Medical Device Daily Washington Editor
ARLINGTON, Virginia — The spate of corporate scandals that cropped up at the beginning of the decade left the U.S. Department of Justice (DoJ) with a perceived need to more aggressively pursue corporate wrongdoing, with one of the proposed fixes coming in the form of the Thompson memo of 2003.
Named for the former deputy attorney general Larry Thompson, the memo granted prosecutors much broader leeway in pursuing cases of alleged corruption, including allowing them to ask firms for copies of any privileged attorney-client communications and to use the firm's decision to cooperate with such requests to consider whether to prosecute.
Many observers with high product liability profiles, including device makers, felt this feature of the memo gave DoJ powers that were tantamount to blackmail. After catching substantial flak from many industries and former DoJ heads, the current deputy attorney general, Paul McNulty, issued a December 2006 memo, named for him, that modifies those powers of discretion. However, not all are satisfied with those changes.
Camille Conway, a partner at Barnes & Thornburg (Chicago), gave attendees at the second day of the Medical Device and Diagnostics Marketing Compliance Congress an overview of the McNulty memo and how it might affect future government investigations into alleged corporate wrongdoing.
Conway said that while the memo took some of the pressure off the waiver of attorney-client privilege, the legal environment is still out of kilter, and a bill sponsored by Sen. Arlen Specter (R-Pennsylvania) to further adjust some of the DoJ's approach to white-collar crime is stuck in committee.
Under the McNulty memo, prosecutors can still request confidential attorney-client communications, but must clear any such request with the deputy attorney general's office.
The McNulty memo was also spurred by the case against accounting giant KPMG (Amsterdam, The Netherlands), which was accused in 2003 of having sold fraudulent tax shelters. In that case, DoJ threatened to indict the firm unless it suspended payments to attorneys for the defense of senior executives, a move that U.S. district court judge Lewis Kaplan slapped down last year "because the government held the proverbial gun" to KPMG's head, given that an indictment would almost certainly lead to a collapse of the company a la the now-defunct Arthur Andersen .
McNulty rolled this back to require permission from the deputy attorney general's office, and this can only be granted if the payment of attorney's fees is seen as impeding the investigation.
Conway said that a Sept. 5, 2006, letter from several former attorney generals, including Carter appointee Griffin Bell and Reagan appointee Dick Thornburg, criticized the Thompson memo as placing too much power in prosecutors' hands. "To see former prosecutors of this reputation" criticizing the Thompson memo "meant government had to do something."
On the other hand, the nine main elements of the Thompson memo "are still there," according to Conway, and while government has to jump through more hoops, prosecutors can still take the company's cooperation into account in deciding whether to seek an indictment.
Conway cautioned attendees against a knee-jerk agreement to disclosure. A firm that waives privilege could end up with class action suits going forward simultaneously with federal prosecution, "and you'll find you're fighting a war on two or three fronts."
Conway 's first recommendation was that companies consider hiring two law firms or, if a company has inside counsel, hiring an outside firm for some of the work in connection with an internal investigation. "You have to try to separate factual gathering from legal analysis gathering" because these are considered separate areas of information for government investigations.
As a result, a prosecutor will have to ask the deputy attorney general for clearance to ask specifically for access to communications regarding legal analysis instead of being able to obtain the analysis documents and the fact-finding documents in one swoop. Because of recent case law, the deputy's office may hesitate to grant waiver request.
"When a prosecutor asks to be able to ask for waiver, the superior knows that the courts are getting antsy about it, so it's not automatic," Conway said.
Companies that find themselves in the DoJ's crosshairs need not cave in when privilege is challenged, Conway stated. "In light of the decisions coming down, the government is less likely to pursue" a waiver, Conway pointed out, and a court could gut the government's case if the defendant can argue that the government erred.
On the other hand, firms should not habitually refuse to cooperate, especially if the legal or public fall-out from the case is liable to get ugly. Furthermore, "[y]ou can't label everything as attorney-client privilege because that raises the flag," Conway said.
Conway strongly urged companies to "think about your internal compliance initiatives. You need to keep honing those [initiatives] down" because a well-crafted corporate compliance program will isolate the damage and steer blame where it belongs.
In the no-brainer category of recommendations, Conway suggested that firms "watch what you write in e-mails. I really cannot assert this enough."
As for Specter's bill, which has not advanced beyond the Judiciary committee, it would forbid any "demand, request, or condition treatment on the disclosure by an organization, or person affiliated with that organization, of any communication protected by the attorney-client privilege or any attorney work product." The bill, the Attorney-Client Privilege Protection Act of 2007, would also bar DOJ from "condition[ing] a civil or criminal charging decision" by whether "an organization, or person affiliated with that organization, is cooperating."
In a June 4 letter to Senate Judiciary Committee chairman Patrick Leahy (D-Vermont), Karen Mathis, president of the American Bar Association (ABA; Chicago), stated that ABA "strongly supports legislation like S. 186 that would bar the Justice Department and other federal agencies from pressuring companies to waive their privileges or take unfair punitive actions against their employees as conditions for receiving cooperation credit."
ABA favors the bill's provisions that "would preserve prosecutors' ability to obtain the non-privileged, factual material they need," but Mathis wrote that the bill "would strike the proper balance between effective law enforcement and the preservation of essential attorney-client privilege, work product, and employee legal protections.