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The latest example of the federal government’s increasingly aggressive tactics in the investigation and prosecution of corporate misconduct is demonstrated by the recent position taken by the U.S. Department of Justice in U.S. v. Alaska Brokerage International Inc., No. CR-06-11 (W.D. Wash. filed Jan. 17, 2006). There, the government argued that statements made by an employee and co-defendant of Alaska Brokerage International Inc. (ABI) during a government interview-which ABI’s counsel did not attend-could be introduced against ABI as admissions. The court ruled in the government’s favor, thereby allowing the government to offer, in its direct case, critical evidence of ABI’s guilt consisting of out-of-court statements of an ABI employee who had previously received notice of his impending termination. As a result, corporate defense attorneys must now re-evaluate the risks of allowing the company’s employees to be interviewed by the government, particularly if the government is seeking to conduct those interviews outside the presence of corporate counsel. In January 2003, then-Deputy Attorney General Larry P. Thompson issued a memorandum to U.S. attorneys setting forth guidelines for the investigation and prosecution of business entities, and directing “increased emphasis on and scrutiny of the authenticity of a corporation’s cooperation.” Memorandum from Larry D. Thompson, Deputy Attorney General, to Heads of Department Components, United States Attorneys (Jan. 20, 2003), www.usdoj.gov/dag/cftf/corporate_guidelines.htm. In assessing the adequacy of a corporation’s cooperation, prosecutors are encouraged to weigh whether the corporation “waive[d] the attorney-client and work product protections” so as to “permit the Government to obtain statements of possible witnesses, subjects, and targets, without having to negotiate individual cooperation or immunity agreements.” The Thompson Memorandum provides that prosecutors may request such waivers “in appropriate circumstances.” It also directs prosecutors to consider whether the corporation has given employees the “direction to decline to be interviewed,” considering that to be “conduct that impedes the investigation.” Additionally, prosecutors are to consider whether “the corporation appears to be protecting its culpable employees and agents” by the “promise of support to culpable employees and agents, either through the advancing of attorneys’ fees, through retaining the employees without sanction for their misconduct, or through providing information to the employees about the Government’s investigation pursuant to a joint defense agreement.” Against the backdrop of the Thompson Memorandum, the government frequently requests that corporations under investigation produce employees for interviews. In some instances, prosecutors attempt to conduct such interviews outside of the presence of company counsel. Although companies focused on earning cooperation “credit” under the Thompson Memorandum often acquiesce in such interviews, the Alaska Brokerage case suggests that the risks in doing so may be greater than generally assumed. The interview at issue U.S. v. Alaska Brokerage International Inc. arose from an investigation of ABI by the Antitrust Division of the U.S. Department of Justice. ABI was a New York corporation-and, according to court filings, a wholly owned subsidiary of Alaska Finance and Trading Ltd., a corporation organized under the laws of Gibraltar-engaged in the business of fur pelt trading. The president and director was Peter Bartfeld. ABI and David Karsch, ABI’s sole employee, were indicted on charges of conspiracy to restrain trade in violation of the Sherman Act, 15 U.S.C. 1, based on alleged bid-rigging at a February 2004 pelt auction. After both Karsch and ABI were indicted, Karsch’s counsel advised the government that Karsch was prepared to plead guilty. Defendant Alaska Brokerage’s Motion to Suppress November 2005 Statements by Defendant David Karsch, at 3 (W.D. Wash. filed April 6, 2006) (No. CR-06-11). The government insisted that Karsch first provide a proffer about the facts and circumstances relating to the auction. Karsch agreed to be interviewed by the department pursuant to a letter agreement providing that the United States would not use Karsch’s statements against him, except in certain limited circumstances, but that “the United States may use directly or indirectly any of the statements [Karsch made] in connection with the prosecution of any other individual or legal entity.” Declaration of Randall Thomsen in Support of Defendant Alaska Brokerage’s Motion to Suppress November 2005 Statements by Defendant David Karsch, Ex. 4 (W.D. Wash. filed April 14, 2006) (No. CR-06-11). Karsch’s interview took place on Nov. 22, 2005, one week after Karsch received a letter from ABI advising him that he would be terminated from his employment with ABI, effective on Dec. 31, 2005. ABI Motion to Suppress, at 2. While Karsch was represented by personal counsel during the interview, ABI’s counsel was neither informed about the interview nor given the opportunity to attend. During the interview, Karsch admitted to the bid-rigging allegations charged in the indictment. Declaration of Randall Thomsen, Ex. 5. Thereafter, the government moved to have Karsch’s statements admitted against ABI, pursuant to Federal Rule of Evidence 801(d)(2)(D). Memorandum in Support of the Motion in Limine of the United States for an Order Permitting the Use of Admissions Made by Defendant David Karsch Pursuant to Federal Rule of Evidence 801(d)(2)(D) (W.D. Wash. filed April 4, 2006) (No. CR-06-11). Rule 801(d)(2)(D) provides that an out-of-court statement is admissible as nonhearsay if it is “a statement by the party’s agent or servant concerning a matter within the scope of the agency or employment, made during the existence of the relationship.” Fed. R. Evid. 801(d)(2)(D). The government contended that Karsch’s statements concerned a matter within the scope of his employment: Karsch was the company’s sole employee and an officer of ABI, and the bid-rigging took place before and during a pelt auction in which Karsch participated on behalf of ABI. Government Memorandum in Support of Motion in Limine, at 3. The government also argued that, notwithstanding Karsch’s receipt of a termination letter, the relationship between ABI and Karsch still existed, as contemplated under the rule, because Karsch continued to act on behalf of ABI as the company’s vice president until at least March 22, 2006. Memorandum of Law of the United States in Opposition to Motion to