Understanding Corporate Miranda Warnings

Transcription

1 You Have the Right to an Attorney, but It Might Not Be Me By Daniel C. Headrick and Ryan L. Harrison Understanding Corporate Miranda Warnings Whether you represent a corporation, a partnership, or any other organization, it is imperative that you consider the implications of Upjohn and its progeny before conducting an internal investigation or a fact- finding interview. If you have ever watched a movie or a TV show you have probably heard the Miranda warning given to a criminal defendant. Miranda s lesser known civil counterpart never really made it into Hollywood s lexicon, but it is a vitally important concept for the civil defense lawyer to master. In essence, an attorney administers the corporate Miranda, sometimes referred to as an Upjohn warning, when he or she informs a corporate employee that he or she represents the corporation, not the employee, the attorneyclient privilege will protect what they discuss, but the corporation, not the employee, controls the privilege. In this article we will analyze Upjohn Company v. United States and the subsequent case law to understand how federal and state jurisdictions have responded to the decision. Next, we will explore the practical side of administering corporate Miranda warnings, including determining which test applies, understanding what a corporate Miranda warning should include, and other related practical issues. Finally, we will discuss using corporate Miranda in settings outside of internal corporate investigations. Daniel C. Headrick and Ryan L. Harrison are attorneys with Paine Tarwater and Bickers LLP in Austin, Texas. Mr. Headrick practices civil litigation in a variety of areas, including employment law, product liability, personal injury, and construction law. Mr. Harrison s practice is focused on construction disputes and other complex tort litigation. He is a member of the DRI Young Lawyers and Construction Law Committees DRI. All rights reserved. Upjohn Company v. United States: The Birth of Corporate Miranda The so-called corporate Miranda warning was impliedly created in 1981 when the United States Supreme Court expanded the attorneyclient privilege to cover certain communications between attorneys representing a corporation and the corporation s employees in Upjohn Company v. United States, 449 U.S. 383 (1981). In Upjohn, the Internal Revenue Service demanded production of completed questionnaires that Upjohn s general counsel had sent to all the corporate managers regarding questionable payments made to foreign government officials. Upjohn refused to produce the questionnaire responses, arguing that the managers had acted as clients when they responded to the general counsel s questionnaire, and therefore the attorneyclient privilege protected the responses. The Sixth Circuit Court of Appeals limited the scope of the attorneyclient privilege to communications with employees in the socalled control group, which meant those responsible for directing Upjohn s actions in response to legal advice. Id. at 388. The Supreme Court, however, rejected the control For The Defense April

2 group test because it did not clearly delineate which employees were considered corporate decision makers, thus frustrating the purpose of the attorneyclient privilege. The Supreme Court declined to create a new bright-line test and stressed, without adding any helpful factual scenarios, that a court should decide cases on a case-bycase basis. Id. at 396. When choosing which employees to interview, it is imperative to know the test that your jurisdiction uses to determine whether a corporation can invoke the attorney-client privilege. 40 For The Defense April 2013 In the wake of Upjohn and the control group test rejection, practitioners were left to wonder when the attorneyclient privilege might apply to communications with a corporate employee. Eventually, some wondered whether the attorneyclient privilege potentially could protect every interview of corporate employees. As a result, state and federal jurisdictions have created their own tests related to attorneyclient privilege protection. In the federal landscape, the courts generally apply some version of a subject- matter test, which protects communications concerning matters within the scope of an employee s corporate duties. See, e.g., In re M&L Business Mach. Co., Inc., 161 B.R. 689, 693 (D. Co. Nov. 3, 1993) (holding that the attorneyclient privilege protected memoranda sent to counsel to determine whether a bank was involved in improper activities); Harper & Row Publishers, Inc. v. Decker, 423 F.2d 487, 491 (7th Cir. 1970) (holding that the attorneyclient privilege protected a communication made by an employee who was not a member of the control group when the communication was related to the employee s employment duties). Some state jurisdictions still use a control group test, which protects communications made by corporate decision makers. See, e.g., Consolidation Coal Co. v. Bucyrus- Erie Co., 89 Ill.2d 103, (Ill. 1982) ( [t]he control- group test [protects] consultations