The Pitfalls of Parallel Proceedings
By D. Grayson Yeargin and Lindsey M. Nelson – April 4, 2012
Most people accused of murder only have to face one investigation, one judge, one jury, and one verdict. A corporate executive accused of “cooking the books,” on the other hand, is lucky if he or she only has to face one proceeding—chances are, he or she will have to face three, four, or five separate investigations, otherwise known as parallel proceedings.
The concept of parallel proceedings is not new, but in today’s environment, such proceedings have become more prominent. “Parallel proceedings” refer to multiple cases arising out of the same set of facts or transactions. The cases can be brought by governments (including multiple agencies of the same government or multiple governments) or by a combination of governments and private parties (often shareholders). The proceedings can occur in tandem or in succession.
A person charged with a white-collar crime may be facing parallel proceedings in many different arenas—criminal proceedings, civil proceedings, Securities Exchange Commission (SEC) actions, and even congressional investigations. Each of these arenas presents different issues, and an attorney representing a client involved in parallel proceedings must be cognizant of how a decision in one action could affect the outcome in any or all of the others. In particular, when facing parallel proceedings, attorneys must be mindful of a number of key issues: (1) the Fifth Amendment right against self-incrimination; (2) the attorney-client privilege; (3) cooperation between government agencies; (4) juggling the demands of civil and criminal proceedings; and (5) the “politics” of parallel proceedings.
Pleading the Fifth—Or Not
Choosing to assert the Fifth Amendment right against self-incrimination can have repercussions across the venues and investigations involved in parallel proceedings. At the first hint of an investigation, an attorney must sit down with the client and develop a plan regarding how much the client is willing to say, as making decisions about invoking the right against self-incrimination without advance planning could produce disastrous results.
The right against self-incrimination can be asserted in any of the parallel proceedings instituted against a client, but asserting that right has different results in different proceedings. In a criminal proceeding, a judge or jury is not allowed to draw an adverse inference from a defendant who “takes the Fifth.” In a civil case, though, judges or juries are allowed to draw an adverse inference. And in a congressional investigation, which often is the subject of extensive media coverage, the public will almost certainly draw such an inference from any refusal to testify. Additionally, an individual’s failure to assert the privilege in one proceeding or investigation may impact his or her ability to assert the privilege in future proceedings.
There are benefits for choosing to assert the privilege across-the-board. In both criminal and SEC cases, government attorneys often place a high value on cooperation, and refusing to be completely forthcoming with those attorneys can hurt an individual’s chances of making a deal with the government.
On the other hand, choosing to assert the privilege carries with it its share of risks. Agreeing to testify or be interviewed could result in providing prosecutors with more information than they already have. Testifying in a civil, SEC, or congressional investigation forces an individual to go on the record with statements, and if the individual strays from those statements in later proceedings, that testimony may come back to haunt the client in the form of testimonial impeachment, or even perjury or obstruction-of-justice charges. It may even cause civil enforcement agencies, such as the SEC, to refer a case for criminal prosecution.
Overall, the determination of whether to invoke the Fifth Amendment should be based on, among other things, the level of an individual’s exposure, the amount of incriminating evidence the client can provide, the seriousness of the charges, the number of proceedings brought against the client, and the value the government may place on cooperation. Because each case is different, no blanket rule applies. The most important thing is that the attorney and the client create a plan early on so that the client is able to maintain the right and use it to his or her best advantage.
The majority of legislation and regulation enacted during the past decade has strengthened the government’s ability to prosecute white-collar crime on multiple fronts. And within the past few years, the Department of Justice (DOJ) has gone back and forth with policies that reward companies for voluntarily waiving attorney-client privilege and work-product protection (and that essentially punish a company for not waiving such protections).
Under the existing guidelines regarding attorney-client and work-product privilege, most federal-government attorneys must follow specific procedures before requesting that a corporation waive attorney-client privilege or work-product protection. The DOJ policy states that cooperation credit will be given based on “the disclosure of the relevant facts,” rather than on the waiver of attorney-client privilege or work-product protection. Additionally, in making determinations concerning cooperation credit, government attorneys must be cautious in considering whether an organization sanctions employees under investigation, enters into a joint-defense agreement with employees, or advances legal fees to its employees, in determining whether the organization is cooperating with the government.
The current DOJ policy, which was crafted in 2008, is a departure from the Department’s previous policies on cooperation and waiver of privilege. Under previous policy, DOJ attorneys were permitted to request that a corporation under investigation waive attorney-client privilege, and then to factor the corporation’s response into a determination of whether the party was being cooperative. Thus, the perceived level of cooperation could affect whether, or the extent to which, an organization was charged with criminal or civil violations. DOJ attorneys were also allowed to consider whether a corporation sanctioned employees who were under investigation or whether a corporation entered into a joint-defense agreement with its employees. In rare cases, DOJ attorneys also could consider whether a corporation advanced attorney fees to such employees—though this was strongly discouraged as a result of the ruling in United States v. Stein. 495 F. Supp. 2d 390 (S.D.N.Y. 2007).
