Evidentiary Disclosures in Parallel Criminal and Civil Proceedings

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A Evidentiary Disclosures in Parallel Criminal and Civil Proceedings Navigating the Discovery Minefield and Protecting Attorney-Client Privilege WEDNESDAY, JULY 18, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Lee G. Dunst, Partner, Gibson Dunn & Crutcher, New York Joel M. Cohen, Partner, Gibson Dunn & Crutcher, New York The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

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5 Evidentiary Disclosures in Parallel Criminal and Civil Cases: Navigating the Discovery Minefield and Protecting Attorney-Client Privilege Lee G. Dunst Strafford Webinar July 18, 2012 Joel M. Cohen

6 Introduction DOJ and SEC investigations attract publicity and may negatively impact a company s stock price Private litigants may file civil suits as a result Our legal system permits these proceedings to advance simultaneously Issues consequently arise regarding discovery and disclosure These are challenging issues and there is often no easy solution 6

7 Discovery in Parallel Proceedings Defendant must coordinate two simultaneous discovery processes with different discovery rules Discovery in one proceeding may have an impact on the other In civil cases, parties are entitled to a broad range of discovery (Federal Rule of Civil Procedure 26(b)(1) permits discovery of any non-privileged matter relevant to any party s claim or defense ) In criminal proceedings, discovery is more circumscribed (Federal Rule of Criminal Procedure 16 permits discovery only of relevant information within the defendant s possession, custody, or control that the defendant intends to use in the defendant s case-in-chief at trial ) 7

8 Lifting Automatic Stays in Parallel Securities Class Actions Pursuant to the Private Securities Litigation Reform Act, once a motion to dismiss has been filed in a securities class action case, all discovery is automatically stayed Class action plaintiffs may try to use a defendant s prior production to the government in parallel proceedings as a reason for the court to lift statutorily mandated stays on discovery There is no recognized exception to the Private Securities Litigation Reform Act discovery stay merely because a defendant produced documents to the government In seeking to lift the stay, plaintiffs may assert they are prejudiced by lack of discovery and claim that such limited discovery would not frustrate the goals of PSLRA or place a burden on the defendant Plaintiffs also may claim that a partial lifting of the stay is necessary where the lack of access to documents hampers the plaintiffs ability to make informed strategic decisions Courts generally adhere to the two-pronged statutory exception of evidence preservation and undue prejudice in deciding such motions (See Canada, Inc. v. Aspen Technology; Sisk v. Guidant Corp., 2007 WL (S.D.N.Y. 2007)) 8

9 Privilege in Parallel Proceedings In civil cases, it is in the best interest of a party to protect privileged documents from disclosure In criminal or regulatory investigations, cooperation may be in a party s best interest and may include waiving privilege under appropriate circumstances Benefits of cooperation and/or disclosure: Public relations Resolve investigation quickly Mitigating factor in prosecution/sentencing Government may permit a corporation take the lead in an internal investigation if disclosure is prompt and comprehensive 9

10 Privilege and Cooperation Credit Former Deputy Attorney General Mark Filip released a memorandum with new cooperation credit policies in 2008 Under the Filip Memo, eligibility for cooperation credit may not be predicated upon the waiver of attorney-client privilege or work product protection Cooperation credit should be based solely on whether a corporation disclosed relevant facts SEC Division of Enforcement, Enforcement Manual (2011) has a similar policy SEC should not ask for privilege waivers without prior approval of the Director or Deputy Director A party s decision to assert privilege should not hurt his/her ability to obtain cooperation credit 10

11 Disclosures to the Government and Waiver of Privilege When a party provides the government with privileged information during an investigation, a litigant in a parallel civil case may argue that disclosure of privileged information to the government resulted in a broader waiver Disclosure of privileged documents to the government may constitute waiver of privilege as to those documents under certain circumstances The seminal case is In re Steinhardt Partners, L.P., 9 F. 3d 230 (2d Cir. 1993), in which the Second Circuit held that privilege was waived and ordered documents to be disclosed because entity s voluntary submission of documents to the SEC waived the protections of the work product immunity as to private litigants seeking the documents at issue The Second Circuit reasoned that [a]n allegation that a party facing a[n] investigation and the prospect of a civil fraud suit must make difficult choices is insufficient justification for carving a substantial exception to the waiver doctrine. Steinhardt, 9 F. 3d at 236 But the Second Circuit recognized that work product waiver may not always occur following disclosure to the government. Steinhardt, 9 F. 3d

12 Disclosures to the Government and Waiver of Privilege (cont d) Federal Rule of Evidence 502 provides that disclosure of privileged information in a federal proceeding or to a federal office/agency may result in waiver of privilege as to all documents relating to the same subject matter if the waiver is intentional and the documents ought in fairness to be considered together Litigants should disclose privileged information to prosecutors only where the benefits of waiver likely exceed concerns about disclosure in civil litigation Litigants should waive privilege only to the extent necessary Litigants can narrow the risk of broad waiver by refraining from using privileged information in an offensive, tactical way or by using other strategies to reduce the risk of disclosure of privileged information 12