with counsel by those who are the decisionmakers or who substantially influence corporate decisions and [minimizes] the amount of relevant factual material which is immune from discovery ). For example, the attorneyclient privilege likely would protect communications with a corporation s chief executive officer or high-level manager, while it would not protect communications with a lower-level assistant manager. See Nemirofsky v. Seok Ki Kim, 523 F. Supp. 2d 998, 1001 (N.D. Cal Oct. 23, 2007) (applying California law); Midwesco- Paschen Joint Venture For Viking Projects v. Imo Industries, Inc., 265 Ill. App. 3d 654, 663 (Ill. App. Ct. 1994) (applying Illinois law). Other state jurisdictions use some version of a subject- matter test. See, e.g., Keefe v. Bernard, 774 N.W.2d 663, 672 (Iowa 2009) ( the test must focus on the substance and purpose of the communication ); In re Monsanto Co., 998 S.W.2d 917, 922 (Tex. App. 1999, no pet.) ( [Texas] Rule of Evidence 503 was amended to adopt the subject matter test for an entity s assertion of privilege ); Wrench LLC v. Taco Bell Corp., 212 F.R.D. 514, 516 (W.D. Mich. June 6, 2002) ( where the attorney s client is an organization, the privilege extends to those communications between attorneys and all agents or employees of the organization who are authorized to speak or act for the organization in relation to the subject matter of the communication ). Under the subject- matter test, the attorneyclient privilege would protect virtually any communication to a corporation s attorney by an employee as long as the subject matter fell within the scope of the employee s corporate duties. For example, under the subject- matter test the attorneyclient privilege would protect an interview of a department store janitor about a slip and fall, whereas it would not protect an interview of the department store s president about the same slip and fall. So, do not assume that the attorneyclient privilege will protect your interview merely because you will interview a high-level managerial employee. Beyond the various tests used by courts to determine whether the privilege might protect a communication, three fairly recent cases present cautionary tales for practitioners. The Broadcom Case Know Who You Represent In 2006, attorneys representing Broadcom Corporation, a supplier of semiconductors, met with the company s CFO, William Ruehle, to conduct an interview regarding the propriety of the corporation s backdating of stock options. U.S. v. Nicholas, 606 F. Supp. 2d 1109, 1111 (S.D. Cal. Apr. 1, 2009). The attorneys also represented Ruehle in a separate derivative action. When the government convened a grand jury investigation into the backdating, it interviewed the attorneys regarding the statements that Ruehle made to the attorneys during the 2006 interview, and it later sought to introduce this information as evidence against Ruehle. Ruehle objected to the admission of this testimony under the attorneyclient privilege. Ruele and the attorneys disputed whether Ruele received a corporate Miranda warning, and the district court did not believe the attorneys testimony that they administered the warning. The district court found that Ruehle s communications were privileged under his attorneyclient privilege and excluded all of the statements between Ruehle and the attorneys. The district court scorchingly criticized the attorneys ethical breaches, commenting that they had committed at least three clear violations of [their] dut[ies] of loyalty to Mr. Ruehle. Id. at The attorneys failed to attain Ruehle s written consent to a conflict waiver regarding their representation of both Ruehle and Broadcom; they questioned Ruehle for Broadcom s benefit; and finally, they voluntarily disclosed his communications to the government. The district court concluded by referring the attorneys to the California Bar for disciplinary proceedings. On an interlocutory appeal, the Ninth Circuit Court of Appeals did not address the corporate Miranda issue. U.S. v. Ruehle, 583 F.3d 600 (9th Cir. 2009). It presumed that Ruehle had an attorneyclient relationship with the attorneys but declined to extend the attorneyclient privilege to the communications, holding that Ruehle did not make the statements with the reasonable expectation that they would remain confi-

3 dential. The Ninth Circuit noted that the attorneys allegedly unprofessional conduct in counseling Broadcom to disclose, without obtaining written consent from Ruehle, while troubling, provides no independent basis for suppression of statements he made in June Id. at 613 (emphasis added). Thus, the Ninth Circuit made clear that others should not read the decision to reverse the district court s decision as a green light to follow the example set by the attorneys. Those looking for a crystal clear ethics lesson should look elsewhere as the meaning and importance of the district court s decision given the Ninth Circuit s reversal on other grounds is supremely unclear. Regardless, the Ruehle decision could easily have gone the other way. Practitioners will want to avoid