Letter from the Committee on the Federal Courts Expressing Support for S. 2450 Part 1

Federal Courts

chair

Thomas V. Marino, Esq.

Dunnington Bartholow & Miller LLP

1359 Broadway

New York, NY 10018

(212) 682-8811 • Fax (212) 661-7769

email: tmarino@dunnington.com

 

 

 

May 22, 2008

 

The Honorable John Conyers, Jr.	The Honorable Lamar S. Smith
Chairman	Ranking Member
Committee on the Judiciary	Committee on the Judiciary
U. S. House of Representatives	U. S. House of Representatives
Washington, D.C. 20515	Washington, D.C. 20515
The Honorable Howard L. Berman	The Honorable Howard Coble
Chairman	Ranking Member
Subcommittee on Courts, the Internet	Subcommittee on Courts, the Internet
and Intellectual Property	and Intellectual Property
Committee on the Judiciary	Committee on the Judiciary
U.S. House of Representatives	U.S. House of Representatives
Washington, D.C. 20515	Washington, D.C. 20515

 

Re: S. 2450, Legislation to Adopt Proposed Federal Rule of Evidence 502

 

Gentlemen:

 

On behalf of the Committee on the Federal Courts of the New York County Lawyers’ Association (“NYCLA”), we write to express our strong support for S. 2450, legislation that would adopt proposed Federal Rule of Evidence 502 (“FRE 502”) concerning the attorney-client privilege and the work product doctrine. As you know, the Senate passed S. 2450 by unanimous consent on February 27, 2008. We urge you to support prompt House passage of the legislation.

 

On February 5, 2007, NYCLA’s Board of Directors adopted a report of its Committee on the Federal Courts that addressed FRE 502 (a copy of the prior report is annexed to this letter). However, the Committee’s prior report deferred comment pending further study of two issues: (1) selective waiver, particularly when made to government regulatory bodies; and (2) enforceability of confidentiality agreements and orders against non-parties. The selective waiver provision was removed from FRE 502 by the Judicial Conference of the United States and S.2450, as passed by the Senate, did not contain the selective waiver provision.

 

In urging House passage of S.2450, the Committee on the Federal Courts wishes to address the single remaining issue left open by its prior report, i.e., subdivisions (d) through (f) of FRE 502, on the enforceability of agreements and orders concerning production of privileged material. Collectively, these subdivisions provide that: (1) parties may bind themselves through enforceable agreements concerning the consequences of disclosing privileged communications or information; (2) such agreements are not binding on anyone other than parties to the agreement, unless the agreement is embodied in a court order; and (3) a federal court order embodying an agreement – or issued in the absence of an agreement – on the effect of disclosure of privileged communications or information governs all persons, whether or not parties to the agreement, in both state and federal courts.

 

The burdens of modern discovery have become exponentially greater with the rise of electronically stored information. Millions of documents that formerly might never been generated or, if generated, never preserved, are now stored in formats that make selective searches a hit-or-miss proposition and document-by-document review prohibitively expensive, or where not prohibitively expensive in an absolute sense, grossly disproportionate to the stakes in the litigation. For some examples, see Hopson v. City of Baltimore, 232 F.R.D. 228 (D. Md. 2005); Rowe Entertainment, Inc. v. William Morris Agency. 205 F.R.D. 421 (S.D.N.Y. 2002). Even a medium-sized business can now generate and preserve – perhaps in a box of back-up tapes that would have been thrown out long ago if they took up as much room as their paper equivalents – the proverbial warehouse of documents formerly the province of mega-cases.

 

Much privileged material, like much discovery material generally, is unimportant. The adversary often knows, or could guess, what legal advice would have been given in the situation and what facts the client might have communicated. The incremental value of confirmation might be minimal. When dealing with unprivileged documents, lawyers and clients can weigh the costs of screening against the probable importance of what might slip through a less rigorous and less costly screening process. Where privileged documents are concerned, however, current law makes such a weighing process too risky.

 

FRE 502 attempts to curb the cost of privilege review by making a judge’s order that forbids parties from claiming a privilege waiver merely because their adversaries see privileged documents, under arrangements such as “quick peek” or “clawback” provisions, enforceable against non-parties to a litigation. Under such arrangements, adversaries often see privileged material. Although they cannot make evidentiary use of it, they do obtain whatever insight is to be gained from knowing what the privileged material says. This incentive is probably great enough to prevent the proposed rule from becoming an excuse for sloppy handling of privileged matter. FRE 502 allows lawyers and clients to weigh the cost of screening against the likelihood that revealing privileged material to one’s adversary would cause actual harm to their cause.

 

Further, the party allowing the other party to see privileged material on a nonwaiver basis is not, generally, making affirmative adversarial use of the privileged material. But for questions of time, expense and difficulty, the party producing the privileged material would just as soon the adversary never saw it at all, and gains nothing from disclosing it, except the savings in time, expense and effort required to find and sequester it. While the affirmative use of voluntarily disclosed material in one case raises issues of fairness when the same material is withheld in related litigation, no fairness issues are involved when parties make decisions about the cost- effectiveness of preventing involuntary disclosure.

 

Although the Committee on the Federal Courts had some concerns about the power of a judge to impose non-consensual confidentiality orders, the potential abuse of the provision by parties seeking at a late stage of litigation orders retroactively re- privileging documents produced earlier, and the possibility that the rule would be interpreted to cover strategic, deliberate disclosures, on balance, we recommend adoption of the enforceability provisions.

Respectfully submitted,

Thomas V. Marino

Chair

Committee on the Federal Courts

 

 

Subcommittee on Proposed Federal Rule of Evidence 502

New York County Lawyers’ Association – Committee on the Federal Courts:

 

Clement J. Colucci, Chair

Norman B. Arnoff

Evelyn Konrad

Richard W. Slack

Stephanie G. Wheeler

 

New York County Lawyers’ Association

14 Vesey Street

New York, NY 10007

(212) 267-6646 • Fax: (212) 406-9252

www .nycla.org

Report of the New York County Lawyers’ Association
on Proposed Revisions to
Rule 502 of the Federal Rules of Evidence

This Report was approved by the Board of Directors of the New York County Lawyers’ Association at its regular meeting on February 5, 2007.

 

On. August 10,2006, the Committee on Rules of Practice and Procedure of the Judicial Conference of the United States released for public comment, inter alia, a proposed Federal Rule of Evidence (“FRE”) 502 dealing with waiver of the attorney-client and work-product privileges. The Advisory Committee on Evidence Rules held two public hearings on proposed FRE 502, one in Phoenix on January 12, 2007 and another in New York City on January 29, 2007. The public comment period closes February 15, 2007. This report contains the recommendations of the New York County Lawyers’ Association (“NYCLA”) on certain aspects of the proposed rule.

