Corporate Counsel Beware: Limits Of 'No Contact Rule'

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1 Portfolio Media. Inc. 860 Broadway, 6th Floor New York, NY Phone: Fax: Corporate Counsel Beware: Limits Of 'No Contact Rule' By Matthew D. Lee and Laura Brill Deegan, Blank Rome LLP Law360, New York (October 07, 2011, 1:17 PM ET) -- When conducting a criminal investigation of a company known to be represented by counsel, prosecutors and government agents typically coordinate with company counsel when seeking to contact the company s current employees. This generally is true whether the government wants to interview an employee, or serve the employee with a subpoena for documents or testimony. But company counsel should be forewarned that while federal prosecutors and agents typically abide by this professional courtesy, this general practice is just that a professional courtesy, and not a legal or ethical obligation. A recent decision from the Eastern District of New York entitled In re Amgen Inc. confirms this point: Federal prosecutors and agents do not run afoul of the so-called no contact rule by contacting current employees directly when the government knows the company is represented by counsel. A similar conclusion was reached by the South Carolina Bar Ethics Advisory Commission in Advisory Opinion 11-04, which found that a federal investigator does not violate that state s no contact rule by contacting individuals whom the investigator knows to be represented, regardless of whether the investigator is also an attorney. These recent decisions serve as a stark reminder to corporate counsel that it should always advise company employees that they may be contacted directly by federal agents, outside of the presence of company attorneys, and advise the employees of their options in the event they are contacted. Corporate counsel should also ensure that policies and procedures are in place to address the possibility that current employees may be directly contacted by investigators without advance notice. The Amgen Decision Amgen Inc., a large corporation in the biotechnology industry, had been named as a defendant in several lawsuits filed in the Eastern District of New York, as well as in other jurisdictions, by private individuals under the qui tam provision of the False Claims Act. The lawsuits pending in the Eastern District were filed under seal, and the government had not yet determined whether to intervene in any of those suits. At the same time, the U.S. Attorney s Office for the Eastern District of New York was conducting a grand jury investigation into the same matters at issue in the qui tam lawsuits.

2 As part of its criminal investigation, federal agents had served several grand jury subpoenas on Amgen employees, and had sought to interview several current and former Amgen employees. Amgen asserted that it had reached an agreement with the government to coordinate contacts between the government and Amgen s current employees through Amgen s counsel. Although the government initially abided by the agreement and coordinated with Amgen s counsel, at some point the government reversed course and began to contact Amgen s employees directly, seeking to interview employees and subpoena documents in the employees possession. In response to Amgen s objections, the government stated that it intended to contact Amgen s current employees whom the government believed were not separately represented by counsel notwithstanding any prior agreement to coordinate such contacts with corporate counsel. Amgen thereafter sought judicial relief by filing a motion for a protective order as a new action in the Eastern District, claiming that the government violated Rule 4.2 of the New York Code of Professional Responsibility the so-called no contact rule by contacting Amgen s current employees directly when the government knew that the company was represented by counsel. Rule 4.2 provides: "In representing a client, a lawyer shall not communicate or cause another to communicate about the subject of the representation with a party the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the prior consent of the other lawyer or is authorized to do so by law." This rule therefore regulates communications an attorney may have with a party known to be represented by counsel in the matter. The proceeding was assigned to U.S. District Judge Sandra L. Townes, who referred the matter to U.S. Magistrate Judge James Orenstein. After extensive briefing and oral argument, Magistrate Orenstein issued a comprehensive 44-page Report and Recommendation concluding that Amgen s motion should be dismissed for the following reasons: (1) the court lacked authority to rule on the motion; and (2) even if the court had the authority, the motion should be denied on the merits. In concluding the court lacked authority to hear the motion, Magistrate Orenstein first noted that the court had no authority to supervise the government attorneys conducting the criminal investigation, as the responsibility for supervising New York-licensed attorneys rests with the state s disciplinary authorities. Nor did the court have supervisory authority over the attorneys admitted to practice in the Eastern District, as that responsibility lies with the Eastern District s Committee on Grievances. Magistrate Orenstein also found that as a matter of separation of powers, the court lacked supervisory authority over the extrajudicial conduct of federal prosecutors practicing in the Eastern District. Magistrate Orenstein also rejected Amgen s argument that the court had supervisory authority over the qui tam actions prior to the government s intervention as a party-plaintiff, and rejected Amgen s claim that the court had supervisory authority over the government because the government has statutory authority to issue and seek to enforce civil investigative demands.

3 Similarly, he rejected Amgen s argument that the court had supervisory authority over the government s grand jury investigation. As Magistrate Orenstein noted, the court s authority over grand jury proceedings is limited to those expressly granted to it by the U.S. Supreme Court or by Congress, and was not broad enough to include enforcement of a state s rules of professional conduct. On the merits, Magistrate Orenstein held that Amgen could not obtain relief unless it demonstrated that it was a party to the same matter as the government within the meaning of Rule 4.2. The magistrate determined that neither Amgen nor the government was a party to the same matter for purposes of applying the no contact rule. Although Amgen was a party to the qui tam actions, the government was not because it had not yet intervened in those suits. Citing prior Second Circuit precedent, Magistrate Orenstein also concluded that Amgen was not a party to the grand jury investigation, because a grand jury investigation is not an adversarial proceeding; rather, it is an inquisitorial one. In that regard, the magistrate noted that the pendency of a grand jury investigation, without more, does not in any way suggest that the government views Amgen as an adversary: the grand jury can investigate merely on suspicion that the law is being violated, or even just because it wants assurances that it is not. Further, relying on United States v. Hammad, 846 F.2d 854, amended, 858 F.2d 834 (2d Cir. 1988), Magistrate Orenstein concluded that the government s actions in contacting Amgen s employees directly in a pre-indictment investigation were authorized by law for purposes of the no-contact rule. In Hammad, the Second Circuit held that a prosecutor s legitimate investigative techniques in conducting or supervising criminal investigations generally are authorized by law for purposes of Rule DR 7-104(A)(1) of the American Bar Association s Model Code of Professional Responsibility. But as recognized by Magistrate Orenstein, the decision did not identify the precise statutory authority that so authorized the government s conduct. Although Magistrate Orenstein appeared somewhat troubled by this point, he nonetheless acknowledged that Hammad was still controlling precedent. The magistrate also noted that the American Bar Association amended the official commentary to its version of Rule 4.2 in 2002 to expressly include investigative activities of government lawyers, as well as investigative activities of agents acting on behalf of government lawyers, prior to the commencement of a civil or criminal enforcement proceeding. Although New York has not adopted the ABA s commentary in its Rules of Professional Conduct, New York has not expressly rejected it. Accordingly, in light of all of these factors, Magistrate Orenstein concluded that reliance on Hammad was appropriate. While Magistrate Orenstein determined that Amgen s motion should be denied, he did note that Amgen was not without redress for its complaints. Nothing prevented the company from filing ethics complaints with the state bar, the Eastern District s Committee on Grievances, or the U.S. Department of Justice s Office of Professional Responsibility. The magistrate judge also noted that in the event of subsequent litigation in connection with the criminal investigation, Amgen might be able to file a motion to suppress evidence obtained in violation of Rule 4.2. District Judge Sandra Townes subsequently accepted Magistrate Orenstein s Report and Recommendation in its entirety, refused to grant any relief to Amgen and dismissed the action.

4 South Carolina Ethics Advisory Opinion The South Carolina Bar Ethics Advisory Commission reached the same conclusion, albeit under a different rationale, in a recent advisory opinion. In Advisory Opinion 11-04, the commission concluded that a federal investigator conducting administrative investigations may directly contact targets who are represented by counsel without violating South Carolina s Rule 4.2 (which is nearly identical to New York s rule). Following a formal opinion issued by the American Bar Association, Advisory Opinion concluded that for purposes of conducting pre-indictment investigative activities, an investigator is not representing a client within the meaning of the rule. Advisory Opinion also concluded that this was the rule regardless of whether the investigator is also an attorney, quoting 22 C.F.R. 77.2(a), which specifically excludes attorneys employed by the government from the definition of attorney for the government. Lessons From Amgen and Advisory Opinion Several important lessons for corporate counsel can be drawn from the Amgen decision and Advisory Opinion First and foremost, counsel representing a corporation in a criminal or civil government investigation must warn employees that they may be visited by government investigators, despite any assurances from prosecutors or agents to the contrary. In particular, employees should be advised that agents may show up unannounced at their homes, either early in the morning or in the evening. A common investigative tactic is to show up unannounced at an individual s home at odd hours in an attempt to catch the would-be interviewee off guard, place the employee at ease and solicit admissions that can be used against the employer, the employee or both. Employees should further be advised that they are under no obligation to speak with government agents and may politely decline any request to answer questions. Employees should be instructed that if they wish to speak with agents, they should be sure to answer questions truthfully and also that they are entitled to be represented by counsel of their choice. It is important to note that a company may provide counsel for its employees for use in connection with a pending government investigation, but under no circumstances may a company require its employees to use company-selected counsel. Any mandate that employees use the company s hand-picked outside counsel could be perceived as an attempt to obstruct justice and should be avoided. The best practice in this area is simply to advise employees that they have the option of retaining their own counsel or using outside counsel hired by the company to represent its employees. A company s employees should be provided with contact information for corporate counsel so that they can refer agents to counsel. Employees should further be instructed to immediately notify corporate counsel of the law enforcement contact. Finally, employees should be cautioned to take care to preserve any information or records in their possession that are privileged or constitute proprietary trade secrets. In the event they are questioned by law enforcement, a company s employees should be instructed that they are not to disclose any information that is privileged or a trade secret. Another important consideration is ensuring that employees understand the significance of subpoenas, and in particular that if they receive a subpoena, they should notify company counsel and not immediately begin handing over corporate records to government investigators.

5 In most investigations, prosecutors and federal agents will abide by an informal agreement to coordinate with corporate counsel when seeking to contact and interview current employees. However, the Amgen decision and Advisory Opinion stand as a stern warning that such an agreement is a professional courtesy only, and one that the government is free to disregard in the pre-indictment investigative context. Companies and their counsel that fail to heed this warning do so at their peril. Matthew Lee is a former U.S. Department of Justice trial attorney and a partner at Blank Rome in Philadelphia. Laura Brill Deegan is of counsel at Blank Rome LLP in New York. Both are members of Blank Rome s white collar defense and investigations practice group, and they frequently represent companies and individuals in federal criminal and civil investigations. The opinions expressed are those of the authors and do not necessarily reflect the views of the firm, its clients, or Portfolio Media, publisher of Law360. This article is for general information purposes and is not intended to be and should not be taken as legal advice. All Content , Portfolio Media, Inc.