Notably, the SEC’s most recent Enforcement Manual, issued in January 2010 and incorporating aspects of the SEC’s recent cooperation initiative, directs SEC staff not to ask a company to waive attorney-client privilege or work-product protection “without prior approval of the Director or Deputy Director.” The prior version of the manual, issued in 2008, simply instructed staff not to ask a party to waive attorney-client privilege or work-product protection.
The current policy, however, restricts DOJ attorneys’ ability to demand these actions. The general consensus is that this change in policy should result in less pressure on companies when making the tough decision about whether the “credits” earned for cooperating with the DOJ outweigh the possible damage that waiving attorney-client privilege could inflict.
However, even under the most recent DOJ attorney-client-privilege policy, defense attorneys and their clients must carefully consider the waiver decision, and—to the extent possible—must make sure that if they do decide to waive attorney-client privilege or work-product protection in one forum, the waiver does not then dispel the protections in all forums. Under the selective-waiver doctrine, which is accepted in only some jurisdictions, a client can waive privilege in one proceeding (for example, in an SEC investigation) but still assert it in another proceeding (for example, a lawsuit brought by company shareholders). Crafting a confidentiality agreement with the agency or group with whom the client is waiving the privilege is the best way to have the selective-waiver document stand up in court.
Behind the Curtain
When it becomes apparent that a client is being investigated by one government agency, defense attorneys must recognize that just because he or she is only dealing with one agency at the moment does not mean that other agencies are not waiting in the wings. In a 1997 memo to federal-government attorneys, the attorney general encouraged cooperation among agencies, writing, “When appropriate, criminal, civil, and administrative attorneys should coordinate an investigative strategy that includes prompt decisions on the merits of criminal and civil matters. . . .”
Following a 2008 circuit-court opinion, the level of cooperation allowed between government attorneys at all points of an investigation is far greater than many previously thought. The 2008 Ninth Circuit decision in United States v. Stringer, 535 F.3d 929, 934 (9th Cir. 2008) (Stringer II) essentially allows agencies such as the SEC and the DOJ to run a joint investigation of a potential defendant without informing the defendant. Stringer II stemmed from investigations into Kenneth Stringer III and Mark Samper for possible securities-law violations in connection with their company FLIR Systems. The SEC, the U.S. Attorney’s Office (USAO) in Portland, and the FBI each opened investigations into Stringer’s conduct.
From nearly the beginning of the investigations, the SEC, the USAO, and the FBI worked closely together, but the USAO and FBI decided that their involvement should be kept secret. The USAO and FBI relied on the SEC investigation to collect information they would need for a criminal indictment. As the court noted,
The SEC facilitated the criminal investigation in a number of ways. The SEC offered to conduct the interviews of defendants so as to create “the best record possible” in support of “false statement cases” against them, and the [Assistant U.S. Attorney] instructed the SEC Staff Attorney on how best to do that.
The SEC facilitated the USAO’s investigation by deliberately holding depositions in Oregon so that the Portland USAO would have jurisdiction over any false-statements cases. Additionally, an attorney for the SEC told the court reporters at the deposition not to tell an attorney for one of the defendants that an assitant U.S. attorney was working on the case. Finally, when Stringer’s attorney specifically asked the SEC staff attorney whether the SEC was working with the USAO office or the DOJ, the staff attorney evaded the question, replying, “As laid out in the 1662 form, in the ‘routine use of’ section there are routine uses of our investigation, and it is the agency’s policy not to respond to questions like that, but instead to direct you to the other agencies you mentioned.” Stringer II, 535 F.3d at 935.
The federal district court in Oregon held that the actions of the SEC, USAO, and FBI were “an abuse of the investigative process.” United States v. Stringer, 408 F. Supp. 2d 1083, 1088 (D. Ore. 2006). The court dismissed the indictments of the defendants, finding that the “alleged governmental misconduct [was] ‘so shocking and so outrageous as to violate the universal sense of justice.’” Id.at 1089. “The USAO spent years hiding behind the civil investigation to obtain evidence, avoid criminal discovery rules, and avoid constitutional protections. . . . [I]t cannot credibly be claimed that these were parallel proceedings.” Id.