 

• Proceedings to Date

In January 2006, James Sensenbrenner, then Chairman of the House Committee on the Judiciary, requested the Judicial Conference of the United States to initiate a rulemaking process, pursuant to 28 U.S.C. § 2074, to address the litigation costs and burdens created by the current law on waiver of attorney-client and work-product privileges. Because any proposed rule would deal with the substantive law of privilege, it would eventually require enactment by Congress to become effective. 28 U.S.C. § 2074(b).

 

The Advisory Committee directed its Reporter, Professor Daniel Capra of Fordham University School of Law, to prepare a draft rule for its consideration that would address four topics: (1) scope of waiver; (2) inadvertent disclosure; (3) selective waiver, particularly when made to government regulatory bodies; and (4) enforceability of confidentiality agreements and orders. The Advisory Committee circulated the draft rule and Advisory Committee Note to selected judges, regulators, academics and practicing lawyers in advance of its April meeting at Fordham Law School. On April 24, 2006, the Advisory Committee heard testimony and considered written submissions from various persons.

 

As a result of the comments received at the hearing, the draft was revised, mainly to eliminate language purporting to regulate state rules on waiver as applied in state court proceedings- The Advisory Committee and its liaisons and members of the Civil Rules Committee discussed the revised draft. The Advisory Committee reached agreement on most of the provisions for a proposed FRE 502, leaving undecided whether to recommend for enactment by Congress proposed subdivision (c) dealing with selective waiver, and leaving the proposed but unadopted language in brackets. The Advisory Committee unanimously recommended that the revised draft of proposed FRE 502, including the bracketed language on selective waiver, be released for public comment. The revised draft and Advisory Committee comments are attached as Exhibit A.

 

• The Proposed FRE 502

The Committee drafted the proposed FRE 502 to deal with two overarching problems. First, under the current rules, lawyers must spend countless hours, at the client’s mounting expense, reviewing ever more voluminous document production – a problem exacerbated by electronic data storage and its related discovery problems – to cull out privileged documents, many of which are insignificant in and of themselves but could lead to the compelled production of other, possibly important, privileged documents. Second, government enforcement agencies often insist on disclosure of privileged information in the course of investigations, which then becomes available to third parties.

 

The proposed FRE 502 deals with these problems in four ways: (1) limiting the scope of privilege waivers; (2) adopting a uniform standard on inadvertent waivers; (3) allowing selective disclosure to government and regulatory agencies; and (4) making agreements concerning privileged communications enforceable not only among the parties but, with judicial approval, against non- parties.

 

1. Scope of Waiver: Subdivision (a) deals with the scope of a privilege waiver. Under current law, the disclosure of privileged matter often results in a waiver of privilege not only for the matter produced but for other communications concerning the same subject matter. In re Sealed Case, 676 F.2d 793, 809 (D.C. Cir. 1982); Hercules, Inc. v. Exxon Corp., 434 F. Supp. 136,156 (D. Del. 1977). In practice, the application of the general rule is complex and inconsistent, raising issues concerning just what the “same subject matter” is and whether waivers of privileged communications other than those disclosed are fair. In re Grand Jury Proceeding. 78 F.3d 251 (6th Cir. 1996); In re von Bulow. 828 F.2d 94 (2d Cir. 1987).

 

The generally accepted rationale for regarding waiver of some privileged communications as a waiver of all related privileged communications – however “related” may be defined – is the unfairness of allowing a party to make selective adversarial use of privileged communications. See, 8 Wigmore, Evidence § 2328 at 638 (McNaughton rev, 1961 )(“The client’s offer of his own or the attorney’s testimony as to a specific communication . . . is a waiver as to all other communications . . . on the same subject matter. This is so because the privilege of secret consultation is intended only as an incidental means of defense, and not as an independent means of attack, and to use it in the latter character is to abandon it in the former. . . . The client’s offer of his own or the attorney’s testimony as to a part of any communication. . . is a waiver as to the whole of the communication, on the analogy of the principle of completeness.”). See also Teachers Ins. And Annuity Ass’n of America v. Shamrock Broadcasting Co.. 521 F. Supp. 638, 641 (S.D.N.Y. 1981 )(“When a party discloses part of an otherwise privileged communication, he in fairness discloses the entire communication, or at least so much of it as will make the disclosure complete and not misleadingly one-sided.”

 

The rationale based on adversarial fairness suggests that inadvertent disclosures ought to be treated differently from intentional disclosures, since the inadvertent production of a privileged communication, not otherwise used for some adversarial advantage by the disclosing party, does not raise fairness issues.1 Indeed, some courts do treat inadvertent disclosures differently for that very reason. EEOC v. Johnson & Higgins Inc., 1998 U.S. Dist. LEXIS 17612 at *35 (S.D.N.Y. 1998)(disclosure of draft affidavit and review of handwritten notes did not waive privilege on other communications when there was no indication that the disclosing party would make adversarial use of the disclosed materials); Koch Materials Co. v. Shore Slurry Seal, Inc., 208 F.R.D. 109,120 (D.N.J. 2002)(inadvertently disclosed materials did not result in subject-matter waiver where disclosing party would make no unfair use of them). But see In re Sealed Case, 877 F.2d 976 (D.C. Cir. 1989)(inadvertent disclosures result in subject-matter waiver).2

 

The proposed FRE 502(a) makes the adversarial fairness rationale the central focus of any inquiry into the scope of waiver. It provides that presumptively, disclosures of privileged material (whether attorney client or work product) are limited to the very material disclosed unless “the undisclosed communication or information concerning the same subject matter ought in fairness to be considered with the disclosed communication or information.”

 

To judge from the submissions and public comments to date, this provision is not particularly controversial.

 

Recommendation: We recommend that this provision be adopted. Most disclosure of privileged material is probably inadvertent, and usually happens in discovery, not in motion papers or at trial. The disclosing party usually has no plans to make unfair adversarial use of the privileged matter so produced and, in the absence of such contemplated unfair use, requiring that other materials be produced is an excessive sanction for what is generally nothing more than carelessness. Even worse, the “good sport” who intentionally turns over arguably privileged but often unimportant material based on a narrower view of privilege than a judge might later adopt, is penalized for trying to avoid discovery squabbling by having to disclose other materials clearly privileged, and often important. See footnote 1, supra. The recipient of the privileged matter has the benefit of having learned whatever the privileged matter reveals, even if the recipient does not use it or, indeed, returns it. That is sufficient penalty for careless disclosure and sufficient incentive to prevent it, insofar as it is preventable in mass discovery.

