By Robert J. Jossen and Neil A. Steiner
Originally published in the New York Law Journal, May 2002
Agreements Among Parties to Share Information Without Waiving Privilege Undergo Setbacks
COMMON PRACTICE among lawyers representing separate clients in litigation or criminal investigations is to discuss with one another privileged information - including both factual information and strategy-In attempting to prepare a unified defense. This sharing of privileged information is done pursuant to a "joint defense agreement," or a "common interest agreement," as they are sometimes known, which serves to insulate the exchange of information and to prevent waiver of the applicable attorney-client or work-product privilege. To many lawyers, entering into a joint defense agreement with lawyers for other parties has become a routine and vital practice that appears to bring only benefits with little or no downside risk.
The recent proliferation of high-profile governmental investigations, and the attendant securities litigation and bankruptcy proceedings, make it critical for lawyers representing the companies and their officers and directors in those proceedings to understand and evaluate the pros and cons of entering into such agreements. Moreover, it is essential for defense counsel to recognize the potential limitations of joint defense agreements reflected in several recent decisions. This article first describes the essence of a typical joint defense agreement. It then discusses the recent decisions that raise concerns about the reliability of such arrangements to protect privileged information. Finally, the article concludes by discussing important considerations that should be evaluated by counsel prior to entering into a joint defense agreement.
Sharing Important Information
A joint defense agreement is an agreement between two or more clients and their respective counsel that permits the sharing with one another of otherwise attorney-client privileged information without waiving the privilege. Typically, such agreements are made on behalf of putative or actual defendants with the threat or onset of litigation, or, in the case of regulatory or criminal investigations, on the part of targets or subjects of such investigations. Joint defense agreements thereby allow multiple parties who have similar interests to pursue a unified position in the litigation or investigation by sharing important information and strategy decisions without making the information discoverable by their common adversary.
Although this information sharing can take many forms, it is usually done in discussions between lawyers of privileged information that they have been told by their clients and the sharing of privileged documents or exchange of draft briefs and pleadings for review and comment by other lawyers.1 The agreement typically specifies that the information sharing does not thereby create an attorney-client relationship between one attorney and the clients of the other attorneys.2
A joint defense agreement does not create an independent privilege, but serves to prevent waiver of any otherwise applicable privilege - notably the attorney-client or work-product privileges-by disclosure to those with a similar interest in the proceeding or matter. A joint defense agreement can be an oral agreement, but preferably should be reduced to writing.3 The agreement commonly provides that the parties thereto may, but are not obligated to, share with one another information and documents protected by the attorney-client or work-product privileges, without thereby waiving the privilege. The privileged information may thereafter be disclosed only with the consent of the person who provided the information. A party need not obtain the consent of any other party to disclose its own privileged documents or information, or any documents or information that independently came into its possession.
Once a party determines no longer to pursue a joint defense, or where the commonality of interest terminates, such as by settling a civil litigation or entering a plea agreement in a criminal investigation, it must withdraw from the joint defense agreement.4 In such circumstance, the withdrawing party remains bound not to disclose the privileged information without the providing party's consent, and generally is obligated to return or destroy privileged documents obtained pursuant to the joint defense.
Finally, because joint defense agreements relate to the potential disclosure of privileged information, a lawyer should not enter into a joint defense agreement on behalf of a client without first discussing the privilege issues and specifically obtaining the client's consent to enter the agreement. The agreement should recite that each lawyer's client has consented to the agreement, or, preferably, should be executed by the clients themselves.
Courts have long-recognized that disclosure of privileged information pursuant to a valid joint defense agreement does not result in a waiver of the attorney-client or work-product privileges.5 Likewise, a party who shares privileged information pursuant to such an agreement will have standing to oppose a motion to compel any person who received the information pursuant to the agreement to disclose such information or to preclude such a person from voluntarily disclosing the information.
