Maintaining Corporate Attorney-Client Privilege and Work-Product Protection After X Corp.

On June 27, the U.S. Court of Appeals for the Fourth Circuit issued an unpublished opinion holding that a written agreement between an unnamed corporation (designated as “X Corp.”) and the U.S. Department of Justice “preserved X Corp.’s attorney-client privilege and work-product protection for information that the General Counsel of an X Corp. subsidiary disclosed to the Government.”  The decision stems from an investigation that the Justice Department began several years ago into whether X Corp. and its subsidiaries violated certain federal laws (likely the Foreign Corrupt Practices Act). To facilitate the investigation, X Corp. entered into a number of written agreements with the Government, permitting employees of X Corp. and its subsidiaries to share with the Government information that was protected by attorney-client privilege and work product protection.

One such agreement (“Agreement”) allowed the Government to interview the General Counsel (designated as “Doe”) of an X Corp. subsidiary.  The Agreement, which acknowledged that Doe might disclose privileged or protected information during the interview, included three relevant clauses (designated respectively as “First Clause,” “Second Clause,” and “Third Clause”):

  • “Please be advised that, to the extent any Protected Information is provided to the Fraud Section or EDVa pursuant to this agreement, [X Corp. and its directors] do not intend to waive the protection of the attorney work product doctrine, attorney-client privilege, or any other privilege.
  • “The Fraud Section and EDVa will maintain the confidentiality of any Protected Information provided to the Fraud Section and EDVa pursuant to this agreement and will not disclose such information to any third party, except to the extent that the Fraud Section or EDVa determines in its sole discretion that disclosure would be in furtherance of the Fraud Section’s or EDVa’s discharge of its duties and responsibilities or is otherwise required by law.
  • “The Fraud Section and EDVa each agree that it will not assert that the disclosure of any Protected Information by [Doe] provides the Fraud Section or EDVa with additional grounds to subpoena other privileged materials from [X Corp. and its directors] or [Doe] although any grounds that exist apart from such disclosure shall remain unaffected by this agreement.”

Pursuant to the Agreement, Doe was interviewed and disclosed privileged and protected information.

Years later,” in the words of the court, the Government subpoenaed Doe to testify in a federal grand jury about the same statements that Doe made during the interview. X Corp. was allowed to intervene, but the federal district court denied X Corp.’s motion to quash the subpoena, holding that the agreement waived attorney-client privilege and work-product protection for Doe’s interview statements.

On appeal, the panel opinion by Chief Judge Gregory determined that interpretation of the Agreement presented a question of law that it would review de novo.  To determine whether the Agreement limited the effect that Doe’s disclosure otherwise would have had on X Corp.’s right to assert privilege against the Government, the other contracting party, it applied “standard principles of contract interpretation.”  Looking at the Agreement’s language to determine the parties’ intent, and reading it to give effect to all of its provisions and to render them consistent with each other, it held that that the Agreement preserved X Corp.’s privileges as to the Government, as to hold otherwise “would require us to discount the plain language of the Agreement’s First Clause, which expressly reserves those privileges.”

In particular, the court stated that the First Clause “plainly convey[ed] X Corp.’s intent not to waive any privileges,” and that nothing in the Agreement qualified its reservation of privilege.  It distinguished the First Clause, which addressed privilege, from the Second Clause, which addressed confidentiality, in stating that in the Second Clause, “the parties agreed that the Government would not share the Protected Information with third parties outside judicial proceedings except in furtherance of its duties   . . . [and that] the exception in the Second Clause qualifies only the Government’s promise to keep the information confidential.”  As the Second Clause did not modify the First Clause, it did not negate X Corp.’s reservation of privilege.  As for the Third Clause, the court held that the First and Third Clauses served distinct purposes: the First Clause preserving X Corp.’s privileges for the disclosed information, the Third Clause preserving X Corp.’s privileges for other related information.

The court concluded that

the Agreement maintains the status quo regarding X Corp.’s privileges.  It nullifies the effect of both Doe’s initial disclosure of privileged information and the Government’s later disclosure of the same information on X Corp.’s ability to assert privilege against the Government. As a result, X Corp. may assert privilege here as if Doe had never disclosed the information in the first instance.

Regardless of whether the Department of Justice further contests the X Corp. decision, or continues to assert its ability to compel testimony from a witness covered by such an agreement in the future, X Corp. offers a number of lessons for corporate in-house and outside counsel who deal with the Department in other criminal investigations.  First, as the chronology of events in X Corp. indicates, counsel cannot assume that the passage of substantial time means that the Government will have no interest in obtaining testimony from a present or former corporate employee who was the subject of such an agreement.  Depending on the pace of the Government’s investigation, and the vagaries of acquiring sufficient evidence to prove one or more counts of a potential indictment, prosecutors may come to believe that the need for the corporate employee’s testimony about the privileged or protected information is more insistent that it might have seemed at an earlier stage of the investigation.

Second, while the Fourth Circuit’s interpretation of the language in the Agreement seems sufficiently protective of a corporate entity’s interest in securing its privileges, counsel who are approached by prosecutors to have a corporate employee execute a similar agreement in the future should consider negotiating for additional protective language in the agreement.  In X Corp., Judge Niemeyer concurred in the judgment, but found the exception in the Second Clause and its effect on the privilege to be ambiguous.  Because the Second Clause’s language, as Judge Niemeyer noted, provides no guidance about what kinds of external event might “promp[t] the Justice Department to conclude that it must, as a matter of duty, disclose the privileged material”, counsel should consider seeking clarifying language on that circumstance in the agreement.

Finally, if a corporation whose employee is the subject of such an agreement is confronted with a grand jury or trial subpoena requiring testimony by that employee about privileged or protected material disclosed pursuant to that agreement, it should consider not only intervening but moving to expedite the proceedings.  The duration of the X Corp. appeal, just from oral argument date to decision date, was more than five months, and corporations should have little interest in comparably protracted proceedings of this type in the future.  Accordingly, if the Government takes the step of compelling sworn testimony from the employee, the corporation would be within its rights to contend that the urgency of the proceedings and the “important policy considerations” that the X Corp. court identified concerning cooperation with the Government warrant expedited hearing and decision.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s