 

2. Inadvertent disclosure: If proposed FRE 502(a) lowers the stakes in disputes over privilege waivers, proposed FRE 502(b) imposes a uniform standard for determining when an inadvertent disclosure waives privilege in the first place. Proposed 502(b) provides that an inadvertent disclosure of privileged communications or information during federal litigation or administrative proceedings “does not operate as a waiver in a state or federal proceeding” (emphasis added), if the inadvertent discloser: (1) took reasonable precautions to prevent disclosure and (2) took reasonably prompt measures upon learning of the disclosure to rectify the error.

 

Proposed FRE 502(b) reckons the time for taking “reasonably prompt measures” from the time the privilege holder knew or should have known of the disclosure.

Current law is far from uniform, from Circuit to Circuit and even within judicial districts.3 Currently, there are three approaches: (1) strict liability and automatic waiver for inadvertent disclosures, In re Sealed Case. 877 F.2d 976 (D.C. Cir. 1989); International Digital Systems Corp. v. Digital Equipment Corp., 120 F.R.D. 445 (D. Mass. 1988); (2) no waiver for inadvertent disclosures, Gray v. Bicknell, 86 F.3d 1472 (8th Cir. 1996); Helrnan v. Murry’s Steaks. Inc., 728 F. Supp. 1099 (D. Del. 1990); and (3), the majority view, familiar in this Circuit, of case-by-case balancing, taking into account the demands of the discovery process and the reasonableness of precautions taken to prevent inadvertent disclosure or limit the harm therefrom. Hydraflow, Inc. v. Endine. Inc.. 145 F.R.D. 626 (W.D.N.Y. 1993); Alldread v. City of Grenada. 988 F.2d 1425 (5th Cir. 1993); Hartford Fire Ins. v. Garvey. 109 F.R.D. 323 (N.D. Cal. 1985).

 

Whatever may be said for any of these three different approaches, it is obviously undesirable to have multiple approaches. Commercial cases of the sort most likely to generate enormous document discovery – both paper and electronic – and pose the greatest risks of inadvertent disclosure are also likely to subject clients to suits in many possible jurisdictions, each with its own rule. It is probably more important to the overall workings of the federal court system and to the ability of litigants to plan their activities that federal courts operate under some uniform rule rather than under any particular rule.

 

The proposed standard reflects the current majority rule, and the rule practitioners in this Circuit are used to following.

 

Recommendation: It is important to have a uniform rule. The rule proposed is the majority rule, a middle-of-the-road rule, and the rule to which practitioners in this Circuit are accustomed. We recommend adoption.

3. Selective Waiver: Subdivision (c) of proposed FRE 502 is enclosed in brackets, reflecting a lack of consensus on what is by far the most controversial aspect of the proposed rule, the consequences of selective waiver to federal government authorities. The Advisory Committee did not itself reach agreement on a recommendation, but included the selective-waiver provision, in brackets, in the draft submitted for public comment.

The practical problem the subdivision is designed to address arises in governmental investigations of corporate targets. The regulator or prosecutor frequently demands that the target waive privilege as a sign of “cooperation.” Client and counsel looking only at the immediate case might have no objection to waiving the privilege in the context of the governmental investigation – or, if they do have objections, they are outweighed by the possible costs of not “cooperating.”

 

Unfortunately, cases that attract the government’s attention often attract the attention of private litigants, who can be counted on to insist on disclosure to them of any privileged matter disclosed to the government.

 

Most courts have rejected the concept of “selective waiver,” with the result that disclosures made to the government, even under enormous pressure, waive the privilege as to other, private parties. See, e.g., In re Columbia/HCA Healthcare Corp. Billing Practices Litigation. 239 F.3d 289 (6th Cir. 2002); U.S. v. Massachusetts Institute of Technology. 129 F.3d 681 (1st Cir. 1997); Genentech. Inc. v. U.S. International Trade Commission. 122 F.3d 1409 (Fed. Cir. 1997); Westinghouse Electric Corp. v. Republic of the Philippines. 951 F.2d 1414 (3d Cir. 1991); Inre Martin Marietta Corp., 856 F.2d 619 (4th Cir. 1988); Permian Corp. v. U.S.. 665 F.2d 1214 (D.C. Cir. 1981). But see Diversified Industries. Inc. v. Meredith., 572 F.2d 596 (8th Cir. 1978) (voluntary disclosure to SEC does not waive privilege in other cases).

 

Although the proposed subdivision was designed to meet a problem faced largely by the corporate defense bar, at least some of its representatives in earlier public comments recommended that it not be adopted until a perceived “culture of waiver” on. the part of government officials changed. These commentators thought the proposed subdivision would have the effect of increasing the likelihood that government investigators would insist on privilege waivers.

 

Other commentators thought that the “culture of waiver” would not be affected by the proposed change and would give the pressured corporation protection from at least some of the harm caused by the necessity to waive privilege. Some government officials argued that the proposed change would advance the public interest by easing the cost of cooperating with government investigations.

 

Since then, however, there have been signs that the “culture of waiver” might change in ways desired by those currently opposing the proposed subdivision. On December 12,2006, Deputy Attorney General Paul McNulty issued a 19-page memorandum restricting the use of privilege waivers in corporate investigations. (Exhibit B) The details of the new restrictions are beyond the scope of this Report. Senator Arlen Specter has also introduced legislation on the subject. (Exhibit C).

 

Recommendation: We have not had the benefit of input from persons with experience representing interests that might be expected to oppose this provision, either counsel for plaintiff interests or counsel for individual corporate employees whose interests may conflict, especially in possible criminal prosecutions, with the interest of the corporation. We are hesitant to take a position without the benefit of such input. That persons who would normally be expected to support it oppose it until a perceived “culture of waiver” changes, does not seem to be a persuasive reason for opposition. To the extent that a culture of waiver exists and is undesirable, it exists under the present rule forbidding selective waiver, and government and regulatory officials have not seemed sympathetic to pleas that revelations of privileged matter to them could result in disclosures to private plaintiffs. From the point of view of those who consider that an undesirable consequence, one must weigh the value of protecting privileged materials disclosed to government and regulatory officials from potential private plaintiffs against the incremental likelihood that those officials will insist on even more disclosures if potential private plaintiffs cannot get them. For persons with such concerns, it seems clear that the gain from the selective- waiver provision much outweighs the likelihood of more demands for disclosure. In any event, recent developments have somewhat mitigated, and may largely eliminate, the “culture of waiver.” If the proposed selective-waiver provision is desirable on its own merits, it should be adopted regardless of the “culture of waiver.” That said, we are unwilling to make a recommendation on the merits without the opportunity to consider the arguments of those who might be expected to oppose the provision, and, therefore, do not make one. We will continue to study the issue.