Potential Limitations
Recent decisions in two cases - one a criminal tax fraud investigation and the other two rulings in a civil litigation concerning insurance coverage for the World Trade Center tragedy-suggest potential limitations on the protections afforded by joint defense agreements. Although the decisions may be construed narrowly based on the specific facts and procedural posture of the cases, they must be read in the context of the increased potential risk that privileged information and strategy will be ordered disclosed to the government or a civil adversary. Thus, given the relative lack of case law on this issue, these decisions mandate that defense counsel and their clients proceed with caution in operating under a joint defense agreement.
In re Grand Jury Subpoena
6 involved a motion by two former officers of the corporation and the corporation's former lawyer to intervene and quash a grand jury subpoena directed to the corporation. Richard Roe7 was the chairman of the board and chief executive officer of Oldco, a closely held corporation, and Morris Moe was the company's executive vice-president for sales. In 1990, Roe and Moe retained A. Nameless Lawyer to represent Oldco and both officers individually, and the three clients allegedly entered into an oral joint defense agreement with respect to all matters that might arise affecting both the company and their individual rights.In October 1997, the government served a grand jury subpoena on Oldco seeking certain customer records in connection with its investigation into a "rebate program" that the government contended constituted a conspiracy to defraud the Internal Revenue Service. Lawyer represented Oldco, roe and Moe in the grand jury proceedings, and also conducted an internal investigation of Oldco. As part of that investigation, Lawyer interviewed Oldco employees, and generated transcripts of the interviews and written summaries of his investigation.
In June 1998, Newparent acquired Oldco. Newparent then retained the law firm of Smith & Jones to represent it in the tax fraud investigation, while Lawyer continued to represent Roe and Moe. At Newparent 's direction, copies of the interview transcripts and investigation summaries were transmitted to Smith &Jones. Smith &Jones and Lawyer subsequently entered into a written joint defense agreement on behalf of their respective clients.
In March 2001, Oldco pleaded guilty to the charges of conspiracy to defraud the IRS and agreed to cooperative with the government's ongoing investigation in exchange for leniency in sentencing. As part of the cooperation agreement, Newparent and Oldco agreed to waive the attorney-client privilege, a demand typically made by the government of a corporation that seeks to cooperate with a criminal or regulatory investigation.8 The government then served Oldco with a second grand jury subpoena which sought, inter alia, the interview transcripts and written investigation summaries that had been prepared by Lawyer. Oldco agreed to produce those materials. Roe, Moe and Lawyer thereafter sought to intervene in the grand jury proceedings and moved to quash the subpoena, on the grounds that the documents were protected by the attorney-client and work-product privileges.9
The district court granted the motion to intervene, but denied the motion to quash. On appeal, the U.S. Court of Appeals for the First Circuit held that the initial joint defense agreement between Oldco, Roe and Moe did not preclude disclosure of the privileged documents. Central to its holding, and of particular significance, the court found that it was impossible to distinguish the discussions Roe and Moe had with Lawyer in their individual capacities from their discussions with Lawyer as officers of the corporation. The court also rejected the argument that a joint defense privilege - i.e., the notion that Roe and Moe indivfdual1y, on the one hand, were parties to a joint defense with Oldco, on the other - could bar the disclosure. The court reasoned that:
[T]he former co-clients were not independent actors, but, rather, corporate officers who owed a fiduciary duty to the corporation. . . [W]e hold that a corporation may unilaterally waive the attorney-client privilege with respect to any communications made by a corporate officer in his corporate capacity, notwithstanding the existence of an individual attorney-client relationship between him and the corporation's counsel.10
In language potentially fraught with problems for the basic structure of a joint defense arrangement, the court also said that the attorney-client privilege in a joint representation "does not apply in subsequent litigation between the joint clients ...; in that sort of situation, one client's interest in: the privilege is counterbalanced by the other's interest in being able to waive it." See In re Grand Jury, 274 F.3d at 573. While those statements must be read in the context of a single lawyer representing all clients, it c6uld-wreak havoc with a joint defense agreement if it meant that a withdrawing party later was free unilaterally to disclose presumably joint defense privileged discussions. Thus, the court refused to prohibit Oldco from disclosing to the government the interview transcripts and written investigation summaries prepared by Lawyer.
