California announced an indictment on May 18 against Milberg Weiss, the law firm in its own statement asserted that prosecutors had demanded access to communications with its counsel, Zuckerman Spaeder of Washington, in exchange for deferred prosecution. Milberg Weiss’ refusal to grant access to that communication led to its indictment, the firm said. Also indicted were name partners David Bershad and Steven Schulman. In addition, some clients serving as plaintiffs in class actions have pleaded guilty to receiving kickbacks. Last week, sources involved in the case said that a reason Milberg Weiss did not waive its privilege was because its communication with Zuckerman Spaeder involved communication and work product related to Milberg Weiss’ own clients and other attorneys. Milberg Weiss was not entitled to waive privilege with Zuckerman Spaeder because of its duty of confidentiality to Milberg’s clients, the sources said.
A Web-savvy firm Los Angeles-Before making its case in the courtroom, Milberg Weiss Bershad & Schulman took the unusual move of turning to the Web in arguing its defense before the public. Minutes after a federal grand jury returned a May 18 indictment against the New York law firm, Milberg Weiss launched a new Web site, www.milbergweissjustice.com, to post statements about the allegations, including a video message from partner Melvyn Weiss. Last week, the firm added to its site supportive comments by clients and colleagues and an assurance that its lawyers are “fully focused on representing these clients in the hundreds of cases that it has in courts across the country.” The firm also sent e-mail alerts directing recipients to its site. “This is a firm that is extraordinarily feisty and extraordinarily modern-thinking,” said Marina Ein, president of Washington-based Ein Communications, the crisis public relations firm that developed the site for Milberg Weiss. “They really have a sense of the future, and they like the idea of harnessing technology to tell their idea.” -Amanda Bronstad

In a written statement last week, a spokesman for Yang’s office said that the U.S. attorney would not comment on settlement discussions. The statement also said that “waivers of attorney-client privilege are requested in rare circumstances and only when justified by a need to obtain factual information that is not readily available through other means.” Difficult entanglement While it remains unclear exactly what caused deferred prosecution negotiations to collapse in the case, any request by prosecutors for Milberg Weiss’ waiver of privilege likely was plagued by problems. Professor Stephen Gillers of New York University School of Law said that two sets of communications-those between Milberg Weiss and Zuckerman Spaeder and those between Milberg Weiss and its class action clients-likely are entangled, which would make it difficult for Milberg Weiss to fulfill its duty of confidentiality to a client and simultaneously waive privileged communications with Zuckerman Spaeder. “It’s asking Milberg to do what it cannot do,” he said. While Milberg Weiss is free to waive its own privileged and confidential protections, Gillers said, it is not free to waive the privileged and confidential protections of its clients. Ironically, Milberg Weiss’ situation regarding deferred prosecution, as it describes it, is one that some of the companies targeted by securities class actions have confronted. Like those corporations, it is facing the powerful leverage that the government has gained in white-collar corruption cases by dangling the threat of indicting the corporation, as opposed to the individuals working for it. Practitioners and scholars point to the demise of one-time accounting giant Arthur Andersen as a seminal case. Charged, among other things, with shredding documents related to the Enron accounting fraud scandal, a criminal prosecution eventually felled the accounting firm, putting thousands of employees out of work. Since then, dozens of companies, including KPMG LLP, Computer Associates and Monsanto Co., have yielded to waiver requests and paid hefty settlements ostensibly to avoid the same fate as Arthur Andersen. But the action against Milberg Weiss in some ways is “worse” than the Arthur Andersen case, said Greenberg Traurig attorney Leslie Corwin, whose practice focuses on ethical issues and business law. In Milberg Weiss’ case, a waiver could give prosecutors access to the law firm’s strategy in pursuing its class action litigation and other details about clients’ representation, a situation that would violate “the most sacred right we have in the legal profession,” he said. “It involves the mental impressions, conclusions and legal theories of an attorney,” Corwin said. He added that the federal rules preclude prosecutors from going after such information. “Shame on them,” he said. But the option to defer prosecution is a choice, Polkes said. He acknowledged, however, the argument made by defendants that their choices are limited to waiving attorney-client privilege or risking the company’s destruction if the government pursues criminal charges. Particularly troublesome in the Milberg Weiss case, noted Polkes and others, is the difficulty the government has in parsing out a waiver request narrow enough to block out protected client communication, which theoretically could involve “every communication” between a firm’s lawyers and its hired counsel, he said. “The privilege waiver is potentially far less circumscribed,” he said, comparing Milberg Weiss’ situation to a typical white-collar investigation. Do exceptions apply? Exceptions to an attorney’s duty of confidentiality to its clients do exist, noted Gillers, with New York University. But he questions whether they would apply in Milberg Weiss’ case. A 1975 decision from the U.S. District Court for the Southern District of New York, In re Friend, 411 F. Supp. 776, held that an attorney who faced an indictment and sought a court order enabling him to reveal to a grand jury confidential documents related to the representation of a client, could do so to avoid the stigma of an indictment. But that case involved disclosure of limited information about a single client, not the wholesale waiver apparently sought here, Gillers said. In addition, the government could assert the so-called crime-fraud exception to the privilege, which would enable it to defeat a privilege claim on a case-by-case basis, if it could show probable cause to conclude that a client used the firm to commit a crime or fraud, he said. The legal troubles that Jenkens & Gilchrist of Dallas and Sidley Austin have experienced with their involvement in the sale of allegedly illegal tax shelters may shed some light on Milberg Weiss’ situation. In those cases, clients of the firms sought to block their law firms from turning over to prosecutors what they argued was privileged information. But decisions in those cases have been mixed.

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