 

4. Enforceability of Agreements and Orders: Subdivisions (d) and (e) of proposed FRE 502 deal with the enforceability of agreements and orders concerning production of privileged material. Collectively, they provide that: (1) parties may bind themselves through enforceable agreements concerning the consequences of disclosing privileged communications or information; (2) such agreements are not binding on anyone other than parties to the agreement unless the agreement is embodied in a court order; and (3) a federal court order embodying an agreement on the effect of disclosure of privileged communications or information governs all persons, whether or not parties to the agreement, in both state and federal courts.

 

It is well established that parties can bind themselves by such agreements, and that such agreements can be enforced by the court. Zubulake v. UBS Warburg LLC, 216 F.R.D. 280 (S.D.N.Y. 2003); Dowd v. Calabrese. 101 F.R.D. 427 (D.D.C. 1984); U.S. v. United Shoe Machinery. 89 F. Supp. 357 (D. Mass. 1950). Relying on this ability, parties have developed devices such as the “clawback” agreement, allowing parties to retrieve privileged material erroneously produced, and the “quick peek” agreement, allowing an adversary to review documents before any privilege screening, designate documents desired, and let the producing party claim privilege on designated documents despite what would otherwise be a waiver. Both of these devices are designed to reduce the expense of privilege screening, which will only increase, and probably become less accurate, when massive electronic discovery is involved.

 

Recommendation: We take no position on adoption of the provision at this time and will continue to study this issue as well.

 

• Summary of Recommendations

NYCLA favors adoption of the first two proposed provisions dealing with scope of waiver and inadvertent disclosure and takes no position at this time on the provisions dealing with selective waiver and the enforceability of agreements.

COMMITTEE ON RULES OF PRACTICE AND PROCEDURE

OF THE

JUDICIAL CONFERENCE OF THE UNITED STATES

WASHINGTON, D.C. 20544

 

DAVID F. LEVI

CHAIR

PETER G. MCCABE

SECRETARY

TO: Honorable David F. Levi, Chair

Standing Committee on Rules of Practice

and Procedure

FROM: Honorable Jerry E. Smith, Chair?

Advisory Committee on Evidence Rules

DATE: May 15, 2006 (Revised June 30, 2006)

RE: Report of the Advisory Committee on Evidence Rules

1. Introduction

The Advisory Committee on Evidence Rules met on. April 24Tth and 25th at Fordham Law School in New York City. The Committee approved one proposed amendment to the Evidence Rules — ultimately for direct enactment by Congress — with the recommendation that the Standing Committee approve it for release for public comment. The proposal is discussed as an action item in this Report.

* * * * *

 

1. Action Item

 

Proposed Rule 502 on Waiver of Attorney-Client Privilege and Work Product.

 

The Evidence Rules Committee has found a number of problems with the current federal common law governing the waiver of attorney-client privilege and work product. One major problem is that significant amounts of time and effort are expended during litigation to preserve the privilege, even when many of the documents are of no concern to the producing party. Parties must be extremely careful, because if a privileged document is produced, there is a risk that a court will find a subject matter waiver that will apply not only to the instant case and document but to other cases and documents as well. Moreover, an enormous amount of expense is put into document production in order to protect against inadvertent disclosure of privileged information, because the producing party risks a ruling that even a mistaken disclosure can result in a subject matter waiver. The Committee has determined that the discovery process would be more efficient and less costly if documents could be produced without risking a subject matter waiver of the attorney-client privilege or work product protection.

 

Another concern expressed to the Committee by members of the bar involves the production of confidential or work product material by a corporation that is the subject of a government investigation. Most federal courts have held that such a disclosure constitutes a waiver of the privilege, i.e., the courts generally reject the concept that a selective waiver is enforceable. This is a problem because it can deter corporations from cooperating in the first place.

 

Concerns about the common law of waiver of privilege and work product have been voiced in Congress as well. The Chairman of the House Committee on the Judiciary, by letter dated January 23, 2006, requested the judicial Conference to initiate the rulemaking process to address the litigation costs and burdens created by the current law on waiver of attorney-client privilege and work product protection. The Chairman recognized that while any rule prepared by the Advisory Committee could proceed through the rulemaking process, it would eventually have to be enacted directly by Congress, as it would be a rule affecting privileges. See 28 U.S.C. § 2074(b).

 

The Committee directed its Reporter and its consultant on privileges to prepare a draft rule for its consideration that would address the problems of subject matter waiver, inadvertent disclosure, enforceability of confidentiality orders, and selective waiver. This draft rule was distributed in advance of the Committee meeting to selected federal judges, state and federal regulators, members of the bar, and academics. On the first day of its April meeting, the Committee held a mini-hearing on the proposed rule 502 and Committee Note, inviting presentations from those who reviewed the rule. (A transcript of the hearing is available from John Rabiej).

Based on comments received at the hearing, the Reporter and consultant revised the draft for consideration by the Committee at its meeting. Most importantly, the draft was scaled back so that it no longer regulates state rules on waiver as applied by state courts. The Committee-— together with its liaisons and several members of the Civil Rules Committee invited to attend the meeting — discussed the draft proposal in extensive detail.

 

The Committee unanimously agreed on the following basic principles, as embodied in the proposed Rule 502:

1. A subject matter waiver should be found only when privilege or work product has already been disclosed, and a further disclosure “ought in fairness” to be required in order to protect against a misrepresentation that might arise from the previous disclosure.

1. An inadvertent disclosure should not constitute a waiver if the holder of the privilege or work product protection took reasonable precautions to prevent disclosure and took reasonably prompt measures, once the holder knew or should have known of the disclosure, to rectify the error.

1. A provision on. selective waiver should be included in any proposed rule released for public comment, but should be placed in brackets to indicate that the Committee has not yet determined whether a provision on selective waiver should be sent to Congress.

1. Parties to litigation should be able to protect against the consequences of waiver by seeking a confidentiality order from the court; and in order to give the parties reliable protection, that confidentiality order must bind non-parties in any federal or state court.

1. Parties should be able to contract around common-law waiver rules by entering into confidentiality agreements; but in the absence of a court order, these agreements cannot bind non-parties.

 

After substantial discussion, the Evidence Rules Committee unanimously approved the proposed. Rule 502 and the accompanying Committee Note for release for public comment. The proposed Rule 502 and Committee Note are attached to this Report as Appendix A.

 

Recommendation: The Evidence Rides Committee recommends that the proposed Evidence Rule 502 be approved for release for public comment.

* * * * *

PROPOSED AMENDMENT TO THE FEDERAL RULES OF EVIDENCE*

Rule 502. Attorney-Client Privilege and Work Product; Limitations on Waiver

(a) Scope of waiver. — In federal proceedings, the waiver by disclosure of an attorney-client privilege or work product protection extends to an undisclosed communication or information concerning the same subject matter only if that undisclosed communication or information ought in fairness to be considered with the disclosed communication or information.

 

(b) Inadvertent disclosure. — A disclosure of a communication or information covered by the attorney-client privilege or work product protection does not operate as a waiver in a state or federal proceeding if the disclosure is inadvertent and is made in connection with federal litigation or federal administrative proceedings – and if the holder of the privilege or work product protection took reasonable New material is underlined; matter to be omitted is lined through. precautions to prevent disclosure and took reasonably prompt measures, once the holder knew or should have known of the disclosure, to rectify the error, including (if applicable) following the procedures in Fed. R. Civ. P. 26(b)(5)(B).

 

[( c ) Selective waiver. — In a federal or state proceeding, a disclosure of a communication or information covered by the attorney-client privilege or work product protection — when made to a federal public office or agency in the exercise of its regulatory, investigative, or enforcement authority — does not operate as a waiver of the privilege or protection in favor of non-governmental persons or entities. The effect of disclosure to a state or local government agency, with respect to non-governmental persons or entities. Is governed by applicable state law. Nothing in this rule limits or expands the authority of a government agency to disclose communications or information to other government agencies or as otherwise authorized or required by law.]**

 

(d) Controlling effect of court orders. — A federal court order that the attorney-client privilege or work product protection is not waived as a result of disclosure in connection with the litigation pending before the court governs all persons or entities in all state or federal proceedings, whether or not they were parties to the matter before the court, if the order incorporates the agreement of the parties before the court.

 

(e) Controlling effect of party agreements. — An agreement on the effect of disclosure of a communication or information covered by the attorney-client privilege or work product protection is binding on the parties to the agreement, but not on other parties unless the agreement is incorporated into a court order.

 

(f) Included privilege and protection. — As used in this rule:

(1) “attorney-client privilege” means the protection provided for confidential attorney-client communications. under applicable law: and

 

(2) “work product protection” means the protection for materials prepared in anticipation of litigation or for trial, under applicable law.

 

 

 

Committee Note

This new rule has two major purposes:

1. It resolves some longstanding disputes in the courts about the effect of certain disclosures of material protected by the attorney- client privilege or the work product doctrine — specifically those disputes involving inadvertent disclosure and selective waiver.

1. It responds to the widespread complaint that litigation costs for review and protection of material that is privileged or work product have become prohibitive due to the concern that any disclosure of protected information in the course of discovery (however innocent or minimal) will operate as a subject matter waiver of all protected information. This concern is especially troubling in cases involving electronic discovery. See, e.g., Rowe Entertainment, Inc. v. William Morris Agency, 205 F.R.D. 421,425- 26 (S.D.N.Y. 2002) (finding that in a case involving the production ofe-mail, the cost of pre-production review for privileged and work product material would cost one defendant $120,000 and another defendant $247,000, and that such review would take months). See also Report to the Judicial Conference Standing Committee on Rules of Practice and Procedure by the Advisory Committee on the Federal Rules of Civil Procedure, September 2005 at 27 (“The volume of information and the forms in which it is stored make privilege determinations more difficult and privilege review correspondingly more expensive and time-consuming yet less likely to detect all privileged information.”); Hopson v. City of Baltimore, 232 F.R.D. 228, 244 (D.Md. 2005) (electronic discovery may encompass “millions of documents” and to insist upon “record-by-record pre- production privilege review, on pain of subject matter waiver, would impose upon parties costs of production that bear no proportionality to what is at stake in the litigation”).

The rule seeks to provide a predictable, uniform set of standards under which parties can determine the consequences of a disclosure of communications or information covered by the attorney-client privilege or work product protection. Parties to litigation need to know, for example, that if they exchange privileged information pursuant to a confidentiality order, the court’s order will be enforceable. For example, if a federal court’s confidentiality order is not enforceable in a state court then the burdensome costs of privilege review and retention are unlikely to be reduced.

The Committee is well aware that a privilege rule proposed through the rulemaking process cannot bind state courts, and indeed that a rule of privilege cannot take effect through the ordinary rulemaking process. See 28 U.S.C § 2074(b). It is therefore anticipated that Congress must enact this rule directly, through its authority under the Commerce Clause. Cf Class Action Fairness Act of 2005, 119 Stat. 4, PL 109-2 (relying on Commerce Clause power to regulate state class actions).

 

The rule makes no attempt to alter federal or state law on whether a communication or information is protected as attorney- client privilege or work product as an initial matter. Moreover, while establishing some exceptions to waiver, the rule does not purport to supplant applicable waiver doctrine generally.

 

The rule governs only certain waivers by disclosure. Other common-law waiver doctrines may result in a finding of waiver even where there is no disclosure of privileged information or work product. See, e.g., Nguyen v. Excel Corp., 197 F.3d 200 (5th Cir. (reliance on an advice of counsel defense waives the privilege with respect to attorney-client communications pertinent to that defense); Ryers v. Burleson, 100 F.R.D. 436 (D.D.C. 1983) (allegation of lawyer malpractice constituted a waiver of confidential communications under the circumstances). The rule is not intended to displace or modify federal common law concerning waiver of privilege or work product where no disclosure has been made.

 

Subdivision (a). The rule provides that a voluntary disclosure generally results in a waiver only of the communication or information disclosed; a subject matter waiver (of either privilege or work product) is reserved for those unusual situations in which fairness requires a further disclosure of related, protected information, in order to protect against a selective and misleading presentation of evidence to the disadvantage of the adversary. See, e.g., In re von Bulow, 828 F.2d 94 (2d Cir. 1987) (disclosure of privileged information in a book did not result in unfairness to the adversary in a litigation, therefore a subject matter waiver was not warranted); In re United Mine Workers of America Employee Benefit Plans Litig., 159 F.R.D. 307, 312 (D.D.C. 1994)(waiver of work product limited to materials actually disclosed, because the party did not deliberately disclose documents in an attempt to gain a tactical advantage). The language concerning subject matter waiver — “ought in fairness” — is taken from Rule 106, because the animating principle is the same. A party that makes a selective, misleading presentation that is unfair to the adversary opens itself to a more complete and accurate presentation. See, e.g., United States v. Branch, 91 F.3d 699 (5th Cir. 1996) (under Rule 106, completing evidence was not admissible where the party’s presentation, while selective, was not misleading or unfair). The rule rejects the result in In re Sealed Case, 877 F.2d 976 (D.C.Cir. 1989), which held that inadvertent disclosure of documents during discovery automatically constituted a subject matter waiver.

