The grand jury occupies a unique role in our criminal justice system. It is an investigatory body charged with the responsibility of determining whether or not a crime has been committed. Unlike the Court, whose jurisdiction is predicated on a specific case or controversy, the grand jury “can investigate merely on suspicion that the law is being violated, or even just because it wants assurance that it is not.” United States v. Morton Salt Co., 338 U.S. 632, 642-43 (1950). The function of the grand jury is to inquire into all information that might possibly bear on its investigation until it has identified that might possibly bear on its investigation until it has identified an offense or has satisfied itself that none has occurred. As a necessary consequence of its investigatory function, the grand jury paints with a broad brush.

United States v. R. Enterprises , 498 U.S. 292, 297 (1991)

Whether your client is a large or small corporation, it is not in the client's best interest to ever be “painted on” by the big brush of a federal grand jury. The news media have chronicled stories of federal grand juries making life quite difficult for many prominent companies and the executives who run them. [i]

As opposed to William Shakespeare's questionable advice to “kill all the lawyers”, the arrival of a federal grand jury subpoena makes it much more prudent for a company official to contact defense counsel experienced with white collar and federal grand jury investigations before doing anything. Otherwise, a corporate employee who simply gathers up a stack of documents and blindly sends them out the door to the United States Attorney's Office can create considerable problems for the company and its employees if compliance with the subpoena is untimely, incomplete, or inaccurate. Such action or inaction may exacerbate problems and even trigger civil or criminal contempt proceedings. Moreover, if the corporate employee voluntarily releases confidential information that is covered by attorney-client privilege or the work product doctrine, the results may be equally disastrous.

Seeking the advice of experienced defense counsel is the prudent first step to take. While the federal grand jury has broad authority and power to subpoena records for a federal investigation [ii] , the grand jury's authority and power is not unlimited. [iii] White collar defense counsel should be consulted to analyze the subpoena for its legal validity. There may be a sound legal basis to challenge the subpoena rather than direct employees to blindly hand over corporate documents.

Attorney Client Privilege and Work Product Protections

The attorney-client privilege is one of the oldest and most sacred privileges in the legal profession. [iv] In the famous Upjohn decision, the Supreme Court stated the purpose of the privilege “is to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice.” [v] For the privilege to apply, (1) the holder must be a client (or seek to be one); (2) the person to whom the communication is made must be a lawyer and, in connection with the communication, is acting as a lawyer; (3) the communication relates to a fact which the attorney was informed without the presence of strangers for the purpose of seeking legal advice; and (4) not be waived. [vi] Accordingly, experienced legal counsel must make a determination of applicability if the privilege before it is unwittingly waived.

Material that does not fall within the strictures of attorney-client privilege may be covered by the work product doctrine. This doctrine reflects a “strong public policy underlying the orderly prosecution and defense of legal claims” and protects material prepared by counsel acting for the client in anticipation of litigation. [vii] For obvious reasons, the doctrine is not available to protect on-going fraud by the client. [viii] However, even if fraud is alleged, the work product doctrine may still protect the attorney's mental impressions, opinions, and legal theories. [ix]

Experienced defense counsel should review the corporate documents to analyze and assess whether or not the contents of documents are privileged under either of the above legal arguments. However, defense counsel have other legal mechanisms to viably challenge a federal grand jury subpoena.

Motion to Quash Subpoena

There are a variety of reasons why counsel may elect to challenge the grand jury subpoena rather than simply direct a corporate client hand over the documents. For example, a motion to quash a grand jury subpoena is appropriate under Rule 17(c) of the Federal Rules of Criminal Procedure “if compliance would be unreasonable or oppressive.” The subpoena may be quashed if it seeks information that is privileged. The subpoena may not be overly broad. [x] The subpoena must call for information that is relevant to the crimes under investigation. [xi] The subpoena must encompass a reasonable time frame. [xii] The subpoena must describe the information with sufficient particularity to allow for a response. [xiii]