The Ninth Circuit Court of Appeals disagreed, however, and vacated the district court’s dismissal of the indictments. The court held that Standard Form 1662, which was sent to the defendants near the beginning of the investigation and “states that ‘[t]he Commission often makes its files available to other governmental agencies, particularly the United States Attorneys [Office] and state prosecutors. There is a likelihood that information supplied by you will be made available to such agencies where appropriate,’” met the standard of full disclosure on the part of the government. Stringer II, 535 F.3d at 934. “There was no deceit; rather, at most, there was a government decision not to conduct the criminal investigation openly, a decision we hold the government was free to make. There is nothing improper about the government undertaking simultaneous criminal and civil investigations. . . .” Id.at 933. The Ninth Circuit’s decision in Stringer II thus reversed a trend of decisions that had restricted the amount of interaction allowed between agencies in parallel proceedings, permitting far greater cooperation among such agencies during all stages of the investigative process.
Throughout the last decade, courts have delineated the rules for keeping civil and criminal investigations parallel by crafting a middle ground between extremes, as described in United States v. Harris, No. 1:09-cr-0406, 2010 U.S. Dist. LEXIS 126612 (N.D. Ga. Dec. 1, 2010). For example, the SEC and the USAO are allowed to share information, but the SEC “must pursue evidence in the good-faith pursuit of its own interests, and not merely to advance a prosecution.” Id.at *8. Additionally, while the SEC has no affirmative duty to inform a witness during a civil proceeding that the witness also is subject to a criminal proceeding, the SEC cannot “intentionally mislead” a witness about a possible criminal investigation. Id. at *13.
While attorneys and courts have wrestled with the issue of information sharing among agencies for quite some time, legislators are also starting to question how much information agencies are sharing with potential defendants about the actions of other agencies. In February 2011, Senator Chuck Grassley (R-Iowa) sent letters to the SEC Chairman Mary Schapiro and Attorney General Eric Holder, requesting that they clarify the policy concerning “collaboration and communication between the DOJ and the SEC.” Senator Grassley was concerned about the SEC giving information about possible criminal charges or proceedings to “potential targets of an investigation.” In his letters, he quoted SEC Director of Enforcement Robert Khuzami, who said at a conference, “[W]e are going to try to get those individuals [attorneys representing potential targets] answers whether or not there is criminal interest in the case so defense counsel can have as much information as possible.” Senator Grassley noted that Mr. Khuzami’s statements seem contrary to the SEC’s Enforcement Manual policy, which instructs SEC staff not to comment on investigations conducted by law enforcement.
Given current case law and the political atmosphere, defense counsel should assume that any information shared with one agency will be shared with others. While there are limits, information can flow rather freely between agencies. Attorneys and their clients should assume that the agencies are working in concert, and should consider that the USAO and/or FBI may be instructing the SEC to ask questions in such a way that may bolster the criminal case.
A Balancing Act
In certain instances, it may be advantageous to seek a stay of civil proceedings while criminal proceedings are underway. Because discovery in civil proceedings is much broader than discovery in criminal proceedings, allowing discovery to go forward in a civil case could offer the opposing side more discovery than would typically be available in criminal proceedings.
A stay of civil proceedings also may be beneficial in taking advantage of an individual’s right against self-incrimination. An individual may choose to waive his or her right against self-incrimination in a civil proceeding because “telling the whole story” may seem preferable to the adverse inference a judge or jury could draw from silence. Once an individual has waived the right, however, it typically cannot be re-invoked in a criminal proceeding. Thus, if the criminal proceeding is resolved first, the individual may be able to invoke the right against self-incrimination in that proceeding and later waive it in civil proceedings (although some courts have refused to allow this).
Courts are not constitutionally required to stay civil proceedings unless it would result in substantial prejudice to the parties. Courts often consider six factors in determining whether to issue a stay: (1) the degree to which the defendant’s right against self-incrimination is affected; (2) the plaintiff’s interest in a speedy proceeding, and the prospective prejudice to the plaintiff if there is a delay; (3) the burden that the proceedings would have on the defendant; (4) the convenience to the court, in terms of case management and efficiency; (5) the interests of parties who are not involved in the civil litigation; and (6) the public interest in the civil and criminal proceedings. Keating v. Office of Thrift Supervision, 45 F.3d 322, 324–25 (9th Cir. 1995). Courts are more likely to issue a stay if the criminal proceeding is ongoing, rather than if the defendant has not been indicted.
Government attorneys may also want to stay the civil proceedings for tactical reasons. Just as civil discovery requires the defendant to give the government more information about the defendant’s case than a criminal trial requires, civil discovery places far more pretrial obligations on the government than are present in criminal proceedings. A stay is more likely to be granted if it has the support of both parties, but at least one court has held that the government’s desire for a stay does not necessarily mean a court will grant it.
In SEC v. Saad, the U.S. Attorney’s Office intervened in an SEC case, requesting a stay of discovery pending the result of the criminal matter. According to the court,
The U.S. Attorney’s basic rationale was that, if discovery were permitted to proceed in the civil action, [the defendants] would be permitted, under the Federal Rules of Civil Procedure, to obtain more discovery about the underlying events than they would be able to obtain in the criminal case under the Federal Rules of Criminal Procedure.