Subdivision (b). Courts are in conflict over whether an inadvertent disclosure of privileged information or work product constitutes a waiver. A few courts find that a disclosure must be intentional to be a waiver. Most courts find a waiver only if the disclosing party acted carelessly in disclosing the communication or information and failed to request its return in a timely manner. And a few courts hold that any mistaken disclosure of protected information constitutes waiver without regard to the protections taken to avoid such a disclosure. See generally Hopson v. City of Baltimore, 232 F.R.D. 228 (D.Md. 2005) for a discussion of this case law.

 

The rule opts for the middle ground: inadvertent disclosure of privileged or protected information in connection with a federal proceeding constitutes a waiver only if the party did not take reasonable precautions to prevent disclosure and did not make reasonable and prompt efforts to rectify the error. This position is in accord with the majority view on whether inadvertent disclosure is a waiver. See, e.g., Zapata v. IBP, Inc., 175 F.R.D. 574, 576-77 (D. Kan. 1997) (work product); Hydraflow, Inc. Enidine, Inc., 145 F.R.D. 626, 637 (W.D.N.Y. 1993) (attorney-client privilege); Edwards v. Whitaker, 868 F.Supp. 226, 229 (M.D. Tenn. 1994) (attorney-client privilege). The rule establishes a compromise between two competing premises. On the one hand, information covered by the attorney-client privilege or work product protection should not be treated lightly. On the other hand, a rule imposing strict liability for an inadvertent disclosure threatens to impose prohibitive costs for privilege review and retention, especially in cases involving electronic discovery.

 

The rule refers to “inadvertent” disclosure, as opposed to using any other term, because the word “inadvertent” is widely used by courts and commentators to cover mistaken or unintentional disclosures of information covered by the attorney-client privilege or the work product protection. See, e.g., Manual for Complex Litigation Fourth § 11.44 (Federal Judicial Center 2004) (referring to the “consequences of inadvertent waiver”); Alldread v. City of Grenada, 988 F.2d 1425, 1434 (5th Cir. 1993) (“There is no consensus, however, as to the effect of inadvertent disclosure of confidential communications.”).

 

[Subdivision (c). Courts are in conflict over whether disclosure of privileged or protected information to a government agency conducting an investigation of the client constitutes a general waiver of the information disclosed. Most courts have rejected the concept of “selective waiver,” holding that waiver of privileged or protected information to a government agency constitutes a waiver for all purposes and to all parties. See, e.g., Westinghouse Electric Corp. v. Republic of the Philippines, 951 F.2d 1414 (3d Cir. 1991). Other courts have held that selective waiver is enforceable if the disclosure is made subject to a confidentiality agreement with the government agency. See, e.g., Teachers Insurance & Annuity Association of America v. Shamrock Broadcasting Co., 521 F. Supp. 638 (S.D.N.Y. 1981). And a few courts have held that disclosure of protected information to the government does not constitute a general waiver, so that the information remains shielded from use by other parties. See, e.g., Diversified Industries, Inc. v. Meredith, 572 F.2d 596 (8th Cir. 1977).

 

The rule rectifies this conflict by providing that disclosure of protected information to a federal government agency exercising regulatory, investigative or enforcement authority does not constitute a waiver of attorney-client privilege or work product protection as to non-governmental persons or entities, whether in federal or state court. A rule protecting selective waiver in these circumstances furthers the important policy of cooperation with government agencies, and maximizes the effectiveness and efficiency of government investigations. See In re Columbia/HCA Healthcare Corp. Billing Practices Litigation, 293 F.3d 289, 314 (6th Cir. 2002) (Boggs, J., dissenting) (noting that the “public interest in easing government investigations” justifies a rule that disclosure to government agencies of information covered by the attorney-client privilege or work product protection does not constitute a waiver to private parties).

 

The Committee considered whether the shield of selective waiver should be conditioned on obtaining a confidentiality agreement from the government agency. it rejected that condition for a number of reasons. If a confidentiality agreement were a condition to protection, disputes would be likely to arise over whether a particular agreement was sufficiently air-tight to protect against a finding of a general waiver, thus destroying the predictability that is essential to proper administration of the attorney-client privilege and work product immunity. Moreover, a government agency might need or be required to use the information for some purpose and then would find it difficult or impossible to be bound by an air-tight confidentiality agreement, however drafted. If a confidentiality agreement were nonetheless required to trigger the protection of selective waiver, the policy of furthering cooperation with and efficiency in government investigations would be undermined. Ultimately, the obtaining of a confidentiality agreement has little to do with the underlying policy of furthering cooperation with government agencies that animates the rule.]

 

Subdivision (d). Confidentiality orders are becoming increasingly important in limiting the costs of privilege review and retention, especially in cases involving electronic discovery. See Manual for Complex Litigation Fourth § 11.446 (Federal Judicial Center 2004) (noting that fear of the consequences of waiver “may add cost and delay to the discovery process for all sides” and that courts have responded by encouraging counsel “to stipulate at the outset of discovery to a ‘nonwaiver’ agreement, which they can adopt as a case-management order.”) But the utility of a confidentiality order in reducing discovery costs is substantially diminished if it provides no protection outside the particular litigation in which the order is entered. Parties are unlikely to be able to reduce the costs of pre-production review for privilege and work product if the consequence of disclosure is that the information can be used by non- parties to the litigation.

 

There is some dispute on whether a confidentiality order entered in one case can bind non-parties from asserting waiver by disclosure in a separate litigation. See generally Hopson v. City of Baltimore, 232 F.R.D. 228 (D.Md. 2005) for a discussion of this case law. The rule provides that when a confidentiality order governing the consequences of disclosure in that case is entered in a federal proceeding, according to the terms agreed to by the parties, its terms are enforceable against non-parties in any federal or state proceeding. For example, the court order may provide for return of documents without waiver irrespective of the care taken by the disclosing party; the rule contemplates enforcement of “claw-back” and “quick peek” arrangements as a way to avoid the excessive costs of pre-production review for privilege and work product. As such, the rule provides a party with a predictable protection that is necessary to allow that party to limit the prohibitive costs of privilege and work product review and retention.

 

Subdivision (e). Subdivision (e) codifies the well-established proposition that parties can enter an agreement to limit the effect of waiver by disclosure between or among them. See, e.g., Dowd v. Calabrese, 101 F.R.D. 427,439 (D.D.C. 1984) (no waiver where the parties stipulated in advance that certain testimony at a deposition “would not be deemed to constitute a waiver of the attorney-client or work product privileges”); Zubulake v. UBS Warburg LLC, 216 F.R.D. 280, 290 (S.D.N.Y. 2003) (noting that parties may enter into “so-called ‘claw-back’ agreements that allow the parties to forego privilege review altogether in favor of an agreement to return inadvertently produced privilege documents”). Of course such an agreement can bind only the parties to the agreement. The rule makes clear that if parties want protection from a finding of waiver by disclosure in a separate litigation, the agreement must be made part of a court order.

 

Subdivision (f). The rule’s coverage is limited to attorney- client privilege and work product. The limitation in coverage is consistent with the goals of the rule, which are I) to provide a reasonable limit on the costs of privilege and work product review and retention that are incurred by parties to litigation; and 2) to encourage cooperation with government investigations and reduce the costs of those investigations. These two interests arise mainly, if not exclusively, in the context of disclosure of attorney-client privilege and work product. The operation of waiver by disclosure, as applied to other evidentiary privileges, remains a question of federal common law. Nor does the rule purport to apply to the Fifth Amendment privilege against compelled self-incrimination.

 

The Deputy Attorney General Washington, DC. 20530

MEMORANDUM

TO: Heads of Department Components

United States Attorneys

FROM: Paul J. McNulty

Deputy Attorney General

SUBJECT: Principles of Federal Prosecution of Business Organizations

The Department experienced unprecedented success in prosecuting corporate fraud during the last four years. We have aggressively rooted out corruption in financial markets and corporate board rooms across the country, Federal prosecutors should be justifiably proud that the information used by our nation’s financial markets is more reliable, our retirement plans are more secure, and die investing public is better protected as a result of our efforts. The most significant result of this enforcement initiative is that corporations increasingly recognize the need for self-policing, self-reporting, and cooperation with, law enforcement Through their self- regulation. efforts, fraud undoubtedly is being prevented, sparing shareholders- from the financial harm accompanying corporate corruption. The Department must continue to encourage these efforts.

Though, much has been accomplished, the work of protecting the integrity of the marketplace continues. As we press forward in. our enforcement duties, it is appropriate that we consider carefully proposals which could make our efforts more effective. I remain convinced that the fundamental principles that have guided our enforcement practices are sound. In particular, our corporate charging principles are not only familiar, but they are welcomed by most corporations in our country because good corporate leadership shares many of our goals. Like federal prosecutors, corporate leaders must take action to protect shareholders, preserve corporate value, and promote honesty and fair dealing with the investing public.

 

We have heard from responsible-corporate officials recently about the challenges they face in discharging their duties to the-corporation while responding in a meaningful. way to a government investigation. May of those associated with the corporate legal community have expressed concern that our practices may be discouraging full and candid communications between corporate employees and legal counsel. To the extent-this is happening, it was-never the intention of the Department for our corporate charging principles to cause such a result.

 

Therefore, I have decided to adjust certain aspects of our policy in ways that will further promote public confidence in the Department, encourage corporate fraud prevention efforts, and clarify our goals without sacrificing our ability to prosecute these important cases effectively. The new language expands upon the Department’s long-standing policies concerning how we evaluate the authenticity of a corporation’s cooperation with a government investigation.

This memorandum supersedes and replaces guidance contained in the Memorandum from Deputy Attorney General Larry D. Thompson entitled Principles of Federal Prosecution of Business Organizations (January 20,2003) (the “Thompson Memorandum”) and the Memorandum from the Acting Deputy Attorney General Robert D. McCallum, Jr. entitled Waiver of Corporate Attorney-Client and Work Product Protections (October 21, 2005)(the “McCallum Memorandum”).

 

The Deputy Attorney General Washington, DC. 20530

MEMORANDUM

TO: Heads of Department Components

United States Attorneys

FROM: Paul J, McNulty

Deputy Attorney General

SUBJECT: Principles of Federal Prosecution of Business Organizations

Federal Prosecution of Business Organizations1

1. Duties of the Federal Prosecutor; Duties of Corporate Leaders

 

The prosecution of corporate crime is a high priority for the Department of Justice, By investigating wrongdoing and bringing charges for criminal conduct, the Department plays an important role in protecting investors and ensuring public confidence in business entities and in the investment markets in which those entities participate. In this respect, federal prosecutors and corporate leaders share a common goal. Directors and officers owe a fiduciary duty to a corporation’s shareholders, the corporation’s true owners, and they owe duties of honest dealing to the investing public in connection with the corporation’s regulatory filings and public statements. The faithful execution of these duties by corporate leadership serves the same values in promoting public trust and confidence that our criminal prosecutions are designed to serve.

 

A prosecutor’s duty to enforce the law requires the investigation and prosecution of criminal wrongdoing if it is discovered. In carrying out this mission with the diligence and resolve necessary to vindicate the important public interests discussed above, prosecutors should be mindful of the common cause we share with responsible corporate leaders. Prosecutors should also be mindful that confidence in the Department is affected both by the results we achieve and by the real and perceived ways in which we achieve them, Thus, the manner in which we do our job as prosecutors – the professionalism we demonstrate, our resourcefulness in seeking information, and our willingness to secure the facts in a manner that encourages corporate compliance and self-regulation impacts public perception of our mission. Federal prosecutors recognize that they must maintain public confidence in the way in which they exercise their charging discretion, and that professionalism and civility have always played an important part in putting these principles into action.

 

1. Charging a Corporation: General Principles

1. General Principle: Corporations should not be treated leniently because of their artificial nature nor should they be subject to harsher treatment. Vigorous enforcement of the criminal laws against corporate wrongdoers, where appropriate, results in great benefits for law- enforcement and the public, particularly in the area of white collar crime. Indicting corporations for wrongdoing enables the government to address and be a force for positive change of corporate culture, alter corporate behavior, and prevent, discover, and punish white collar crime.

1. Comment: In all cases involving corporate wrongdoing, prosecutors should consider the factors discussed herein. first and foremost, prosecutors should be aware of the important public benefits that may flow from indicting a corporation in appropriate cases. For instance, corporations are likely to take immediate remedial steps when one is indicted for criminal conduct that is pervasive throughout a particular industry, and thus an indictment often provides a unique opportunity for deterrence on a massive scale. In addition, a corporate indictment may result in specific deterrence by changing the culture of the indicted corporation and the behavior of its employees. Finally, certain crimes that carry with them a substantial risk of great public harm, e.g., environmental crimes or financial frauds, are by their nature most likely to be committed by businesses, and there may, therefore, be a substantial federal interest in indicting the corporation.