13 Non-Waiver Agreements Today, it is commonplace to produce confidential documents subject to a non-waiver or confidentiality agreement Confidentiality agreements restrict the government from disclosing confidential information Many such agreements contain claw back provisions agreements that inadvertent production of privileged information will not to wit, constitute waiver but will be returned upon request (See Western Fuels Ass n v. Burlington N. R. Co., 102 F.R.D. 201 (D. Wyo. 1984)) But non-waiver agreements are not always enforced by courts. (See Koch Materials Co. v. Shore Slurry Seal Inc., 208 F.R.D. 109, 118 (D.N.J. 2002); In re Columbia/HCA Healthcare Corp., 192 F.R.D. 575, (M.D. Tenn.), appeal dismissed, 229 F.3d 1151 (6th Cir. 2000)) 13

14 Non-Adversarial Relationship with the Government There is an exception to the general waiver rule when a litigant establishes a non-adversarial relationship with the government such that a common interest exists. Examples of non-adversarial relationships: (i) (ii) When a party complies with a request to assist the government in performing routine regulatory duties (In re Steinhardt Partners, L.P., 9 F. 3d 230 (2d Cir. 1993)); or When a party discloses privileged information to the government to induce it to pursue an investigation of the party s adversary. (U.S. v. American Tel. and Tel. Co., 642 F. 2d 1285 (D.C. Cir. 1980) ( In the present case, MCI shares common interests with the United States, in the sense that they are proceeding on overlapping antitrust issues against a common adversary, AT&T. ) 14

15 Confidentiality Agreement and Subpoena from Government A party may request a subpoena and a confidentiality agreement from the government to formalize the demand If documents are disclosed without agreement, the government might disclose those materials to the public or to private litigants Agreement should state that production of materials will not constitute a waiver of privilege In Police and Fire Retirement Sys. of City of Detroit v. SafeNet, Inc., 2010 WL (S.D.N.Y. 2010), the district court reasoned that violating a party s confidentiality expectations jeopardizes the public interest and therefore denied motion to compel privileged documents in part because they were produced to the government pursuant to a confidentiality agreement But Federal Rule of Evidence 502 provides that such agreements may be binding only on parties to the agreement unless explicitly incorporated by court order Less risk of disclosure if a party seeks to have the confidentiality stipulation so-ordered by court 15

16 Prosecutor s Access to Civil Discovery Federal prosecutors can gain access to materials that the SEC obtained from the defendant The SEC is permitted by statute to share information gathered through civil proceedings with federal prosecutors In United States v. Kordel, 397 U.S. 1, 90 S. Ct. 763 (1970), Supreme Court held that the government can pursue simultaneous civil and criminal proceedings The Government s parallel civil and criminal proceedings do not violate a defendant s due process rights or the proper standards in the administration of justice unless (i) there is no legitimate reason for carrying out the civil investigation, or (ii) the government engages in deception or affirmatively misrepresents the true purpose of the civil investigation. U.S. v. Setser, 568 F. 3d 482 (5th Cir. 2009), cert. denied, 130 S. Ct. 437 (2009) 16

17 Prosecutor s Access to Civil Discovery (cont d) Courts also take into account the defendant s receipt of SEC Form 1662 in considering whether to deny the defendant s motion to dismiss or suppress The SEC provides SEC Form 1662 to defendant from whom it seeks information in formal testimony, such as a deposition Form 1662 provides notice that information you give [to the SEC] may be used against you in any federal, state, local or foreign administrative, civil or criminal proceeding It is important to recognize that information obtained by the government in the civil proceedings may be shared with federal prosecutors 17

18 Prosecutor s Access to Civil Discovery (cont d) If parallel proceedings constitute government misconduct, the defendant may seek to have the indictment dismissed or to suppress evidence obtained by improper means In U.S. v. Scrushy, 366 F. Supp. 2d 1134 (N.D. Ala. 2005), the court granted the defendant s motion to suppress testimony from an SEC deposition where the SEC s investigation became inescapably intertwined with the criminal investigation In Scrushy, the SEC received explicit directions from the U.S. Attorney s Office concerning tailoring its examination of Mr. Scrushy More commonly, courts find some legitimate reason to justify parallel proceedings In U.S. v. Stringer, 535 F. 3d 929 (9th Cir. 2008), the Ninth Circuit stated that almost every other circuit has denied suppression, even when government agents did not disclose the possibility or existence of a criminal investigation, so long as they made no affirmative misrepresentation 18

19 Stays of Civil Proceedings and Discovery One overarching concern for all parties: other party will take advantage of the broader scope of civil (versus criminal) discovery Civil discovery may also undermine a defendant s Fifth Amendment right against self-incrimination Outside the PSLRA context, federal courts have greater discretion in determining whether a stay of civil proceedings is warranted Several factors are considered (See In re WorldCom, Inc. Securities Litigation, 234 F. Supp. 2d 301, (S.D.N.Y. 2002)): - Extent to which proceedings overlap - Prejudice to civil plaintiff - Burden on defendant - Interests of persons not parties to civil proceedings - Interests of public in both proceedings - Efficient case management Outcome depends on the specific facts of the case 19

