NACDL

Executives beware. That is the message delivered by the U.S. Court of Appeals for the Third Circuit recently with respect to communications between corporate officers or employees and outside corporate counsel. In rejecting the appeal of Ian P. Norris, former CEO of Morgan Crucible Company plc (Morgan), from his conviction for conspiracy to violate federal witness-tampering laws, the court of appeals summarily rejected Norris’s attorney-client privilege argument. Rather than relying on evidence suggesting that Morgan’s outside counsel individually represented the company’s employees, including Norris, the Third Circuit instead held that the restrictive five-factor test derived from Matter of Bevill, Bresler & Schulman Asset Mgmt. Corp.¹ must be satisfied before the attorney-client privilege may be successfully asserted by corporate officers and employees and a company’s outside attorneys. The decision marks a drastic expansion of Bevill, and carries profound implications for individual employees and officers anywhere within the Third Circuit, and indeed around the country and the world.² 

Background

On Sept. 28, 2004, a federal grand jury sitting in the Eastern District of Pennsylvania returned a four-count indictment that charged Norris with (1) conspiring to fix prices for certain carbon products sold in the United States in violation of the Sherman Act, 15 U.S.C. § 1; (2) conspiring, in violation of 18 U.S.C. § 371, to corruptly persuade and attempt to corruptly persuade other persons with the intent of influencing their testimony in an official proceeding, as well as attempting to persuade others to alter and destroy documents; (3) corruptly persuading and/or attempting to corruptly persuade others with intent to influence their testimony; and (4) corruptly persuading others to alter and destroy documents. On March 23, 2010, Norris was extradited to the United States to face the charges in Counts 2-4.³ 

Prior to the trial, the government moved for an order permitting Sutton Keany, former counsel to Morgan, to testify at trial. The motion was predicated on Morgan’s prior waiver of attorney-client privilege in cooperation with the Antitrust Division of the Department of Justice. Keany’s testimony was critical to the government’s case, as it served to establish Norris’s intent to deceive the Antitrust Division by preparing certain non-contemporaneous meeting notes that purported to memorialize the discussions Morgan had with its competitors. The government pejoratively termed the meeting notes “scripts,” and alleged that the so-called scripts were false and designed to mislead U.S. investigators and conceal the true nature of the alleged price-fixing discussions orchestrated by Morgan.

Specifically, Morganite, a U.S. subsidiary of Morgan, had been served with a subpoena to produce documents on or around April 27, 1999. In connection with that subpoena, Morgan retained Keany’s firm. Between August and November 2000, Norris and Keany had a series of conversations related to the investigation generally, as well as the subpoena and the “scripts” specifically. As the district court noted, Keany’s testimony about these conversations revealed that (1) when Keany interviewed Norris and his subordinates in connection with the internal investigation, they all told him the same story they had agreed to tell about their price-fixing meetings; (2) Norris and another Morgan officer authorized Keany to provide the meeting summaries to the government; and (3) he provided these summaries, later determined to be false, to the government.⁴ In the view of the district court, this testimony tended to show that Norris had deliberately conspired with others at Morgan to attempt to impede the Antitrust Division’s investigation by providing back-dated summaries and notes of meetings that were calculated to sanitize the content of discussions between Morgan and its competitors.⁵ 

The district court conducted an evidentiary hearing, after which it held that Norris had no individual privilege that would bar Keany’s testimony given the company’s waiver of privilege, and that even if Norris could assert an individual privilege, the crime-fraud exception would apply to permit Keany’s testimony.⁶ The district court applied a restrictive five-factor test gleaned from Bevill, which requires a valid assertion of attorney-client privilege between an individual and outside corporate counsel to be predicated on proof that (1) the individual approached counsel for legal advice; (2) when the approach was made, the individual made it clear that she or he was seeking advice in his or her individual, rather than corporate, capacity; (3) counsel saw fit to communicate with the individual in his or her individual capacity; (4) the conversations were confidential; and (5) the substance of the conversations did not concern matters within the company or the general affairs of the company.⁷ 

Norris moved for reconsideration, which was denied. After trial, Norris was convicted on the conspiracy count and acquitted of the two substantive obstruction of justice counts. In his motion for judgment of acquittal, Norris relied in part on his argument that Keany should never have been permitted to testify in light of the attorney-client privilege existing between him and Norris, individually. The district court denied Norris’s motion, and Norris filed an expedited appeal in the Third Circuit. The court of appeals issued its opinion on March 23, 2011, and in terse terms rejected Norris’s attorney-client privilege argument, stating:

The district court in this case held an evidentiary hearing and ultimately determined that Norris failed to meet his burden of asserting his privilege pursuant to the five-factor test set forth in [Bevill]. The district court did not legally err in applying this test, and we see no clear error in the district court’s holding based on the facts elicited at the evidentiary hearing.

United States v. Norris⁸ 

To fully understand the significance of this seemingly innocuous application of precedent, one must understand both Bevill itself as well as how the lower federal courts interpreted Bevill prior to Norris. In Bevill, the questions related to privilege arose out of a securities fraud investigation of Bevill, Bresler & Schulman (BBS), Bevill, Bresler & Schulman Asset Management Corporation (AMC), and the principals of both companies by the U.S. Securities and Exchange Commission, and the representation of BBS by the law firm of Hellring, Lindeman, Goldstein, Siegal & Grennberg (Hellring). Both companies had become insolvent, with AMC seeking bankruptcy reorganization pursuant to Chapter 11, and BBS being liquidated under the Security Investor Protection Act.

Gilbert Schulman, the president of AMC, first learned of AMC’s and BBS’s financial problems on March 19, 1985, when he spoke with Robert Bevill over the telephone. Between March 25 and April 7, 1985, Schulman met with Hellring attorneys “almost daily.”⁹ At first, Schulman explained to the Hellring lawyers that he was seeking both personal and corporate legal advice. On March 31, 1985, BBS retained Hellring. The firm also continued to consider representing the principals of the corporation until April 4, 1985, when Hellring informed the principals that they should retain separate counsel.¹⁰ On April 7, 1985, AMC filed a bankruptcy petition; the next day, the Securities and Exchange Commission filed a civil complaint against AMC, BBS, and the principals of both companies.

As part of the bankruptcy proceedings, a trustee was appointed by the court on behalf of AMC. In May 1985, the trustee began deposing Schulman and ultimately sought to depose Schulman regarding his conversations with Hellring in March and April 1985. Schulman was instructed by his attorneys not to respond, based on the privileged nature of the conversations. AMC’s trustees, relying on their waiver of the corporate attorney-client privilege, sought an order directing both Schulman and representatives of Hellring to testify The district court held that all such conversations prior to March 31, 1985 — the date when Hellring was formally retained by BBS — were privileged; however, the district court also ordered Hellring to testify regarding all conversations and communications that took place after that date.¹¹ 

That ruling was appealed to the Third Circuit, which framed the issue as “whether the individuals’ assertion of an attorney-client privilege can prevent the disclosure of corporate communications with corporate counsel when the corporation’s privilege has been waived.”¹² The Third Circuit affirmed the district court’s ruling as striking the proper balance between the protection of the individual privileges of the directors and officers, and the recognition of the trustee’s ability to waive the corporate privilege. The court of appeals rejected as contrary to the purposes of Weintraub the corporate principals’ argument that a “blanket privilege” should apply because of the difficulty of parsing out personal communications with counsel from communications with counsel concerning corporate affairs.¹³ The Third Circuit also noted that the district court’s order allowed for the possibility that communications subsequent to March 31, 1985, could be found to be individually privileged, and approved of the in camera review process established by the district court for making such determinations. Finally, the Third Circuit held that, because neither the corporations nor their principals had submitted any evidence to the district court indicating that a joint defense strategy had been pursued, the joint defense privilege did not apply.¹⁴ 

Until Norris, lower courts within the Third Circuit had regularly distinguished Bevill based on its rather unique facts. For example, in In re Benun,¹⁵ the court specifically distinguished Bevill based on the fact that the Third Circuit in Bevill was not presented with any evidence of a record that would establish a common defense or cause; i.e., evidence that would demonstrate actual co-representation. Indeed, the trustee seeking disclosure in Bevill did not appeal the district court’s holding that communications prior to the date outside counsel was expressly retained on behalf of the company, but not the individuals involved, were privileged.¹⁶ In situations where actual co-representation existed, the lower courts held that an individual’s communications with the attorney were privileged, either as a matter of individual attorney-client privilege, or based on the joint defense privilege, which cannot be unilaterally waived by one of the joint clients, such as the corporation.¹⁷ 

The Third Circuit itself recognized that it was addressing a particular fact pattern in Bevill, namely “the relationship between a corporation’s waiver of its privilege and the individual directors’ assertion of a claim of attorney-client privilege with respect to counsel consulted on both a personal and corporate basis after the counsel has been retained by the corporation.”¹⁸ Bevill was not, on its own terms, originally aimed at addressing a situation where the corporation and the individual were joint clients of the attorney whose testimony is sought.¹⁹ In those situations (at least prior to Norris), the courts applied traditional common law joint client privilege analysis.²⁰ The central issue in those cases then became determining on which side of the line particular communications fell — those related to the individual representation or those related to purely corporate representation.²¹ In short, Bevill, on its own terms, applied when (1) individual corporate employees not represented by outside counsel communicated with the corporation’s outside counsel; and (2) there was no evidence of a joint-client relationship among the individuals, the company, and the attorney. That is, the five-part Bevill test only came into play when there was no evidence to support the existence of a joint-client relationship between and among outside counsel, the corporation, and the corporate directors, officers, and employees.

Norris, however, suggests that the Bevill test applies to all communications between individual corporate employees and officers with the company’s retained counsel, even when evidence supports the existence of a joint-client relationship. In particular, the district court acknowledged Keany’s conversation with the Antitrust Division²² as well as a letter from Keany to the Antitrust Division stating that he and his firm “presumptively represent all current employees of the companies in connection with the matter” including all employees that had been called before the grand jury, and advising that if additional employees were to be subpoenaed to testify, Keany “assume[d] that we would also represent those individuals.”²³ 

In addition, Norris presented a memorandum he received from Keany and two other attorneys at his firm, advising Norris that if he were subpoenaed by the Department of Justice, “It is entirely proper and appropriate for you to simply advise that … you are represented by counsel and expect to cooperate and communicate solely through counsel and that your lawyers are Jerry Peppers, Sutton Keany, and Stephen Weiner of Winthrop, Stimson, Putnam & Roberts.”²⁴ Keany and his colleagues then provided Norris with two letters he could hand to Antitrust Division attorneys if and when he received a subpoena. One of those letters stated: “As you have now been informed by our client, Ian Norris, we represent him as his lawyers here in the United States and outside the U.S. This representation specifically includes, but is not limited to, matters of any nature, in connection with any investigation” by the Antitrust Division.²⁵ Although Bevill was seemingly inapplicable to such a scenario on its own terms, the Third Circuit has now indicated that the five-factor test enunciated in that case applies to define whether the attorney-client privilege obtains in spite of such direct manifestations of a privileged relationship.²⁶ 

Avoiding the Post-Norris Minefield

Given the holding in Norris, corporate officers, directors and employees, and outside counsel retained by a corporation must take steps to ensure that the scope of any representation (1) is clear to all involved; (2) protects their interests; (3) complies with their ethical obligations; and (4) avoids both civil and criminal exposure.

From the perspective of outside counsel retained on behalf of a corporation in connection with a government investigation or prosecution, the initial retention agreement should be crystal clear as to the scope of the representation. Counsel must be sensitive to the implications of Norris with respect to individual corporate employees’ communications with counsel. Counsel should expressly advise the individuals that their communications — particularly to the extent they relate to issues within the scope of their duties as corporate officials or employees — will not be protected by the attorney-client privilege. At the outset of any such engagement, counsel must also carefully evaluate any potential conflicts that could arise between their client (the company) and its officers, directors, and employees.

This evaluation is particularly critical in the context of a Sherman Act investigation or prosecution like that in Norris, given the substantial incentives available under applicable regulations for targets or defendants who cooperate with the Department of Justice (by, for example, agreeing to waive the corporate attorney-client privilege). Because of these incentives, a conflict is likely to arise in any joint representation of the corporation and its directors, officers and/or employees. As a general matter, outside counsel retained by a corporation should avoid multiple representation and immediately and in writing advise the corporation’s principals that: (1) outside counsel does not represent the individuals; and (2) the individuals should retain separate counsel. At the same time, because a corporation can only speak through its officers, directors or employees, outside counsel’s written and oral communications with those individuals is a necessary part of any representation. Before such communications occur, and because those individuals will almost certainly face potential exposure in the context of any government investigation, outside corporate counsel should provide an Upjohn warning to the individuals, and receive and retain written waivers from the individuals before interviewing them.

In those cases in which joint representation is deemed appropriate in the absence of a conflict, the exact scope of the representation should be set forth in a separate engagement letter to the individual client. Even with such an engagement letter in place, counsel must differentiate between communications related to the corporate representation and those related to the individual representation.

From the individual’s perspective, communications with corporate counsel that has not been specifically retained to represent anyone other than the corporation must be approached with caution. Absent the express manifestation of an attorney-client relationship through an engagement letter or other contract, application of the attorney-client privilege will be in doubt. The best practice is to obtain separate counsel. In all cases, when an individual seeks personal legal advice, he or she should do so explicitly and in writing to avoid any ambiguity in the application of key portions of the Bevill test related to the nature and content of the advice sought. Creating an additional paper trail in the middle of a government investigation may seem anathema, but it is the only way to ensure that an individual’s interest in maintaining the attorney-client privilege is protected in light of Norris.