 

Charging a corporation, however, does not mean that individual directors, officers, employees, or shareholders should not also be charged. Prosecution of a corporation is not a substitute for the prosecution of criminally culpable individuals within or without the corporation. Because a corporation can act only through individuals, imposition of individual criminal liability may provide the strongest deterrent against future corporate wrongdoing. Only rarely should provable individual culpability not be pursued, even in the face of an offer of a. corporate guilty plea or some other disposition of the charges against the corporation.

 

Corporations are “legal persons,” capable of suing and being sued, and capable of committing crimes. Under the doctrine of respondeat superior, a corporation may be held criminally liable for the illegal acts of its directors, officers, employees, and agents. To hold a corporation liable for these actions, the government must establish that the corporate agent’s. actions (I) were within the scope of his duties and (ii) were intended, at least in part, to. benefit the corporation. In all. cases involving wrongdoing by corporate agents, prosecutors should consider the corporation, as well as the. responsible individuals, as potential criminal targets.

 

Agents, however, may act for mixed reasons — both for self-aggrandizement (both direct and indirect) and for the benefit of the corporation, and a corporation may be held liable as long as one motivation of its agent is to benefit the corporation. See United States v. Potter, 463 F.3d 9, 25 (1st Cir. 2006) (stating that the test to determine whether an agent is acting within the scope of employment is whether the agent is performing acts of the kind which he is authorized to perform, and those acts arc motivated–at least in part–by an intent to benefit the corporation), In United States v. Automated Medical Laboratories, 770 F.2d 399 (4th Cir. 1985), the Fourth Circuit affirmed a corporation’s conviction for the actions of a subsidiary’s employee despite its claim that the employee was acting for his own benefit, namely his “ambitious nature and his desire to ascend the corporate ladder.” The court stated, “Partucci was clearly acting in part to benefit AML since his advancement within the corporation depended on AML’s well-being and its lack of difficulties with the FDA.” Furthermore, in United States v. Sun-Diamond Growers of California, 138 F.3d 961,969-70 (D. C. Cir. 1998), aff’d on other grounds, 526 U.S. 398 (1999), the D.C, Circuit rejected a corporation’s argument that it should not be held criminally liable for the actions of its vice-president since the vice-president’s “scheme was designed to — and did is fact — defraud [the corporation], not benefit it.” According to the court, the fact that the vice- president deceived the corporation and used its money to contribute illegally to a congressional campaign did not preclude a valid finding that he acted to benefit the corporation. Part of the vice-president’s job was to cultivate the corporation’s relationship with the congressional candidate’s brother, the Secretary of Agriculture. Therefore, the court held, the jury was entitled to conclude that the vice-president had acted with an intent, “however befuddled,” to further the interests of his employer. See also United States v. Cincotta, 689 F.2d 238. 241-42 (1st Cir, 1982) (upholding a corporation’s conviction, notwithstanding the substantial personal benefit reaped by its miscreant agents, because the fraudulent scheme required money to pass through the corporation’s treasury and the fraudulently obtained goods were resold to the corporation’s customers in the corporation’s name).

 

Moreover, the corporation need not even necessarily profit from its agent’s actions for it to be held liable. In Automated Medical Laboratories, the fourth Circuit stated:

[B]enefit is not a “touchstone of criminal corporate liability; benefit at best is an evidential, not an operative, fact.” Thus, whether the agent’s actions ultimately redounded to the benefit of the corporation is less significant than whether the agent acted with the intent to benefit the corporation. The basic purpose of requiring that an agent have acted with the intent to benefit the corporation, however, is to insulate the corporation from criminal liability for actions of its agents which may be inimical to the interests of the corporation or which may have been undertaken solely to advance the Interests of that agent.or of a party other than the corporation.

 

770 F.2d at 407 (emphasis added; quoting Old Monastery Co. v. United States, 147 F,2d 905, 908 (4th Cir), cert, denied, 326 U.S. 734 (1945)).

 

• Charging a Corporation: Factors to Be Considered

1. General Principle: Generally, prosecutors apply the same factors in determining whether to charge a corporation as they do with respect to individuals. See USAM § 9-27,220, el Seq. Thus, the prosecutor must weigh all of the factors normally considered in the sound exercise of prosecutorial judgment: the sufficiency of the evidence; the likelihood of success at trial; the probable deterrent, rehabilitative, and other consequences of conviction; and the adequacy of noncriminal approaches. See id. However, due to the nature of the corporate “person,” some additional factors are present. In conducting an investigation, determining whether to bring charges, and negotiating plea agreements, prosecutors must consider the following factors in reaching a decision as to the proper treatment of a corporate target

1. the nature and seriousness of the offense, including the risk of harm to the public, and applicable policies and priorities, if any, governing the prosecution of corporations for particular categories of crime (see section IV, infra);

1. the pervasiveness of wrongdoing within the corporation, including the complicity in, or condonation of, the wrongdoing by corporate management (see section V, infra);

1. the corporation’s history of similar conduct, including prior criminal, civil, and regulatory enforcement actions against it (see section VI, infra);

1. the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate In the investigation of its agents (see section VII, infra);

• the existence and adequacy of the corporation’s pre-existing compliance program (see section VIII infra);

1. the corporation’s remedial actions, including any efforts to implement an effective corporate compliance program or to improve an existing one. to replace responsible management, to discipline or terminate wrongdoers, to pay restitution, and to cooperate with the relevant government agencies (see section IX, infra):.

1. collateral consequences, including disproportionate harm to shareholders, pension holders and employees not proven personally culpable and impact on the public- arising from the prosecution (see section X, infra);

1. the adequacy of the prosecution of individuals responsible for the corporation’s malfeasance; and

1. the adequacy of remedies such as civil or regulatory enforcement actions (see section XI, infra).

B. Comment: In determining whether to charge a corporation, the foregoing factors must be considered. The factors listed in this section are intended to be illustrative of those that should be considered and not a complete or exhaustive list. Some or all of these factors may or may not apply to specific cases, and in some cases one factor may override all others. For example, the nature and seriousness of the offense may be such as to warrant prosecution regardless of the other

Letter from the Committee on the Federal Courts Expressing Support for S. 2450 Part 1

Letter from the Committee on the Federal Courts Expressing Support for S. 2450 Part 2

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