Most in-house counsel probably wish former Deputy Attorney General Larry Thompson had never attended law school. In January 2003, Thompson wrote his now infamous memo, “Principles of Federal Prosecution of Business Organizations,” that gave prosecutors and regulators the green light to pressure companies under investigation to waive attorney-client privilege. But after nearly three years of being bullied by the feds to cough up protected documents, in-house and outside counsel have had enough.

At its annual meeting in Chicago in August 2005, the ABA House of Delegates passed a resolution stating it “opposes the routine practice by government officials of seeking to obtain a waiver of attorney-client privilege or work product doctrine through the granting or denial of any benefit or advantage.”

Although ACC supported this resolution, it most likely would have used much stronger language. In April 2005, Susan Hackett, ACC's senior vice president and general counsel, told the ABA task force responsible for drafting the resolution that if something wasn't done soon to protect privilege, in-house attorneys would become nothing more than government lackeys.

“Company lawyers will be seen as deputized middlemen who are valued not by clients for their ability to helpfully advise the company or help to prevent corporate wrongdoing, but rather who are valued by the government for their role in facilitating the prosecution of their corporate clients and employees when failures inevitably occur,” she said.

Hackett then went on to discuss the results of a recent ACC survey on the issue, revealing that more than 30 percent of in-house counsel who responded to the survey have personally experienced erosion of privilege. And 95 percent of those respondents believe that erosion will “chill” the flow or candor of information from clients.

Although both the ABA and ACC are hoping to put an end to what they perceive as government coercion, those on the frontlines of the conflict seem resigned to the fact that the government isn't going to relent anytime soon.

“Right now prosecutors are basically telling you that if you don't cooperate and waive privilege, then you will be prosecuted and could go to jail,” said Gregory Bruch, a partner at Foley & Lardner. “And you can still go to jail even if you hand stuff over.”

Bruch made this comment during a Martindale-Hubbell forum discussion in Washington, D.C., titled “Managing Attorney?? 1/2 Client Communications in a Time of Eroding Privilege.” The forum brought together in-house and outside counsel to discuss the growing problem with the erosion of privilege, as well as to offer advice on how to communicate the problem to senior executives.

End Of Privilege

According to most of the forum participants, the beginning of the end of attorney-client privilege in government investigations began Jan. 20, 2003, with the release of the Thompson memo. Thompson argued that the waiver is not an absolute requirement, but “one factor in evaluating the corporation's cooperation.” It is now one of about eight factors prosecutors use to determine whether to bring charges against a company.

“If you are not willing to waive privilege, then they are going to consider the worst,” said Nick Akerman, a partner at Dorsey & Whitney. “This was never an issue five or six years ago. You wouldn't even think about asking a company to waive its privilege.”

For those at the forum who have worked for the government in the past, the Thompson memo represented a sea change in prosecutors' tactics.

“It would never have dawned on me to demand a privilege waiver,” said Bruch, the former assistant director of the SEC's enforcement division. “But once somebody does it, you think, 'Wow, that was easy.' And before you know it everyone is demanding that you waive.”

Although Bruch believes the DOJ and SEC have become increasingly relentless in their quest to force companies to cooperate, he doesn't believe they intended to weaken privilege.

“Nobody respects the attorney-client privilege more than the SEC,” he said. “If you don't believe it then litigate against them. Try to get copies of their work product or privileged documents. They'll fight like crazy.”

One of the unintended consequences of the Thompson memo is that is makes it much easier for plaintiffs' lawyers to swoop in on heels of a government investigation and use the privileged documents as a basis to file suit. That's what happened to McKesson Corp. (formerly McKesson HBOC).

While under investigation for accounting fraud, the medical supply company turned over protected documents to the SEC–specifically a report generated from an internal investigation outside counsel conducted. McKesson turned over the documents on the condition that the SEC sign a confidentiality agreement and stipulate that the company hadn't waived its privilege. Plaintiffs in a private securities litigation then requested the documents. McKesson refused to hand them over, citing attorney-client privilege. The case, McKesson HBOC v. Superior Court of San Francisco County, went to the California state appeals court, which ruled that a company can't selectively waive privilege, thereby forcing McKesson to give plaintiffs the documents.

“Though McKesson and amicus curiae advanced policy arguments for allowing sharing of privileged materials with the government, no one suggests that a defendant facing multiple plaintiffs should be able to disclose privileged materials to one plaintiff without waiving the attorney-client privilege as to the other plaintiffs,” wrote Presiding Justice Laurence Kay.

Because of cases like this, ACC has made it clear that it will not support

limited waivers.

“If this task force moves toward promoting limited waiver alternatives, then the presumption becomes that the government has the right to ask for a waiver, so long as they can 'protect' their client from third-party/subsequent discovery,” Hackett said in her April testimony. “While protection from future third-party discovery request is certainly important, employees who seek legal advice or feel obliged to report potential legal problem are far more personally threatened by government access to their statements than they are by the longer-term financial impact of a third-party suit on the company.”

Educating The Executives

So what to do? Participants at the forum argued that until prosecutors and regulators change their practices, it's the GC's job to make employees, especially senior executives, aware that attorney-client privilege today is fragile at best.

“The business folks need to understand that rather than putting in place procedures to protect conversations and statements that are arguably privileged, they need to understand that maybe the privilege isn't going to exist and that they need to be careful about what they say,” said Charles Clark, associate general counsel of Capital One Services Inc. “They need to understand the care and feeding that goes into making a privilege defensible.”

One of the mistakes Clark sees executives make is labeling all their documents and e-mail as “privileged and confidential.” That, he said, is the opposite of what executives should be doing.

“I want them to know that we're going to limit the circumstances where the privilege could potentially attach and really focus careful attention to making it successful in those circumstances rather than the more general circumstances,” Clark said. “If you stamp everything 'privileged and confidential,' then you will have a tough time making a good faith-based claim that what you really want to protect is privileged.”

In order to get the word out within her organization, Lisa Alexander, deputy general counsel of InterDigital Communications, said that she created a section on the company's Intranet site that explains what

can and can't be protected, and how privilege can be waived.

“You really need to make it clear that employees don't own the privilege,” she said. “It is the company that owns it and can decide when it should be waived.”

Clark said that he organizes brown-bag lunch meetings where he explains to senior-level executives what they can and can't expect from attorney-client privilege.

Lewis Wiener, a partner at Sutherland Asbill & Brennan, suggested that during these training sessions, GCs should inform executives that just because a lawyer is present at a meeting doesn't mean that what is said during that meeting is protected. GCs, he said, need to make it clear to executives that when lawyers act as business advisers, their

discussions are not privileged.

“If you walk into a room of 10 in-house counsel, there are going to be 30 different hats on the wall because each wears a business hat, a legal hat and usually one more,” Wiener said. “A lot of executives don't realize that.”

Another area creating problems on the attorney-client privilege front is e-mail.

“People seem compelled, almost in a competitive way to show that they're on their game, they're on subject, they're on the issue and they're responding,” said William Geary, executive vice president and general counsel of Clean Harbors Environmental Services Inc. “And they are blabbing their brains out and creating a huge volume of discoverable evidence that certainly isn't privileged.”

The Right To Fight

Although most of the participants believed that privilege is a thing of the past, many said that doesn't mean you shouldn't put up a fight when necessary.

“The decision to waive or not to waive is not always black and white,” Wiener said.

He said the best approach is to take incremental steps when the government asks you to waive and to work with them on what you will and will not release. The key is keeping in constant contact with the regulator, especially when conducting an internal investigation.

“Everything you need to know about conducting an internal investigation is in 'The Godfather'–keep your friends close, and your enemies closer,” Wiener said. “In this case, your friends are your employees.”

Alexander agreed that most prosecutors understand that not everything should be turned over, or turned over all at the same time.

“If you approach a government agency with respect and provide them information incrementally as your own investigation progresses, it will show that you are interested in being honest and forthright,” she said. “And that goes a long way.”

A number of participants argued that it also is important to hire outside counsel who have a relationship with the regulators or agencies that are doing the investigation. Law firm lawyers often have a much better understanding of the nuances of the office conducting the investigation and how far they can push them.

“There are few business clients who are willing to stand up and say we are going to stand behind our privilege,” Bruch said. “But you are entitled to it. I think often it is the right course of action because waiving privilege is a very dramatic event that can cause a lot of collateral consequences. Because once you start waiving you don't know where it's going to end.”