Notes

1. 805 F.2d 120 (3d Cir. 1986).
2. Ian Norris is a British national who was extradited to the United States in connection with a criminal antitrust proceeding brought by the U.S. Department of Justice.
3. Under the United Kingdom’s Order for Extradition, the Extradition Act, and the extradition treaty between the United Kingdom and the United States, Norris could not be prosecuted for the price fixing charge.
4. See United States v. Norris, 722 F. Supp. 2d 632, 640 (E.D. Pa. 2010).
5. See id.
6. See id. at 638-41 & n.3. The district court did not analyze the crime-fraud exception in great detail, but instead noted in passing that the government had made a prima facie showing that “Norris was intending to commit a fraud and that the attorney-client communications were in furtherance of that crime of fraud.” Norris, 722 F. Supp. 2d at 640 n.3. From the context, it appears that the district court believed that Norris’s act of authorizing Keany to provide the so-called “scripts” to the Antitrust Division was designed to further Norris’s criminal efforts to mislead the Antitrust Division. However, the district court did not indicate what evidence had been presented to prove that Norris specifically intended Keany’s disclosures to mislead the government, or why the crime-fraud exception would result in a waiver of privilege for all of Norris’s communications, as opposed to those specifically designed to further the crime. See United States v. Doe, 429 F.3d 450, 454 (3d Cir. 2005) (crime-fraud exception applies only to knowing efforts to use legal counsel to further a continuing or future crime); In re Grand Jury Investigation, 445 F.3d 266, 280 (3d Cir. 2006) (waiver of privilege under crime-fraud exception is limited to statements made to further a crime).
7. United States v. Norris, 722 F. Supp. 2d at 637-38 (quoting Bevill, 805 F.3d at 123).
8. United States v. Norris, No. 10-4658, 2011 WL 1035723 (3d Cir. Mar. 23, 2011).
9. See Bevill, 805 F.2d at 121.
10. Id. at 122.
11. Id. at 122-24.
12. Bevill, 805 F.2d at 124. The Third Circuit noted that, pursuant to Commodity Futures Trading Comm’n v. Weintraub, 471 U.S. 343 (1985), the parties in Bevill agreed that (1) the trustees held the power to waive the corporate attorney-client privilege; and (2) the directors and officers may have an individual attorney-client privilege separate and apart from the corporate privilege.
13. See Bevill, 805 F.2d at 125 (a blanket privilege would “prevent the trustee from investigating possible misconduct by the officers and permit the officers to use the privilege as a shield against the trustee’s efforts”) (internal quotation marks and citation omitted).
14. See id. at 126-27.
15. In re Benun, 339 B.R. 115, 124-25 (D.N.J. 2006).
16. See Bevill, 805 F.2d at 121-22. Seemingly, the distinction arose out of the unstated imposition of a heightened burden where outside counsel has been retained by a corporation but has not yet agreed to represent individuals within the corporation. The Third Circuit recognized that communications between prospective clients and counsel are privileged, just like conversations between clients and retained counsel. See Bevill, 805 F.2d at 124 n.1. While the privileged nature of all conversations prior to the date on which the company retained outside counsel was accepted by the district court and not contested on appeal, the Third Circuit held that the individuals were obligated to affirmatively demonstrate the applicability of an individual, as opposed to corporate, privilege in order to assert the privilege after that date.
17. See, e.g., In re Teleglobe Comm., 493 F.3d 345, 363 (3d Cir. 2007) (waiver of joint client privilege requires consent of all clients); In re Grand Jury, 211 F. Supp. 2d 555, 559 (M.D. Pa. 2001) (CEO’s communications privileged where attorney represented both CEO and company in connection with employee litigation; company could not waive joint defense privilege).
18. 805 F.2d at 124.
19. Again, in Bevill, the corporate principal attempting to invoke the privilege failed to present any evidence supporting assertion of a joint defense privilege. See 805 F.2d at 126. Norris, however, produced such evidence in the form of correspondence to and from Keany and his firm. See Norris, 722 F. Supp. 2d at 636-37 (email from Keany describing conversation with Antitrust Division in which he said that his firm “represents the parent company, its affiliates and its current employees”).
20. See In re Benun, 339 B.R. at 124-25; In re Grand Jury, 211 F. Supp. 2d at 559.
21. See, e.g., Bevill, 805 F.2d at 125.
22. See supra note 19.
23. See Norris, 722 F. Supp. 2d at 636.
24. See Appellant’s Opening Br., 2011 WL 683201 at *60 (Jan. 21, 2011).
25. See id. at *60-*61.
26. The Third Circuit’s decision in Norris is not indicative of a national trend threatening the vitality of the attorney-client privilege. For example, during the trial in United States v. Stevens, Criminal Action No. 10-694, (D. Md. May 10, 2011), the district court granted a Motion for Judgment of Acquittal in favor of counsel to GlaxoSmithKline (GSK) who was prosecuted based upon legal advice she had given GSK. The court noted that a lawyer should never fear prosecution because of advice given to a client, nor should a client fear that confidences communicated to a lawyer will be divulged unless the consultation was for the purpose of committing a crime or fraud. 

Reprinted with permission from the 2011-07-05 issue of The Legal Intelligencer. © 2011 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.