Scant attorney-client protection for GM
On Tuesday, Reuters found out that General Motors is facing a criminal investigation by federal prosecutors in Manhattan into allegations that the auto company failed to alert consumers and regulators about long-running ignition-switch problems. Word of a possible criminal case followed GM’s revelation Monday that it has hired Jenner & Block and King & Spalding to assist its general counsel in an internal investigation of the company’s response to the ignition defect, which has been blamed for 13 deaths. The confluence of the two investigations raises an intriguing question: How much will GM’s own lawyers have to tell the Justice Department about their findings?
The answer: a lot. GM lawyers will almost certainly have to inform the government of all the facts they uncover, despite Justice Department guidelines that prohibit prosecutors from conditioning leniency for corporate defendants on their waiver of attorney-client privilege. Prosecutors are not supposed to ask corporations outright to surrender the traditional protections shielding legal advice, attorney work product and communications between clients and their counsel. But the Justice Department guidelines allow government lawyers to demand an account of the facts corporate investigators have obtained. If a corporation wants to receive credit for cooperating with the government, the guidelines state, then it “must disclose the relevant facts of which it has knowledge,” including facts uncovered through an internal investigation.
That policy, which the Justice Department promulgated in August 2008, came in response to widespread criticism of the government’s previous requirement that corporations waive their attorney-client privileges in order to receive a deferred prosecution or non-prosecution deal. Theoretically, the revised guidelines permit cooperating corporate defendants to assert attorney-client privilege over materials such as the notes their law firm investigators make during interviews of corporate witnesses, so long as inside investigators are careful to disclose all relevant facts to prosecutors. “Lawyers have to conduct internal investigations in a way that the facts can be gathered and then communicated to the government while still preserving the privilege,” said former Justice Department prosecutor Nathaniel Edmonds, now at Paul Hastings.
As a practical matter, however, corporations trying to fend off disaster are usually less worried about protecting their attorney-client privilege than about placating the government and avoiding a business-ending indictment or regulatory proceeding, according to former Securities and Exchange Commission Enforcement Chief William McLucas of Wilmer Cutler Pickering Hale and Dorr and former Deputy Attorney General George Terwilliger of Morgan, Lewis & Bockius. (Both were speaking generally and not about the GM case in particular.) “Prosecutors still basically get what they would have gotten before, but the dance has more steps,” Terwilliger said. McLucas added: “You need to cap your liability, your exposure. Sometimes that means concessions on work product and privilege that you wouldn’t make in a perfect world.”
Corporate defendants have developed some tactics to take advantage of the Justice Department’s post-2008 stance on privilege. Defense lawyers often insist, for instance, on making oral presentations to prosecutors instead of handing over written reports, said Terwilliger and Edmonds. Some corporate counsel, Edmonds said, tell prosecutors about interviews with internal witnesses only in hypothetical terms, to avoid inadvertent waiver of work product or attorney-client privilege.
But when prosecutors ask defense lawyers to justify their fact-gathering process and the conclusions they’ve reached – which happens all the time, according to Terwilliger and McLucas – corporate counsel have to be prepared to respond. That doesn’t necessarily mean a wholesale waiver of privilege but does require sufficient disclosure to assure the government that defense lawyers have conducted a thorough and legitimate investigation. And once corporations have made the decision to cooperate – a near inevitability, especially for any business that is a government contractor – the goal for their lawyers is to convince prosecutors that internal investigations have reached justifiable conclusions about the alleged misconduct.
GM has already made one decision that could lead to questions from prosecutors: It hired two of its regular outside law firms to conduct the inside investigation. Lead outside counsel Anton Valukas is a former federal prosecutor with a justly spectacular reputation. Nevertheless, as ethics expert Monroe Freedman of Hofstra Law School told Reuters earlier this week, “a reasonable person might question whether the firm wants to curry favor with GM, so it can maintain a good relationship or obtain future work.” It could be that GM hired Jenner and K&S before government investigators targeted the company, when it made sense to bring in counsel who already knew the business well. Now that prosecutors are involved, however, that hiring decision may mean GM has to reveal more about its investigatory process than it would if its outside lawyers were completely independent. (I left a message for Valukas but didn’t hear back; GM representative Selim Bingol previously told Reuters that Valukas “has been charged to go where the facts take him and give the company an unvarnished report on what happened. He is the ideal person to do that, given his understanding of our business and his reputation for adhering to the highest standards.”)
If Terwilliger and McLucas are correct that there’s more risk for corporate defendants in standing up for the principle of attorney-client privilege than in revealing enough to demonstrate a defendant’s good faith, what’s the downside of disclosure? Follow-on private litigation. Defense lawyers don’t want their revelations to the government to wind up haunting clients in product liability and securities litigation. That can require artful lawyering – some defense lawyers, for instance, insist that their clients be subpoenaed before they meet with prosecutors – and it’s one big reason why oral presentations to the government are safer than written reports.
But on the other hand, if you can’t persuade the government that your client is cooperating, you might not have to worry much about tagalong private suits – because your client probably won’t be in business to face them.
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