ambiguity by administering iron-clad written warnings. If you represent a corporation and also represent an employee in a related action, which we advise against due to the likelihood that it will lead to an impermissible conflict of interest between the company and its employee, you must present your clients with conflict waivers or decline one or both representations. You cannot undertake dual representation without protecting yourself and your clients. The Pendergest-Holt Case Hire Your Own Lawyer Another recent case raising corporate Miranda issues involved Laura Pendergest- Holt, a former financial officer with the Stanford Group. Pendergest- Holt v. Sjoblom et al., No. 3:09-cv G (N.D. Tex. Mar. 27, 2009) (notice of dismissal without prejudice filed Apr. 9, 2009). In this legal malpractice case, Ms. Pendergest- Holt believed, wrongly as it turned out, that she was represented by a Stanford Group attorney at a U.S. Securities and Exchange Commission (SEC) proceeding, which ultimately led to her criminal indictment. During the SEC proceeding, the attorney was asked whom he represented. The attorney stated, I represent the company Stanford Financial Group and affiliated companies. Pl. Am. Compl. at 10. When asked to clarify whether he represented the witness individually, the attorney allegedly stated, I represent her insofar as she is an officer or director of one of the Stanford affiliated companies. Id. Ms. Pendergest- Holt filed a $20 million legal malpractice lawsuit against the attorney, claiming that she was led to believe that the attorney represented her and was acting in her best interests. Furthermore, she claimed that she was never told she did not have to appear at the SEC hearing, nor was she told that her appearance could result in criminal prosecution. The lawsuit was later dismissed without prejudice, but the very fact that it was initiated presents a cautionary tale for practitioners on these issues. The AOL Case Not All Corporate Miranda Warnings Are Created Equal A Fourth Circuit case styled In re Grand Jury Subpoena: Under Seal, 415 F.3d 333 (4th Cir. 2005), considered the sufficiency of Miranda warnings provided during an internal investigation by America Online (AOL). Before an interview, AOL s attorneys told one employee the following: We represent the company. These conversations are privileged, but the privilege belongs to the company and the company decides whether to waive it. If there is a conflict, the attorneyclient privilege belongs to the company. Id. at 336. Some evidence also indicated that this employee was told that the corporate attorneys could represent him as well, as long as no conflict appear[ed]. Id. During an investigation of AOL, the grand jury issued a subpoena for documents related to the internal investigation. The district court denied the employee s motion to quash the subpoena, and the employee appealed on the grounds that he reasonably believed he was personally represented by the interviewing attorneys. The Fourth Circuit rejected the employee s argument, noting that the corporate attorneys would have had to do something more than state that they could represent the employee to create an attorneyclient relationship. However, the court emphasized that its decision should not be read as an implicit acceptance of the watereddown Upjohn warnings. The Fourth Circuit viewed the attorneys as having weakened the warnings when they left open the possibility that they could represent him [the employee] as well. Id. at 335. Based on Upjohn and its progeny, here is what we know for sure: the attorneyclient privilege possibly could protect communications by a corporation s attorney with some corporate employees when the employee invokes the privilege even though the attorney does not actually represent these employees. When choosing which employees to interview, it is imperative to know the test that your jurisdiction uses to determine whether a corporation can At its core, a corporate Miranda warning implicates an attorney s ethical duty of loyalty to his or her client. invoke the attorneyclient privilege. And finally, before interviewing any employee, the employee must receive a corporate Miranda or Upjohn warning. Practice Tips for Handling Corporate Miranda Issues Many defense attorneys do not think about corporate Miranda warnings until it is too late: when they have already conducted employee interviews and failed to administer warnings, when they have received discovery requests for those interviews, or when they have confronted the issue while defending an employee deposition. By following a few simple steps, you and your corporate client will gain some protection if a party attempts to compel production of your discussions with a corporate employee. Know Who You Represent This one is obvious, but it has to be said: achieve absolute clarity regarding whom you represent. Do you represent the corporation? The corporate employee? If so, do you represent the employee in the employee s individual capacity, corporate capacity, or both? These are questions that you must answer before you even think about administering a corporate Miranda warning. Undertake Thorough Conflicts Checks At its core, a corporate Miranda warning implicates an attorney s ethical duty For The Defense April