If the subpoena is being used to harass or intimidate, the subpoena may also be quashed. [xiv] The judge may quash grand jury subpoenas in the proper exercise of the court's Rule 17(c) supervisory powers even though the subpoenaed materials are not covered by a statutory, constitutional, or common law privilege. [xv] Under Rule 17(c), the district court is called upon to determine whether the subpoenas are “unreasonable and oppressive,” not just whether they are privileged. [xvi]

The district court may require the government to initially demonstrate the relevance of the subpoenaed documents to a legitimate grand jury investigation once the subpoena is challenged. In one federal circuit, the government's initial burden may be satisfied by the government's in camera filing of a “Schofield” affidavit containing a brief description of the nature or purpose of the grand jury investigation and general relevance of the subpoenaed documents to the investigation. [xvii] However, other federal circuits do not require the government to make an initial showing of relevancy. [xviii]

While a motion to quash may be appropriate, corporations should never simply ignore, refuse, or fail to produce documents in defiance of a subpoena. If that occurs, then the company or employees may face civil or criminal contempt proceedings under Rule 17(g). It is not a strict liability standard. There is a requirement for the government to prove the party failed to obey the subpoena “without adequate excuse” in order for the party to be held in contempt. However, if the government meets its burden, the consequences can be dire. By statute, the federal court has the power and discretion to punish contempt by fine or imprisonment if the misbehavior obstructs the administration of justice. [xix]

Notwithstanding the above arguments, corporate legal counsel must be aware of the dangers that lurk when a federal grand jury investigation is initiated. The subpoena may ultimately turn next to the issue of a corporation's “cooperation” (or lack thereof) with the federal investigation.

New Guidelines for Federal Prosecutors In Corporate Investigations

In light of the much publicized federal prosecutions of Arthur Anderson and Enron employees, there is an understandable discomfort in corporate boardrooms about being “uncooperative” in federal investigations. Once a corporation or an employee becomes characterized as a “target” of a grand jury investigation, it becomes more difficult for counsel to negotiate a result without prosecution. And if the corporation or employee is a target, it is less prudent to cooperate (i.e. testify before the grand jury) since any information that is provided may undoubtedly be used against the corporation or employee at a subsequent criminal prosecution.

Nevertheless, there may be a glimmer of hope for corporations due to recent events in Washington DC. Assistant Attorney General Alice S. Fisher stated that “waiver of attorney-client privilege is not a prerequisite” for a corporation to cooperate. [xx]

The U.S. Department of Justice (DOJ) has recently restricted the power of federal prosecutors to obtain blanket waivers of privilege from corporations. Federal prosecutors must now seek approval from Washington DC before they can request corporations to waive attorney-client privilege and work product protections in corporate fraud investigations. The infamous DOJ “Thompson Memorandum” [xxi] issued in January 2003 gave federal prosecutors sweeping power to force corporations to waive attorney-client privilege and work product or face charges in corporate fraud investigations. This power became highly criticized by federal courts for potentially “chilling” the offering of legal advice due to the required waivers. [xxii]

On December 12, 2006, Deputy Attorney General Paul McNulty announced revised corporate charging guidelines for federal prosecutors. These new guidelines require prosecutors in U.S. Attorney's Offices to obtain written approval directly from the Deputy Attorney General before making a request to a corporation for protected materials (i.e. privileged attorney-client communications, legal advice, or non-fact attorney work product).

The McNulty Memorandum requires prosecutors to establish a “legitimate need” for the information by addressing the following four factors: “(1) the likelihood and degree to which the privileged information will benefit the government's investigation; (2) whether the information sought can be obtained in a timely and complete fashion by using alternative means that do not require waiver; (3) the completeness of the voluntary disclosure already provided; and (4) the collateral consequences to a corporation of a waiver.” [xxiii]

Before asking defense to share “purely factual information” such as documents or witness statements, the prosecutor must obtain written approval from the local U.S. Attorney who must then “consult with” the Assistant Attorney General at the Criminal Division in Washington DC before approving the request. Id . at 10. If the approval is obtained and the factual information is insufficient, then the prosecutor must go to the U.S. Attorney who must obtain “written authorization” from the Deputy Attorney General before seeking any privileged communications or work product. Id . at 11.