20 Stays of Civil Proceedings and Discovery (cont d) Government often seeks to stay parallel civil proceedings to preclude a defendant from obtaining information through broader civil discovery that would otherwise remain unavailable in criminal proceedings, to protect confidentiality of an ongoing criminal investigation, or to preclude the risk of a cooperating witness testifying A defendant may have an interest in pursuing discovery, but a criminal defendant may also have an interest in staying parallel civil proceedings, such as avoiding reciprocal discovery obligations A stay may allow the defendant to avoid having to choose between testifying in the civil proceeding or invoking the Fifth Amendment until the criminal proceeding is resolved Obtaining a stay of civil proceedings is a much higher hurdle for a criminal defendant Increasingly common for courts to seek to balance the parties competing interests by crafting relief short of a complete stay 20

21 Stays of Civil Proceedings and Discovery (cont d) Relief may include issuance of protective orders, partial stays limited to a finite period of time, stays of discovery on certain subject matters, or protective orders staying a defendant s deposition until after the decision on indictment Until recently, prosecutors requests for a stay of parallel SEC actions were granted Today, there is an increasing reluctance to grant such stays (S.E.C. v. Chakrapani, 2010 WL (S.D.N.Y. 2010)) Courts are increasingly skeptical of blanket claims of prejudice by the government where the government is responsible for parallel proceedings in the first place Additionally, courts acknowledge that the government is well aware of the discrepancy between civil and criminal discovery 21

22 Case Study: WorldCom In June 2002, WorldCom announced that it needed to re-state its financial results Subsequently, SEC filed civil complaint (SEC v. WorldCom, Inc., No. 02 Civ (JSR) (S.D.N.Y. 2002)) U.S. Attorney s Office later brought criminal charges against WorldCom executives (see US v. Normand, No. 02-cr-1341 (BSJ) (S.D.N.Y.); US v. Vinson, 02-cr-1329 (BSJ) (S.D.N.Y.); US v. Myers, No. 02-cr-1261 (BSJ) (S.D.N.Y.); US v. Sullivan, et al., 02-cr-1144 (BSJ) (S.D.N.Y.)) As a result, private litigants brought a securities class action (In re WorldCom, Inc. Securities Litigation, 2004 WL (S.D.N.Y. 2004)) Class action plaintiffs moved for an order modifying the Private Securities Litigation Reform Act discovery stay (In re WorldCom, Inc. Securities Litigation, 234 F. Supp. 2d 301 (S.D.N.Y. 2002)) The district court granted the motion on the basis of undue prejudice due to inability to make informed strategic decisions and defendants deteriorating financial condition (In re WorldCom, Inc. Securities Litigation, 234 F. Supp. 2d 301 (S.D.N.Y. 2002)) 22

23 Case Study: WorldCom (cont d) District court also granted discovery stays as to two individual defendants who moved to stay proceedings in the putative securities class action pending the resolution of the criminal charges against them In granting the stay, the court considered the impact of a stay on judicial efficiency The court did not find any of the plaintiffs claims of prejudice persuasive The government sought a stay of discovery in the securities class action as to 13 of the most critical witnesses The court granted temporary embargo of discovery WorldCom litigants also confronted Fifth Amendment issues Several former senior WorldCom executives asserted their Fifth Amendment right in depositions The court held that no adverse inference should be made in this case 23

24 Case Study: Abraham v. Aquilone Abraham v. Aquilone, No. 11 CIV KBF, 2012 WL (S.D.N.Y. May 15, 2012) Defendant in admiralty action moved to stay discovery in civil proceeding pending resolution of the criminal investigation against him Court first noted that parallel criminal and civil proceedings were unobjectionable Court also noted that a defendant s need to exercise his Fifth Amendment right does not alone cause substantial prejudice Applied 6 WorldCom factors and held that the court should not exercise discretion to stay the civil proceedings Court also noted that S.D.N.Y. courts generally deny motions to stay a civil proceeding where the defendant has not been indicted but is only under criminal investigation 24

25 Case Study: S.E.C. v. Treadway S.E.C. v. Treadway, No. 04 CIV VM JCF, 2005 WL (S.D.N.Y. Mar. 20, 2005) Court applied several factors to grant in part and deny in part the motion to stay Court noted in particular the relevance of the timing of the criminal and civil trials respectively: a stay of discovery in civil proceedings imposes a financial burden on defendants which is a factor weighing against the stay. The fact that the criminal trial is scheduled to be completed within a short time alleviates this concern for defendants and neutralizes timing as a factor in the balancing test 25

26 Conclusion Consider the prospect of parallel proceedings Privilege issues Avoid waiver of privilege Non-adversarial relationship Confidentiality agreement Discovery Strategies to prevent adversaries from sharing information 26

27 Lee G. Dunst 200 Park Avenue New York, NY Tel: Fax: Joel M. Cohen 200 Park Avenue New York, NY Tel: Fax: