In-house ACCess : In-house ACCess: Association of Corporate Counsel : ACC : The In-house Counsel Bar Association

In Susan Hackett’s blog on the Textron case she states that the privilege is under attack. Let me suggest, at the risk of inspiring disagreement from Steve Bokat, that what is really under attack is the notion that in-house counsel is really practicing law. Susan says as much:

Can anyone out there honestly believe that this case would have been so decided or made it to the US Supreme Court as an ongoing debate if the lawyer providing the advice was an outside lawyer and not an in-house lawyer?

(emphasis added)

You see, if we win we will not have won the debate and the debate will continue because the very brief ACC filed in the Supreme Court undercuts our position. Did I read the brief? No. How can I make such a claim then— because I read what counted— the signature line— and looked at who was Counsel of Record and it was not in-house counsel. And even though Susan was key to the preparation of the brief at the Supreme Court, no one will believe it. If Textron’s in-house counsel was Counsel of Record, Susan’s role would be perceived differently.

The First Circuit opinion is worth a read because it is clear that they did not believe that there was serious anticipation of litigation—the unwritten reason because if you had you had brought in your real trial lawyers—in their mind just routine stuff was going on. Not only is Susan right the result would have been different if it was outside counsel; it would, I suggest, also have been different if Textron in-house lawyers had argued the case.

The other reason we cannot win in court is because this debate has been going on for as long as I have been in the practice of law; I have heard it in my company when business people make comments about who are the real lawyers. And it is a debate that has been going on in ACC since the very beginning—do we do it ourselves or do we let outside counsel do it—those lawyers out there who are always willing to lend a helping hand, but at a cost whether you want to admit it or not. When they co-author an article in the Docket, no one really believes the in-house lawyer really had anything to do with it whether she did or not.

We have a serious image problem and the first step to fixing it is not a favorable decision by the Supreme Court, it is to admit it is there. The second step—is to go on the wagon.

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In a case involving an investigation by the NYAG and the SEC of Bank of America’s merger with Merrill Lynch and compensation and bonuses paid to Merrill Lynch executives (see New York Law Journal story), the NYAG's approach turns privilege law on its head and could profoundly undermine the provision of legal and preventive law counseling in public companies. 

The U.S. Department of Justice has officially agreed that coercing privilege waivers is not appropriate, without precedent, and extremely bad public policy.  It appears that the NYAG strategy is to "try" Bank of America in the media where they have suggested that Bank of America is not cooperating with the investigation because they haven't released privileged communications and work product.  Such arguments do not hold water and would not withstand the scrutiny of introduction in the courtroom, under legal precedent on privilege, current federal charging policy, or SEC enforcement guidelines.*

It is ludicrous for the government to argue that a company invokes an "advice of counsel defense," because an employee “admits” under questioning that s/he spoke with a lawyer. That "admission" by the employee is the result of a good faith answer to a direct question posed by a prosecutor (and is thus compelled).  It is not a disclosure of any aspect of the underlying advice, nor does it somehow create an argument that the company is asserting an advice of counsel defense.  We all know that such an assertion needs to be made by the company in a formal adjudication process as a stated defense.  Bank of America is quite clearly arguing in this case that its actions were legitimate and compliant with all disclosure laws, not that they were somehow illegitimate or suspect, and only made on “advice of counsel.”   (see Lewis Liman’s 9/8/09 letter to the NYAG). 

 
The NYAG's unprincipled shot across the bow [to create out of thin air an assertion that the company has raised an advice of counsel defense and therefore needs to divulge privileged files], if allowed to stand, will reverberate through every corporate boardroom and C-suite.  It will have a chilling effect on clients’ willingness to engage in crucial conversations with lawyers on the most sensitive and complex matters they face.  Yet those are precisely the circumstances in which the public interest most favors candid consultations with counsel.  I would have hoped that prosecutors and enforcement officials in such cases would be interested in encouraging such good practices, rather than undermining them.  

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"Answers to Questions You Wish Your Outside Auditor Hadn't Asked" at the ACC Annual Meeting raised lots of questions, but provided lots of solutions, too.  When it comes to privilege protection and erosion, many in-house lawyers are  terribly afraid of the threat from within: the likelihood that their auditors, newly empowered and intimidated by the PCAOB, will not be satisfied with anything less than everything you've got when assessing the fiscal health and adequacy of internal controls in their yearly, quarterly, even daily work in auditing the company's finances. 

Many folks prefer to think of privilege erosion in the government investigation context as "someone else's" problem - they believe and hope that they won't have to weather such scrutiny because their company has not been subject to a major investigation.  But auditors today are far more like adversaries or regulators than part of the corporate family of service providers (whether they like that comparison or not), and in-house counsel are well-advised to remember that in today's world of auditor "independence."  Today, privilege waiver is more likely to occur int he context of your ongoing audit relationship than it is in a government investigation: courts are more likely to deem that you've waived the privilege through your communications with auditors about internal investigations, reserves, or other legal processes than ever.  A most disturbing trend for those  interested in assuring that lawyers and auditors collaborate well in assessing the efficacy of internal controls.

Program leaders Tom Sabatino, CLO of Schering Plough, and Steve Cannon, former CLO of Circuit City (and ACC's outside counsel on privilege issues, as well as our lobbyist) are discussing the practical checklists in-house counsel should consider, along with other panelists, ACC board leader Jon Oviatt (CLO of Mayo), Catherin Englebert of Deloitte & Touche and Maryann Clifford (VP and CCO, Motorola).  Especially interesting is the sub-conversation that recent massive failures in the financial services industry will create disclosure mandates and practices that it will be hard to reverse -  will the pressure toward "transparency"  outweigh legitimate protections and rights of corporate clients?

Are lawyers from Mars and auditors from Venus?  Or do they live on some third planet together that is a long way away from what our clients  prefer that we focus our time on doing?  And how do we find our way back home?

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