This change in DOJ policy is a significant “reigning in” by DOJ after numerous aggressive federal prosecutions of corporations and senior employees. A prosecutor who must now get approval from the head federal prosecutor in his district may think long and hard before making the request when he or she knows the U.S. Attorney must also contact higher ups at DOJ. The prosecutor's case will now be scrutinized at the highest levels of DOJ if the prosecutor seeks such information.

Before the McNulty Memorandum took effect, prosecutors could weigh certain factors in considering whether a corporation is “cooperating” with federal authorities during an investigation. For example, the prosecutor could take into account whether a corporation advanced attorneys' fees to employees or agents under investigation and indictment. Under many state laws, corporations could legally advance legal fees to employees and often enter into contractual obligations to do so in employment agreements.

At the American Bar Association's annual convention on “White Collar Crime”, prominent defense attorneys and prosecutors debated the impact of the change in DOJ policy. [xxiv] Some believe that the change in policy will force prosecutors to rethink their approach to targeting corporations and seeking waivers of privilege. However, other critics say the new policy is business as usual.

In the recent Bureau of National Affairs issue on “Prevention of Corporate Liability”, defense attorney Alan Vinegrad [xxv] of Covington & Burling LLP strongly criticized the new DOJ policy by asking the question “Why would a prosecutor have a right to know what I think about my client and my defense? [xxvi] Another former federal prosecutor noted that the policy may have had a “chilling effect” on the sharing of information between corporate counsel and employees that is difficult to determine.” [xxvii]

If corporate general counsel are not familiar with federal grand jury investigations, then they may do a serious disservice to the corporation and its employees by proceeding blindly. Consultation with defense counsel experienced in these investigations should take place early and occur often if a federal investigation is initiated.

Words of Wisdom

If a corporation is served with a federal grand jury subpoena or has the misfortune of learning that it is subject of a federal grand jury investigation, it is prudent for the corporation to consult with experienced legal counsel familiar with white collar investigations. Defense counsel can provide legal advice to assist the corporation in making an informed decision regarding the validity of the subpoena, on what corporate documents should be produced, as well as whether or not to cooperate with federal agents who may come knocking at the door.

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Craig S. Denney is counsel with the law firm Downey Brand LLP. He works out of the firm's Reno office and practices in the areas of white collar criminal defense and litigation in Nevada and California. He served as a federal prosecutor in Nevada for seven years before joining the firm. Mr. Denney is board certified by the National Board of Trial Advocacy (NBTA) in Criminal Advocacy.

 

[i] See Kurt Eichenwald, Conspiracy of Fools (Broadway Books 2005)(Enron debacle); “ The Kona Files ” in The New Yorker (Hewlett-Packard's Surveillance Scandal)(February 19 & 26, 2007); “H.P. Chairwoman and 3 Others Cleared in Spying Case” - The New York Times, March 15, 2007; “Ex-Chief of WorldCom Convicted of Fraud Charges” – The New York Times, March 15, 2005 (Prosecution of CEO Bernard Ebbers);

[ii] See In re Grand Jury , 286 F.3d 153, 159 (3d Cir. 2002) (subpoena is most important tool of grand jury investigation); Fed. R. Crim. P. 17(c)(1) (grand jury can subpoena persons to produce documents, other physical evidence, and data);

[iii] Grand juries are not licensed to engage in arbitrary fishing expeditions, nor may they select targets of investigation out of malice or an intent to harass.” United States v. R. Enterprises , 498 U.S. 292, 299, 111 S.Ct. 722, 727 (1991);

[iv] Upjohn v. United States , 449 U.S. 383, 389 (1976);

[v] Id.