SEC v. Saad, 229 F.R.D. 90 (S.D.N.Y. 2005). The court rejected the federal government’s request, finding issue with the fact that, “having closely coordinated with the SEC in bringing simultaneous civil and criminal actions against some hapless defendant, [the U.S. Attorney] should then wish to be relieved of the consequences that will flow if the two actions proceed simultaneously.” Id.
While a stay of the civil cases for the duration of the criminal case may be beneficial for either or both parties in terms of procedure and discovery, it also allows attorneys to focus the majority of their attention on a single proceeding. As with most of the other issues raised by parallel proceedings, having a good working relationship with opposing counsel can often help attorneys in juggling the schedules and pace of parallel proceedings.
“Politics” and Politics
Parallel proceedings often can be as much about publicity as they are about punishment, particularly if a case has already garnered media attention. It is important not to forget the “politics” of it all. No government entity wants to appear soft-handed about enforcement, so each wants to get a bite at the proverbial apple. And in the wake of the numerous corporate scandals of the early 2000s, and the more recent investigations into the housing and financial markets, the stakes have been raised for government agencies seeking to identify perceived wrongdoers.
As discussed above, because two or more government agencies may be working together on an investigation, an attorney must have enough knowledge of the different agencies and how they interact to determine an approach for dealing with each of the agencies, both individually and collectively. In addition to dealing with the agencies, an attorney should develop a strategy to deal with the media, and, if the issue at hand is one that has political backlash, should begin preparing for a possible congressional investigation.
Out of all of the possible proceedings an individual or entity may face, congressional investigations pose some of the most complex issues. As the authors of “Congressional Investigations: Politics and Process” wrote, “A lawyer needs to know that a Congressional investigation is a procedural hybrid, part political circus with seemingly little order, and part legal process with unique and explicit rules and procedures.” 44 Am. Crim. L. Rev. 1115, 1117 (Summer 2007). Attorneys and their clients must assume that whatever is said in a hearing during a congressional investigation may be used by government attorneys in future proceedings.
The story of Roger Clemens offers a high-profile example of how testifying before Congress can have unintended results. A federal grand jury indicted Clemens in August 2010 on charges of lying at a congressional hearing about whether he had ever used performance-enhancing drugs. He was charged with three counts of making false statements, two counts of perjury, and one count of obstruction of justice in relation to his February 2008 testimony before the House Committee on Oversight and Government Reform. He currently is awaiting trial on the charges in the District of Columbia District Court.
Another difficulty inherent in a congressional investigation is the fact that each member of Congress sitting on the investigating committee has his or her own motivations for participating in the investigation. And because members of Congress are not limited to asking questions relevant to potential legal proceedings, the hearing may become a soapbox for representatives or senators to pursue agendas related to politics, especially in election years. The danger here is that an individual or entity may become associated with political issues and “causes,” regardless of the facts of his or her particular legal case.
When representing a client faced with a congressional investigation, an attorney should first explore whether it is possible or advantageous to negotiate with committee members and their staff about the need for the client to testify. If it appears that testimony is going to be required, then an attorney should consider making a request to close the hearing. (Each chamber has its own rules about when a hearing can be closed, but they can generally be closed if the testimony could severely hurt a person’s reputation.) Another factor to consider is whether to negotiate immunity in later proceedings in exchange for testimony. While this practice used to be more common, it has declined since Oliver North was able to ultimately avoid criminal conviction because of his immunity deal to testify before Congress in connection with the Iran-Contra hearings.
An attorney representing an individual or entity that is going to testify before Congress must prepare his or her client for testimony with the same care as if the client were testifying at trial. Planning and preparation are key to the effective representation of clients in these situations.
Parallel proceedings are often a fact of life for defendants accused of white-collar crimes and the attorneys who defend and prosecute them. Often, the role of the defense attorney is to minimize the damage—and manage the client’s expectations—throughout the proceedings, whether criminal, civil, or congressional. On the flip side, the role of attorneys who represent governments or plaintiffs often is to find appropriate ways to take advantage of these multiple proceedings while ensuring that they do not interfere with their primary cases. All attorneys must be aware of issues that arise even in sole proceedings—such as Fifth Amendment rights and waiver of the attorney-client privilege—as well as issues that are unique to parallel proceedings—such as working with multiple agencies at once, overlapping discovery obligations, and far-reaching ramifications of decisions regarding testimony and other matters. By developing a strategy early on to deal with these issues, attorneys can successfully navigate these murky waters.
Keywords: litigation, criminal litigation, Fifth Amendment, SEC Enforcement Manual, United States v. Stringer, SEC, DOJ, USAO