Two recent rulings in SR International Business Insurance Co. Ltd. v. World Trade Center Properties LLC,11 the action concerning insurance coverage for the World Trade Center, likewise, appear to restrict the applicability of the joint defense doctrine. Following Sept. 11, the Silverstein Parties, the owners of the leasehold for the World Trade Center, retained counsel to represent them in connection with potential matters that would arise relating to the destruction of the World Trade Center; the first mortgagee on the leasehold, GMAC, retained separate counsel. At the suggestion of counsel, the Silverstein Parties, GMAC, and their respective insurance brokers. Willis and Harbor Group, entered into a joint defense agreement. The insurance carrier, Swiss Re, subsequently filed a declaratory judgment action concerning insurance coverage for the World Trade Center.12
Pursuant to the joint defense agreement, counsel for the Silverstein Parties and GMAC met with and interviewed employees of the insurance brokers, shared privileged documents with employees of the insurance brokers and prepared the employees for their depositions in the litigation. Swiss Re sought to compel the production of documents and testimony of witnesses concerning the meetings and conversations between employees of the insurance brokers and counsel for the Silverstein Parties and GMAC. The Silverstein Parties and GMAC argued that the documents, as well as testimony concerning the conversations, were protected by the attorney-client and work-product privileges based on, inter alia, the joint defense agreement between the parties.
In two separate opinions, the district court granted Swiss Re's motion to compel, with the limited exception that it did not require production of lawyers' notes taken during the meetings, which were protected by the work-product doctrine. With respect to conversations between the Silverstein Parties and Willis, their own insurance broker, the court found that the parties did not share an "identical" legal interest and therefore that the joint defense agreement was ineffective. The court also found it significant that Willis was not actually a defendant in any of the litigation, but only a potential defendant. According to the court, if Willis:
did, for any reason, anticipate litigation after September 11, it would seem that it would have been more likely to be sued by Silverstein than by the insurance companies. Thus, the communications between the [Silverstein Parties' lawyers] and employees of Willis are not protected by the common interest privilege.13
In its subsequent opinion, the district court found that the same reasoning compelled the employees of GMAC and Harbor Group to testify concerning discussions that took place during joint defense meetings among the Silverstein Parties, GMAC, Willis, Harbor Group and their respective attorneys.14 Moreover, the court compelled the production of documents taken by non-lawyer employees of those entities during such meetings, since those notes would not be protected by the work-product doctrine. Finally, the court held that disclosure of privileged documents to employees of the insurance brokerage firms resulted in a waiver of the attorney client privilege, since those employees were not a part of the attorney-client relationship; work-product protection for such documents, however, was not waived because there was no evidence that the Silverstein Parties and GMAC had an adverse interest to the brokers.15
Implications
These decisions have a potentially far-reaching impact on the effectiveness of joint defense agreements to protect privileged information and achieve their intended practical purposes. Rarely in complex litigation or governmental investigations will separate defendants or potential defendants all have "identical" interests with one another in the outcome of the actions. Rather, co-defendants' or co-participants' interests typically diverge in at feast some respects, but those differences yield to more significant common interests to the benefit of all concerned.
For example, co-defendants in securities litigation often share a common interest in establishing that no fraud occurred; to the extent plaintiffs prevail on that issue, the defendants conceivably would have sharply different views as to which one was responsible for plaintiffs' damages. The same is true in criminal investigations-parties will often share a common interest in convincing the government that no crime was committed or that the exercise of prosecutorial discretion mandates not bringing charges; however, if the government decides to proceed there are often differences in degrees of culpability and/or responsibility among the participants in the joint defense group. In each of these examples, it must be argued that the overlap of at least a fundamental legal interest is sufficient to make the joint defense agreement effective, even if there are other differing interests that potentially might arise.
Similarly, a corporation may share a common interest with its officers in defending against potential charges, but may ultimately conclude that it is more desirable to cooperate with the government, even if that means turning on a former executive. Thus, corporate officers or former employees represented by individual counsel need to consider whether there is a risk of subsequent unwanted disclosure in entering into a joint defense agreement with the corporation.
