Rather than relying on evidence suggesting that Morgan’s outside counsel individually represented the company’s employees, including Norris, the 3rd U.S. Circuit Court of Appeals held that the restrictive five-factor test set forth in its 1986 opinion in Matter of Bevill, Bresler & Schulman Asset Management Corp. must be satisfied before the attorney-client privilege may be successfully asserted by corporate officers and employees and a company’s outside attorneys.
The decision marks a drastic expansion of Bevill , and carries profound implications for individual employees and officers anywhere within the 3rd Circuit, and indeed around the country and the world. Indeed, Norris himself is a British national who was extradited to the United States in connection with a criminal antitrust proceeding brought by the U.S. Department of Justice.
On Sept. 28, 2004, a federal grand jury sitting in the Eastern District of Pennsylvania returned a four-count indictment that charged Norris with: (1) conspiring to fix prices for certain carbon products sold in the United States in violation of the Sherman Act, 15 U.S.C. § 1; (2) conspiring, in violation of 18 U.S.C. § 371, to corruptly persuade and attempt to corruptly persuade other persons with the intent of influencing their testimony in an official proceeding, as well as attempting to persuade others to alter and destroy documents; (3) corruptly persuading and/or attempting to corruptly persuade others with intent to influence their testimony; and (4) corruptly persuading others to alter and destroy documents. On March 23, 2010, Norris was extradited to the United States to face the charges in Counts 2-4, as under the United Kingdom’s Order for Extradition, the Extradition Act and the extradition treaty between the U.K. and the U.S., Norris could not be prosecuted for the price-fixing charge.
Prior to the trial, the government moved for an order permitting Sutton Keany, former counsel to Morgan, to testify at trial. The motion was predicated on Morgan’s prior waiver of attorney-client privilege in cooperation with the Antitrust Division of the Department of Justice. Keany’s testimony was critical to the prosecutors’ case, as it served to establish Norris’ intent in connection with the preparation of certain non-contemporaneous meeting notes memorializing the discussions Morgan had with its competitors. The government pejoratively termed the meeting notes “scripts,” and alleged that the so-called scripts were false and designed to mislead U.S. investigators and conceal the true nature of the alleged price-fixing discussions orchestrated by Morgan.
The U.S. District Court for the Eastern District of Pennsylvania conducted an evidentiary hearing, after which it held that Norris had no individual privilege that would bar Keany’s testimony given the company’s waiver of privilege, and that even if Norris could assert an individual privilege, the crime-fraud exception would apply to permit Keany’s testimony regardless. (See the court’s 2010 opinion, U.S. v. Norris .) The district court applied a restrictive five-factor test gleaned from Bevill , which requires a valid assertion of attorney-client privilege between an individual and outside corporate counsel to be predicated on proof that: (1) the individual approached counsel for legal advice; (2) when the approach was made, the individual made it clear that he or she was seeking advice in his or her individual, rather than corporate, capacity; (3) counsel saw fit to communicate with the individual in his or her individual capacity; (4) the conversations were confidential; and (5) the substance of the conversations did not concern matters within the company or the general affairs of the company.
Norris moved for reconsideration, which was denied. After trial, Norris was convicted on the conspiracy count and acquitted of the two substantive obstruction of justice counts. In his motion for judgment of acquittal, Norris relied in part on his argument that Keany should never have been permitted to testify in light of the attorney-client privilege existing between him and Norris, individually. The district court denied Norris’ motion, and Norris filed an expedited appeal in the 3rd Circuit.
The appeals court issued its opinion in U.S. v. Norris on March 23, 2011, and in terse terms rejected Norris’ attorney-client privilege argument, stating: “The District Court in this case held an evidentiary hearing and ultimately determined that Norris failed to meet his burden of asserting his privilege pursuant to the five-factor test set forth in [ Bevill ]. The District Court did not legally err in applying this test, and we see no clear error in the District Court’s holding based on the facts elicited at the evidentiary hearing.”
Significant Hurdle to Assertion of Privilege
To fully understand the significance of this seemingly innocuous application of precedent, one must understand how the lower federal courts interpreted Bevill prior to Norris . For example, in a 2006 case, In re Benun , the U.S. Bankruptcy Court for the District of New Jersey specifically distinguished Bevill based on the fact that the 3rd Circuit in Bevill was not presented with any evidence of record that would establish a common defense or cause — i.e., evidence that would demonstrate actual co-representation. Indeed, the party seeking disclosure in Bevill did not appeal the district court’s holding in that case that communications prior to the date that outside counsel was expressly retained on behalf of the company, but not the individuals involved, were privileged.
In situations where actual co-representation existed, the lower courts held, prior to Norris , that an individual’s communications with the attorney were privileged, either as a matter of individual attorney-client privilege, or based on the joint defense privilege, which cannot be unilaterally waived by one of the joint clients, such as the corporation. (See, e.g., the 3rd Circuit’s 2007 opinion in In re Teleglobe Communication , (waiver of joint client privilege requires consent of all clients); and the Middle District of Pennsylvania’s 2001 opinion in In re Grand Jury , (CEO’s communications privileged where attorney represented both CEO and company in connection with employee litigation; company could not waive joint defense privilege).
Indeed, the 3rd Circuit itself recognized that it was addressing a particular fact pattern in Bevill , specifically: “the relationship between a corporation’s waiver of its privilege and the individual directors’ assertion of a claim of attorney-client privilege with respect to counsel consulted on both a personal and corporate basis after the counsel has been retained by the corporation.” Bevill was not, on its own terms, originally aimed at addressing a situation where the corporation and the individual were joint clients of the attorney whose testimony is sought. Instead, the party attempting to invoke the privilege in Bevill failed to present any evidence supporting assertion of a joint defense privilege.