Suppress November 2005 Statements by Defendant David Karsch, at 5 (W.D. Wash. filed April 14, 2006) (No. CR-06-11). The government thus maintained that the requirements of Rule 801(d)(2)(D) were satisfied and that Karsch’s out-of-court statements were admissible against ABI. The government also argued that ABI had no Sixth Amendment right to confront Karsch concerning his out-of-court statements. Government Memorandum in Support of Motion in Limine, at 5. The government noted that, under the Sherman Act, there is no distinction between ABI’s conduct and Karsch’s conduct for purposes of determining criminal liability. Because Karsch was ABI’s agent, the government argued, his statements were attributable to defendant ABI. The government concluded that, because a defendant does not have a right of confrontation with respect to its own statements, defendant ABI did not have a right of confrontation with respect to Karsch’s statements. To support its argument, the government cited to U.S. v. King, 134 F.3d 1173, 1175 (2d Cir. 1998), which rejected a confrontation clause challenge to the admission of the out-of-court testimony of a corporation’s employee and sole shareholder against the corporation, because the corporation and sole shareholder were alter egos. Arguing divergent interests In its motion to suppress Karsch’s statements, ABI argued that Rule 801(d)(2)(D) did not apply to Karsch’s out-of-court statements. ABI Motion to Suppress, at 4. ABI argued that the rationale behind Rule 801(d)(2)(D) is that statements meeting the rule’s requirements possess indicia of reliability. ABI noted that “someone who speaks about his duties during the course of his agency or employment is likely to speak carefully, and not loosely, since what he says may put future employment at risk.” 4 Christopher B. Mueller & Laird C. Kirkpatrick, Federal Evidence � 422, at 268 (2d ed. 1994). ABI argued that, since Karsch had received his termination letter prior to the interview, his “interests had diverged from those of Alaska Brokerage, and thus the rationale for [Rule 801(d)(2)(D)] was inapplicable.” ABI Motion to Suppress, at 6-7, citing both Young v. Green Mgmt. Inc., 327 F.3d 616, 622-23 (7th Cir. 2003) (justification for Rule 801(d)(2)(D) not present because statement was made in context of terminating employment); and SEC v. Geon Indus. Inc., 532 F.2d 39, 43 (2d Cir. 1976) (statement at Securities and Exchange Commission interview by employee placed on suspension by corporation is not admissible because of “conflicting litigation positions”). ABI also pointed out that even the government believed that Karsch and ABI “had an irreconcilable conflict and needed separate counsel.” ABI Motion to Suppress, at 7. Notwithstanding the conflict of interest between ABI and Karsch and the absence of ABI’s counsel from Karsch’s interview, the district court ruled in the government’s favor. Specifically, the court held that Karsch’s out-of-court statements were admissible against ABI as admissions pursuant to Rule 801(d)(2)(D). U.S. v. Alaska Brokerage International Inc., Minute Order, at 1 (W.D. Wash. filed April 19, 2006) (No. CR-06-11). Ultimately, both Karsch and ABI pleaded guilty. Include company counsel? Neither the government’s interpretation of Rule 801(d)(2)(D) nor the court’s ruling adopting that interpretation addressed the larger consequences of such an application of the rule. One issue that immediately arises is whether ABI’s counsel had a right to participate in the proffer session. Prosecutors often take the position that company counsel have no right to attend interviews or testimony of employees who are separately represented. However, if the government is treating the employee as an agent of the company for purposes of the interview, then it is not just the employee, but the company itself that is being interviewed. Because ethical rules require all lawyers, including prosecutors, to refrain from contact with either represented persons or parties, a prosecutor who intends to treat an interviewee as a company agent should contact the company’s attorney in order to do so. See, e.g., Model Code of Prof’l Responsibility DR 7-104; Model Rules of Prof’l Conduct R. 4.2 (2003); N.Y. Code of Prof’l Responsibility DR 7-104 (1999), Wash. Rules of Prof’l Conduct Rule 4.2; and 28 U.S.C. 530B (government attorneys are “subject to State laws and rules, and local Federal court rules, governing attorneys in each State” where such attorney practices). While the comments to Model Rule 4.2 provide that consent of the company’s counsel is not required if the employee to be interviewed is represented by personal counsel and personal counsel consents, the Model Code does not have such a provision. Thus, at least in Model Code states, such as New York, a prosecutor may not conduct such an interview without the consent of company counsel. Given this rule, it also seems logical that if a prosecutor in such jurisdictions conducts an employee interview without going through company counsel, the company should have a powerful argument that any statements made during that interview should not be attributed to the company. As Alaska Brokerage demonstrates, statements by company employees to prosecutors may be attributed to the company even if the employee is not explicitly authorized to speak on the company’s behalf and even if the interests of the company and the employee are not aligned. Company counsel, however, may insist on attending any interview of an employee when the employee’s statements are to be attributed to the company. Although there may well be circumstances where corporate counsel may elect not to insist on attending such interviews, any decision in that regard should be informed by the risk that, as in Alaska Brokerage, damaging statements by the employee could be attributed to the company, with potentially devastating consequences at trial. Seth C. Farber is a partner in the litigation department and co-chairman of the white-collar crime and government investigations group at New York-based Dewey Ballantine. He previously served as an assistant U.S. attorney for the Southern District of New York. Suzanne Jaffe Bloom, counsel to the firm, focuses her practice on white-collar crime, government investigations and compliance counseling. She previously served as deputy chief of the Long Island Criminal Division of the U.S. Attorney’s Office for the Eastern District of New York and as an assistant U.S. attorney for the Southern District of New York. Jonathan C. Crafts is an associate in the firm’s litigation department.

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