Moreover, from the corporation's perspective, pursuing a joint defense can carry risks. As it did with Oldco in the In re Grand Jury Subpoena case, the government generally insists that a company wishing to cooperate with a criminal or regulatory investigation must waive the attorney-client privilege. If the corporation cannot disclose privileged information provided by one of its former officers pursuant to a joint defense agreement, a company that had entered into such a joint defense agreement might find it difficult to cooperate to the government's satisfaction. And, at least some defense lawyers worry that the government will misconstrue the existence of a joint defense agreement and conclude that it demonstrates a consciousness of guilt, or at least an attempt not to cooperate in an investigation.
There are three instructive lessons from these recent decisions. First, it is preferable to have a written agreement to establish precisely who is covered by the joint defense agreement and which recites clearly the nature of the common interest shared by the participants. Second, multiple representation by a single lawyer probably should be kept to a minimum to avoid the confusion of the capacity in which, or on whose behalf, information is exchanged. Third, while joint defense agreements often are invaluable, their use in terms of the quantity and extent of information exchanged should be appropriately measured against the risk of subsequent compelled disclosure of information.
Conclusion
The decisions in In re Grand Jury Subpoena and SR International suggest a serious possibility that persons who enter into joint defense agreements in these circumstances may one day find privileged information shared with their co-defendants in the hands of the government or the adversary in civil litigation. This is not to say that joint defense agreements can no longer serve their vital purpose or should be avoided. Indeed, it frequently is the most effective tool in a defense lawyer's arsenal to offset the scope and reach of the government's broad investigative powers. But, until courts have the opportunity to consider further these issues and refine the boundaries of the protections afforded by such agreements, counsel must proceed with caution and take all steps to vigorously protect the purpose of the joint defense agreement.
1 Joint defense privileged communications also can Include meetings with lawyers and their clients. The privilege presumably does not extend to meetings just between clients, a contact that In any event is a dangerous tactical idea and fraught with numerous problems.
2 In United States v. Henke. 222 F3d 633 (9th Cir. 2000), the court concluded that a joint defense agreement among former executives of Cal Micro Devices. Inc. had created an attorney-client privilege between each of the executives and each of the attorneys. The court reversed the convictions of two of the former executives, on the grounds that their lawyers had a conflict of Interest that prevented the cross-examination at trial of the other former executives. after the other executives withdrew from the joint defense and pleaded guilty on the eve of trial.
3 See, e.g., United States u Weissman, No. 94 Cr. 760 (CSH), 1996 US. Dist. LEX15 19066 (S.D.N.Y Dec. 26, 1996) (holding that executive had failed to carry burden of establishing joint defense agreement with company, which was disputed by company, where there was no written agreement).
4 The precise moment when the common interest dissipates often is a factual matter and calls for the sensible judgment of counsel. For example, the commencement of plea negotiations with the prosecutor should be recognized as the "beginning of te end" of the joint defense agreement, even though the commmon interest may not disappear until an agreement has been reached.
5 See e.g., United states v. Schwimmer, 892 F.2d 237, 243 (ed Cir. 1989); Waller v. Financial Corp. of America, 828 F.2d 579, 583 n.7 (9th Cir. 1987).
6 274 3d 563 (1st Cir. 2001)
7 Since the matter was a grand jury proceeding, the court used amiliar pseudonyms: "Richard Roe," "Morris Moe," " A. Nameless Lawyer," "Oldco" and "Newparent."
8 See Department of Justice, United States Attorney Manual, 9-162.
9 See 274 F.3d at 569-70
10 See id. At 573.
11 No. 01 Civ. 9291 (JSM), 2002 U.S. Dist. LEXIS 10919 (S.D.N.Y. June 19, 2002) & 2002 U.S. Dist. LEXIS 11949 (S.D.N.Y. July 3, 2002).
12 See 2002 U.S. Dist. LEXIS 11949, at *2-*3.
13 See 2002 U.S. Dist. LEXIS 10919, at *15.
14 See 2002 U.S. Dist. LEXIS 11949, at *20.
15 See id. At *25-26.
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