Norris, however, produced such evidence in the form of correspondence to and from Keany and his firm. (See U.S. v. Norris — e-mail from Keany describing conversation with Antitrust Division in which he said that his firm “represents the parent company, its affiliates and its current employees.”) In similar situations (at least prior to Norris ), traditional common law joint client privilege analysis was applied by the courts. (See I n re Benun and In re Grand Jury .) The central issue in those cases then became determining on which side of the line particular communications fell — those related to the individual representation or those related to purely corporate representation.
In short, Bevill , on its own terms, applied where: (1) individual corporate employees not represented by outside counsel communicated with the corporation’s outside counsel; and (2) there was no evidence of a joint-client relationship between the individuals, the company and the attorney. Norris , however, suggests that the five-part Bevill test applies to all communications between individual corporate employees and officers with the company’s retained counsel, even where evidence supports the existence of a joint-client relationship. In particular, the district court acknowledged Keany’s conversation with the Antitrust Division, as well as a letter from Keany to the division stating that he and his firm “presumptively represent all current employees of the companies in connection with the matter” including all employees that had been called before the Grand Jury, and advising that if additional employees were to be subpoenaed to testify, Keany “assume[d] that we would also represent those individuals.”
In addition, Norris presented a memorandum he received from Keany and two other attorneys at his firm, advising Norris that if he were subpoenaed by the Department of Justice, “It is entirely proper and appropriate for you to simply advise that … you are represented by counsel and expect to cooperate and communicate solely through counsel and that your lawyers are Jerry Peppers, Sutton Keany and Stephen Weiner of Winthrop, Stimson, Putnam & Roberts.” (See Appellant’s Opening Brief (Jan. 21, 2011).) Keany and his colleagues then provided Norris with two letters he could hand to Antitrust Division attorneys if and when he received a subpoena. One of those letters stated: “As you have now been informed by our client, Ian Norris, we represent him as his lawyers here in the United States and outside the U.S. This representation specifically includes, but is not limited to, matters of any nature, in connection with any investigation” by the Antitrust Division. Although Bevill was seemingly inapplicable to such a scenario, the 3rd Circuit has now indicated that the five-factor test enunciated in that case applies to define whether the attorney-client privilege obtains in spite of such direct manifestations of a privileged relationship.
The 3rd Circuit’s decision in Norris is not indicative of a national trend threatening the vitality of the attorney-client privilege. For example, during the trial in U.S. v. Stevens, Criminal Action , the U.S. District Court for the District of Maryland granted a motion for judgment of acquittal in favor of counsel to GlaxoSmithKline, who was prosecuted based upon legal advice she had given GSK. The court noted that a lawyer should never fear prosecution because of advice given to a client, nor should a client fear that confidences communicated to a lawyer will be divulged unless the consultation was for the purpose of committing a crime or fraud.
Avoiding the Post-Norris Minefield
Given the holding in Norris , corporate officers, directors and employees, and outside counsel retained by a corporation, must both take steps to ensure that the scope of any representation is clear to all involved, protect their interests, comply with their ethical obligations, and avoid both civil and criminal exposure.
From the perspective of counsel retained on behalf of a corporation in connection with a government investigation or prosecution, the initial retention agreement should be crystal clear as to the scope of the representation. Counsel must be sensitive to the implications of Norris with respect to individual corporate employees’ communications with counsel, and should expressly advise the individuals that their communications, particularly to the extent they relate to issues within the scope of their duties as corporate officials or employees, will not be protected by the attorney-client privilege. At the outset of any such engagement, counsel must also carefully evaluate any potential conflicts that could arise between their client (the company) and its officers, directors and employees.
This evaluation is particularly critical in the context of a Sherman Act investigation or prosecution like that in Norris , given the substantial incentives available under applicable regulations for targets or defendants who cooperate with the Department of Justice (by, for example, agreeing to waive the corporate attorney-client privilege). Because a corporation can only speak through its officers, directors or employees, outside counsel’s written and oral communications with those individuals is a necessary part of any representation. Because those individuals will almost certainly face potential exposure in the context of any government investigation, they will have both a need and a desire for legal advice. Given these practical realities, counsel must make a special effort to both maintain the integrity of the scope of their representation and to keep the individual employees apprised of counsel’s limited role.
By the same token, if and when joint representation is deemed appropriate in the absence of a conflict, the exact scope of the representation should be set forth in a separate engagement letter to the individual client. Even with such an engagement letter in place, counsel must differentiate between communications related to the corporate representation and those related to the individual representation.
From the individual’s perspective, communications with corporate counsel that has not been specifically retained to represent anyone other than the corporation must be approached with caution. Absent the express manifestation of an attorney-client relationship through an engagement letter or other contract, application of the attorney-client privilege will be in doubt. The best practice is to obtain separate counsel.
If doing so is impracticable under the circumstances, the individual should seek to memorialize a joint representation agreement in writing. In all cases, where an individual seeks personal legal advice, he or she should do so explicitly and in writing, to avoid any ambiguity in the application of key portions of the Bevill test related to the nature and content of the advice sought. Creating potentially discoverable documents may seem anathema, but is the only way to ensure that an individual’s interest in maintaining the attorney-client privilege is protected in light of Norris. •