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Last summer, when Royal Caribbean Cruises Ltd. entered into a plea agreement with federal prosecutors in Miami, it made what was described at the time as an “unusual” concession. It agreed to waive the attorney-client privilege, giving federal authorities access to normally privileged documents in their ongoing investigation into the cruise line’s illegal dumping activities. As it turned out, this “unusual” concession was actually a harbinger of things to come. Today, “virtually every plea agreement in the white-collar criminal field” requires disclosure of privileged documents, said Judah Best, a partner at the Washington, D.C., office of Debevoise & Plimpton. Susan Hackett, senior vice president and general counsel of the American Corporate Counsel Association (ACCA), a Washington, D.C., association for in-house counsel, agreed. “I have heard stories from all over the country” where prosecutors are demanding waiver as a factor in charging decisions, plea bargains and settlement releases. What was the catalyst for this sea change? A new set of guidelines for corporate prosecutions, contained in an internal memo at the U.S. Department of Justice that came out around the same time as the Royal Caribbean plea bargain. That memo made it plain that practitioners could expect more waivers of the attorney-client privilege to come, because nestled among its 12 principles were statements that many argue all but require a corporation seeking to avoid prosecution to waive the privilege. NOT NEW TO NEW YORK While requesting waiver of the attorney-client privilege may be relatively new to the rest of the country, it is not to New York. Since the early 1990s, the U.S. Attorney’s Office for the Southern District of New York has been making the request with some regularity. “They pioneered the practice,” said Robert G. Morvillo, a principal of New York’s Morvillo, Abramowitz, Grand, Iason & Silberberg. In fact, an attorney from the Southern District office sat on the committee that drafted the Justice Department guidelines. The office itself acknowledged that for a number of years, it has “at times, requested and obtained waivers from corporations cooperating in investigations of crimes committed by corporate employees,” according to a written statement by U.S. Attorney Mary Jo White in response to questions from the Law Journal. The New York defense bar nonetheless regards the fact that the practice is spreading to Washington, D.C., and beyond with some alarm, because, as Steven M. Cohen, a partner at Kronish Lieb Weiner & Hellman, explained, “in the scheme of things, the Southern District doesn’t conduct all that many investigations.” For example, the volume of cases handled by the Securities and Exchange Commission, which frequently looks to the Justice Department for guidance, is “far more substantial,” Cohen said. He added that in the last 12 months, he has begun to see the SEC making demands similar to those made by the Southern District — including waiver of the attorney-client privilege and sharing of the fruits of a company’s internal investigation — in exchange for holding off on its own investigation. The defense bar has expressed a number of concerns regarding routine requests to waive the privilege, which companies anxious to avoid prosecution are reluctant to deny. Most significantly, they argue, clients will “simply stop talking with their lawyers,” as the ACCA stated in a May 12 letter to the Justice Department. Employees will realize that “talking to a lawyer is akin to speaking into a microphone for the government,” Cohen said. “How many of those stories do you need to hear before you are not so willing to talk to the company’s lawyer?” he added. White disagreed, pointing out that the privilege has never protected the employee. “Corporate counsel have historically advised employees that their interviews are covered only by the corporation’s attorney-client privilege and that the corporation may decide to disclose the information to law enforcement, regulators or the public.” She added that, in fact, “at times, companies decide on their own to waive the attorney-client and work-product privilege when they self-report crimes to the government.” On the other hand, as Mark F. Pomerantz, a partner at Paul, Weiss, Rifkind, Wharton & Garrison’s New York office, noted, defense lawyers, who often have leeway in deciding where to report wrongdoing discovered through a client’s internal investigations, “are starting to be very selective in where they bring new business.” He added, “One attorney told me, ‘I’ve had it with the Southern District. I’m not bringing any more cases there.’ “ Another problem, the defense bar contends, is that once the privilege is waived, anyone can gain access to the now-unprotected documents. Waiver thus makes the company’s defense in the class action that often accompanies a criminal investigation “much more difficult,” said Morvillo. For example, a recent report by the Bureau of National Affairs described how Columbia/HCA Health Care Corp., the target of a Justice Department investigation that recently settled in part for $745 million, was forced by a federal judge to provide civil plaintiffs with documents that Columbia had disclosed to the government. MYSTERY ORIGINS No one interviewed could pin down how the practice of requesting waiver of the privilege originated, “or when the first dirty thought crossed the first dirty mind,” as one practitioner put it. Once it became available, however, there was no turning back. “The prosecutorial tendency is that if you are given a tool, you use it,” said Bruce A. Green, a professor at Fordham University School of Law and chair of the New York State Bar Association’s ethics committee. “Sometimes prosecutors exercise restraint,” he said, “but when you are talking about a corporation, it’s easy to be less sympathetic.” Practitioners pointed out that prosecutors would never ask an individual to waive the privilege. But White contended that her office uses discretion. Prosecutors do not ask for a waiver in every case, she said in her written response, and “seldom, if ever, seek a waiver to obtain the advice given by the corporation’s attorneys.” She added that generally, the office was interested only in evidence of serious criminal wrongdoing that “may well be otherwise unavailable to the government because of the unwillingness of knowledgeable employees to talk” to prosecutors. Kathryn M. Keneally, a partner at New York’s Owen & Davis, took issue with the government’s position. “It is the nature of all of the privileges that they hinder discovery, and force investigators to work harder,” she said, adding, “It is not unreasonable to ask the government to work a little harder when liberty is at stake.” Yet, waivers are not the only bargaining chips used by prosecutors in corporate investigations. Defense lawyers noted that the Southern District office often pressured corporations to fire employees who refuse to cooperate in its investigation. White did not acknowledge that this practice existed, but admitted that the office will examine a corporation’s “response to the criminal conduct of its employees as among the many factors to weigh in making corporate charging decisions.” The Justice Department guidelines incorporate a similar approach. Requests to fire employees, however, “can be very, very difficult for the company to act on,” Pomerantz said. The corporation may not think its employees did anything wrong, he explained. It may also have contractual and statutory obligations that prevent it from taking actions adverse to the employee, he said. Despite the squawks of outrage over the Justice Department guidelines, no one interviewed saw the problem going away anytime soon. “The government has found that they can do it and it works,” Cohen said. And there are signs that prosecutors are pushing even further. In the last six months, the Southern District office has started asking companies not only to turn over privileged materials, but “to discontinue its own internal investigation” and let the government take over,” Pomerantz said. In the case he is handling, he has refused, he said. He has yet to find out “what will come of it,” he added.

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