4 of loyalty to his or her client: The most fundamental aspect of the attorneyclient relationship is the duty of undivided loyalty owed by a lawyer to his client, and ultimately all of the ethical rules are derived from this fundamental principle. Nicholas, 606 F. Supp. 2d at If you represent a corporation, an employee who you interview understandably may feel confused If you do not conduct conflicts checks, you may have much larger problems than dealing with subsequent discovery arguments about whether your interviews were privileged. about whether or not you can or will protect the employee s interests. According to ABA Model Rule 1.13(f), [i]n dealing with an organization s directors, officers, employees, members, shareholders or other constituents, a lawyer shall explain the identity of the client when the lawyer knows or reasonably should know that the organization s interests are adverse to those of the constituents with whom the lawyer is dealing. A corporate Miranda warning intends, in part, to fulfill this ethical responsibility by clarifying for a company s employee who a lawyer represents and to whom the lawyer owes the duty of loyalty. However, before interviewing employees, conduct rigorous conflicts checks to ensure that interviewing any of the corporate employees or other constituent members will not create ethical problems for you. If you do not conduct conflicts checks, you may have much larger problems than dealing with subsequent discovery arguments about whether your interviews were privileged. Determine Which Test Applies in Your Jurisdiction Become familiar with the corporate Miranda law in your jurisdiction. State 42 For The Defense April 2013 jurisdictions use a wide variety of tests to determine how the attorneyclient privilege applies to communications with corporate employees. When choosing which employees to interview, it is imperative to know the test that your jurisdiction uses to decide if, when, and how the attorneyclient privilege will protect the interviews. If your jurisdiction does not extend the privilege to low-level employees when a corporation invokes the privilege, then a company s privilege may not encompass your employee interviews. Alternatively, if your jurisdiction uses some form of a subject- matter test, a company s attorneyclient privilege may not encompass all high-level employee interviews. Understand What You Should Include in a Corporate Miranda Warning Although individuals often write about the corporate Miranda warning, we have found very little case law on the content of the warning. Most cases simply cite Upjohn as the authority for what goes into the warning even though that case did not expressly furnish one. Ironically, even the employees in Upjohn did not receive adequate corporate Miranda warnings: they were told in ambiguous terms that they were not represented by the attorneys propounding the questionnaire. Unfortunately, corporate Miranda warnings do not have statutory bases, and they have been left open to interpretation by the courts entirely. The AOL case taught us that courts generally will view watereddown warnings as insufficient. Based on a recent Ninth Circuit Court of Appeals case, we propose that a warning should contain something substantially similar to the following: I represent your employer, the corporation. I do not represent you personally. Although I do not represent you, our conversation is confidential and protected under the attorneyclient privilege. However, you need to understand that the privilege belongs to your employer, the corporation. The corporation, and only the corporation, can decide whether and when to waive that privilege. Furthermore, the corporation can tell third parties and the government what you and I talk about, and they do not need your permission to make this disclosure. Our conversation is confidential, and you need to treat it as confidential in order for the privilege to be protected. You may wish to consult your own attorney if you have any questions or concerns about your own personal liability. I cannot advise you on any of these issues. See generally Ruehle, 583 F.3d at 604 n.3 (extrapolating from articulated principles). See also id. at 612 (regarding treating a conversation as confidential and observing that the settled rule that any voluntary disclosure of information to a third party waives the attorneyclient privilege, regardless of whether such disclosure later turns out to be harmful ). If separate counsel is retained on behalf of a corporation s employee, we recommend that the corporation s attorneys and the employee s individual counsel execute a written joint agreement regarding privilege. This will help protect the ongoing applicability of the attorneyclient privilege and maintain the confidentiality of the discussions. Deliver the Warning in Writing If you take the trouble to administer a full corporate Miranda