[vi] See United States v. United States Machinery Corp. , 89 F.Supp. 357 (D. Mass. 1950);

[vii] Hickman v. Taylor , 329 U.S. 495, 514-15 (1947);

[viii] In re Special September 1978 Grand Jury II , 640 F.2d 49 (7th Cir. 1980);

[ix] In re Grand Jury Proceedings (FCM Corp.), 599 F.2d 1224 (3d Cir. 1979);

[x] Brown v. United States , 276 U.S. 134 (1928); In re November 1975 Grand Jury , 433 F. Supp. 1094, 1097 (N.D. Ill. 1977);

[xi] United States v. R. Enterprises , 498 U.S. 292 (1991); Hale v. Henkel , 201 U.S. 43, 71 (1906); In re Grand Jury Matters , 751 F.2d 13, 18 (1st Cir. 1984);

[xii] Brown , 276 U.S. at 143; In re Grand Jury Matters , 751 F.2d at 18;

[xiii] Id .

[xiv] See United States v. (Under Seal) , 714 F.2d 347, 349 (4th Cir. 1983); United States v. Doe , 541 F.2d 490, 492 (5th Cir. 1976);

[xv] See United States v. Winner , 641 F.2d 825 (10th Cir. 1981) (subpoenaed materials not sufficiently relevant to warrant production); United States v. Wencke , 604 F.2d 607 (9th Cir. 1979) (subpoena overbroad); United States v. Daly , 481 F.2d 28 (8th Cir.) (subpoena quashed as overbroad, unreasonable, oppressive and lacking in particularity and relevance), cert. denied, 414 U.S. 1064, 94 S.Ct. 571 (1973); United States v. R Enterprises , 498 U.S. 292, 30102 (1991)(evaluate subpoena on “reasonableness” standard); Margoles v. United States , 402 F.2d 450 (7th Cir. 1968) (subpoena clearly overbroad and therefore unreasonable);

[xvi] See Matter of Special April 1977 Grand Jury , 581 F.2d 589 (7th Cir.)(considering privilege question and Rule 17(c) reasonableness question separately), cert. denied, 439 U.S. 1046, 99 S.Ct. 721 (1978);

[xvii] In re Grand Jury Proceedings (Schofield I) , 486 F.2d 85, 93 (3d Cir. 1973); In re Grand Jury Proceedings (Schofield II) , 507 F.2d 963, 966 (3d Cir. 1975);

[xviii] See In re Pantoljas , 628 F.2d 701, 704 (1st Cir. 1980); In re Grand Jury Investigation (McLean) , 565 F.2d 318 (5th Cir. 1977); In re Grand Jury Proceedings (Hellman) , 756 F.2d 428, 431 (6th Cir. 1986);

[xix] See 18 U.S.C. § 401;

[xx] Ms. Fisher was quoted at a panel discussion by the Practicing Law Institute in New York City on January 19, 2007;

[xxi] Issued by former US DOJ Deputy Attorney General Larry D. Thompson.

[xxii] See United States v. Stein , 2006 WL 1063298 (S.D.N.Y.)(judge ordered government to answer questions regarding meetings with KPMG during investigation and its agreement not to advance attorneys' fees to partners as a factor to avoid prosecution on the partnership);

[xxiii] See McNulty Memorandum, page 9.

[xxiv] The author of this article recently attended the American Bar Association's convention on white collar crime in San Diego, CA on March 1-2, 2007. One of the discussion panels included opposing trial counsel who participated in the federal prosecution of Ken Lay and Jeffrey Skilling as well as other high profile cases.

[xxv] Mr. Vinegrad is the former U.S. Attorney for the Eastern District of New York.

[xxvi] BNA, Inc. “Prevention of Corporate Liability” (February 19, 2007)

[xxvii] Id . at 3.