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There is no more dangerous time for a corporation than when it faces significant civil litigation and, at the same time, a criminal investigation of the same subject matter. Of late, these parallel proceedings have been public federal investigations, most of them emanating from Houston. As devastating as those public investigations are to the corporations and individuals involved, there is one more scenario that is even more dangerous: the plaintiffs’ lawyers in that civil case funneling depositions and documents to FBI agents. The criminal investigation is not only carried on in secret, but your company also pays for it. Worse, general counsel are unable to fight a criminal case that’s gift-wrapped for the government. Inevitably, clues about secret criminal investigations surface, often in the form of a civil complaint that reads like an indictment. The moment a general counsel knows, or even suspects, a criminal investigation even vaguely related to his or her corporation, the GC should move to stay the civil case pending the criminal investigation’s outcome. In the alternative, ask for a stay as to those parties or witnesses being investigated or charged until their criminal investigations are over. The court’s decision will depend on several factors, but two underlying considerations dictate the result. First, the court will want to know how real the threat is of a criminal investigation or prosecution. If your chief executive officer has been subpoenaed to a federal grand jury or indicted, that’s a pretty good indication the government’s not fooling around. If you, as GC, only have suspicions, and no hard evidence of an investigation, you will have a tougher time getting relief. However, using whatever level of proof you do have — that complaint that reads like an indictment springs to mind — convince the judge to ask opposing counsel if plaintiffs’ counsel are cooperating with the government. That will flush out the truth and take you to the next step. Once the GC persuades the judge about the investigation or prosecution, the plaintiffs’ lawyers will argue that witnesses facing criminal charges simply can invoke their Fifth Amendment right during depositions and refuse to testify. That is true, but that also is the second reason for granting the stay. The option of invoking the Fifth Amendment is no option at all. It’s a Hobson’s choice. If, on the one hand, the witness testifies in the civil suit instead of invoking the Fifth Amendment, whatever he says can be used to obtain an indictment against him, the corporation and anyone else he implicates — in and outside the company. His admissions can be used in the government’s case-in-chief in the later criminal trial, and everything he said can be used for impeachment. On the other hand, if he does refuse to testify, it kills his chances — and the corporation’s — in the civil suit. That is because the plaintiff will be entitled to a negative inference instruction at trial, allowing the jury to infer that the reason the CEO invoked the Fifth Amendment is because he is guilty. When that happens, a GC’s leverage in the civil suit disappears because he or she can no longer credibly threaten to go to trial. Even if the witness decides to testify at trial, the plaintiff’s attorney can use his invocation of the Fifth Amendment at his deposition to impeach him. Jurors hate the Fifth Amendment. Plaintiffs’ lawyers know that. That’s why they send the discovery to the FBI in plain, brown wrappers. Just ask them how much they want you to make the check out for. COURTS RECOGNIZE CONUNDRUM Courts recognize this conundrum and generally will grant a stay, at least for the targeted individuals. It makes sense that if discovery can proceed around them, then it should. Case law also provides substantial support for such relief. Rarely, a federal judge will issue protective orders, sealing the file of the case, depositions included, against government subpoenas. However, every circuit but the 2nd U.S. Circuit Court of Appeals holds that a grand jury subpoena trumps the protective order. Ironically, an indeterminate stay of the civil case could prove a boon to the defendant corporation — but only if the investigation ends without an indictment. That’s rare, but stranger things have happened. The entire miserable encounter, with its long discovery delay, will turn out to favor the corporation in the civil action, as delays for defendants always do. Then, with the stay lifted and the civil suit back on track, it’s payback time. It’s the general counsel’s turn to make life miserable for the plaintiffs. Inevitably, when criminal problems surface, there will be finger-pointing within the corporation. Offer the decision-makers in the organization some practical advice. It may save them and the corporation. Tell them not to turn their backs on the individuals under investigation or indictment. Instead, circle the wagons. Get them good criminal lawyers. Consult with those lawyers. Have the corporation pay their fees. But be aware: Don’t interfere with their representation. Otherwise, you, as GC, may court obstruction charges. When the executives resist this advice, ask them if the name Arthur Andersen rings a bell. When senior Andersen executives fired David Duncan, the accountant in charge of the Enron file, they sealed their fate. Within months, the feds indicted Duncan for alleged obstruction of justice related to the shredding of Enron-related documents, and Duncan pleaded guilty and testified against his former employer in Andersen’s own trial for obstruction, also based on shredding. Ironically, following Andersen’s conviction last May, jurors said the shredding had nothing to do with the verdict. The end result of making Duncan a scapegoat? Duncan pleaded guilty to a crime the jury said wasn’t committed, the government got a conviction under a theory it never intended, and Andersen, teetering on the brink, went out of business. Tell your executives that with all the advantages the government has, your corporation doesn’t need to give them one more. David Berg is a partner in Berg & Androphy in Houston. His practice includes complex commercial litigation, class actions and white-collar criminal defense.

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