warning, why rely solely on a verbal warning to that employee? The absence of a written record invites factual and credibility disputes between an employee and the corporation s attorney. Before an interview begins, give the verbal warning, and then have the witness review that same warning in writing and sign and date an acknowledgement that he or she has read the warning. The Broadcom case, which involved conflicting testimony about whether the attorneys had administered a warning, should provide enough reason to follow this advice. See also Nicholas, 606 F. Supp. 2d at 1117 ( An oral warning to a current client that no attorneyclient relationship exists is nonsensical at best and unethical at worst. ). Do Not Give Legal Advice to an Employee Employees may ask and they often do ask for legal advice from a corporation s attorney. The attorney should not entertain these requests for ethical and practi- Miranda, continued on page 73

5 Miranda, from page 42 cal reasons. Although the privilege might protect the advice, once you begin rendering legal advice to an employee, a court or a state bar may find that you represented that employee, and you may have already breached your ethical duty of loyalty. Beyond Corporate Miranda and the Internal Investigation We have already seen how courts have applied the attorneyclient privilege to corporate employee interviews in the context of internal investigations in confusing and unclear ways in Upjohn and the other cases discussed above. Practitioners can face profound ethical dilemmas when they attempt to determine representation in these matters and give corporate Miranda warnings. Tread cautiously. We face these issues in situations that occur much more commonly than highlevel internal investigations, though. For instance, we face them when we represent corporate entities in civil actions involving garden variety tort claims such as slip and falls, dram shop actions, and other claims arising from negligence. Because a corporate entity can only act through its agents and employees, the alleged wrongdoing, and the defense lawyer s factual investigation of that wrongdoing, has to involve the agents and the employees. Should an attorney give an employee a corporate Miranda warning in a dram shop case involving allegations that some employees served a patron too much alcohol? Presumably, the employees could all become civil defendants, subject to criminal penalties depending on the applicable state law. Can Upjohn protect interviews conducted with these employees during a standard factual investigation either in anticipation of litigation or during the discovery phase of a lawsuit? The general Upjohn premise seems to apply. An attorney represents a business and interviews employees of that business to obtain information. Although technically the attorney may not mount an internal investigation, the attorney interviews the employees for the purpose of obtaining information related to a lawsuit. Many attorneys ask employees to tell them the good, the bad, and the ugly in an effort to obtain all of the relevant information. This situation seems ripe for inadvertent representation. If an employee assumes that the attorney represents him or her, or that he or she controls the attorneyclient privilege, she may share potentially incriminating information that he or she would not otherwise share. It appears that any attorney who interviews employees of their clients ought to issue corporate Miranda warnings in some form before conducting fact- finding interviews even if the interviews are not part of an internal investigation. However, if an attorney gives an employee a corporate Miranda warning, the attorney runs the risk that the employee will not share significant information related to a lawsuit for fear of personal liability. To avoid this risk, attorneys should achieve a balance between informing employees that an attorneyclient relationship does not exist and obtaining the necessary facts to defend a lawsuit properly. In the typical tort lawsuit, for example, an attorney should explain to the employee that the employer will ultimately be responsible for the employee s negligent acts committed in the scope of his or her employment but the employee will be held responsible for intentional acts and any acts committed outside the scope of employment. That way, hopefully, the employee will be forthcoming about negligent acts that he or she carried out in the scope of his or her employment, which is likely the subject matter of the lawsuit. Similar to internal corporate investigations, it appears that courts will evaluate a corporate Miranda warning in another context on a case-by-case basis. Conclusion While you may not see an attorney administer a corporate Miranda warning in the next Hollywood film, it will continue to be important to defense attorneys. Whether you represent a corporation, a partnership, or any other organization, it is imperative that you consider the implications of Upjohn and its progeny before conducting an internal investigation or a fact- finding interview. For The Defense April