Sorted by: Author: Kari Skaglund

Ethical and Practical Considerations When Conducting Internal Investigations

When corporate counsel learns a criminal violation possibly occurred within the entity, counsel may be required to conduct an internal investigation to properly advise the client on critical matters.

In carrying out an internal investigation, counsel faces challenging ethical, legal and tactical decisions that may have significant impact on the corporation’s ability to conduct business.

Timing of Investigation and Interviews

When counsel learns of potential wrongdoing, a comprehensive internal investigation should occur at the earliest opportunity. Counsel will need to make speedy decisions regarding conflicts, joint defense agreements, voluntary disclosures to the government. waivers of attorney client privilege and work product and statements to the media. The groundwork for such decisions is often made with limited knowledge and in an emergency context. As explained below. there are numerous incentives for voluntary disclosure of misconduct incorporated into federal regulations and statutes.

Whose Lawyer Are You?

“An attorney who represents an entity such as a corporation or partnership generally represents that entity only and not its employees. shareholders or owners.” Oregon State Bar Formal Ethics Opinion, 1991-85. However, where counsel tells the shareholders or owners that they are individual clients. or otherwise leads them to believe that they are also the attorney’s clients, they will be held as such. Id. In order to avoid this potential hazard in conducting the internal investigation, corporate counsel must make clear with the corporate employees contacted that he or she represents the entity and not the individual employee.

The test for determining whether attorney client relationship exists is set out in In re Weidner. 310 Or 757 (1990). The elements of the test includes the following (1) whether services performed by the lawyer were the kind traditionally done professionally be lawyers. i.e., legal work: and (2) whether the putative client intended that the relationship be created. Id. at 768. The Oregon Supreme Court has made clear that the existence of the attorney client relationship turns on the subjective intent of the would-be client. In re Conduct of O ‘Byrne, 298 Or 535 (1985). Thus, an attorney-client relationship could be inadvertently created if corporate counsel is not careful in making his or her role clear to the subjects of the internal investigation.

At the heart of this issue is the ethical obligation to avoid circumstances where an attorney is representing one person whose interests are in conflict with another client. See DR 5-105. The difficulty for corporate counsel is that one typically does not know whose interests are in conflict until a point well into the investigation. As discussed below. this conflict is inherent under the Federal Sentencing guidelines that establish criteria for corporate leniency at the cost of turning in and assisting in the prosecution of key corporate employees.

Another ethical element at play when counsel meets with corporate employees is the prohibition from giving legal advice to unrepresented parties. other than the advice to secure counsel, if the interests of the person are or have a reasonable possibility of being in conflict with the interests of the corporate client. See DR 7-1 04(A)(2).

When counsel is interviewing unrepresented employees, it is always good practice to (i) advise the employee of exactly whom counsel represents, (ii) inform the employee that her statements arc not confidential that the corporation has sole discretion as to the use of their statements. and (iii) tell the employee that it is up her to decide whether to make a statement or not.

Corporate counsel should also be aware that as a condition for obtaining the full benefit of a voluntary disclosure, the Justice Department, the SEC and other agencies often require waivers of (i) attorney client privilege and work product protection as it applies to witness interviews, (ii) communications between counsel and the corporate client, and (iii) communications between employees of the corporation regarding the investigation. Further. it should be noted, that when the government is evaluating a corporation’s level of cooperation, it considers the decision to hire separate counsel for purposes of protecting a perceived culpable employee and the decision to share information through a joint defense agreement to be factors that count against the notion of full cooperation. (See Thompson Memorandum, January 200 2003 referred to below and attached to these materials).

Separate Counsel

Because of the obligation to avoid conflicts of interests, corporate counsel would be well advised to seek out separate counsel to represent individuals or groups of employees. During the course of internal investigations, employees often ask questions that call for legal advice about whether they should admit what really happened and whether they should speak with investigators from government agencies. As noted above, if corporate counsel puts herself in a position where she is giving legal advice to different members of the corporation, there may be serious ethical ramifications should it later turn out that any of those individuals have interests that are adverse to the corporation or each other. Therefore, it is prudent for corporate counsel to advise individual employees to obtain separate counsel or alternatively, provide separate counsel for those employees at an early stage in the investigation to avoid the chance of a conflict later.

A possible consequence of having separate counsel, however, is that such an employee may refuse to make a statement to corporate counsel after consulting with her individual attorney, and may thus hinder the corporate counsel’s ability to obtain information necessary to protect the company’s interests. Conversely, the involvement of separate counsel may also enhance the ability of the corporation’s attorney to gather data, assess the situation. and take action on behalf of the company.

Joint Defense Agreements

In circumstances where potential conflicts make separate counsel necessary or desirable, a carefully crafted joint defense agreement can maximize the sharing of information between the parties without creating the potential conflicts inherent in joint representation. The joint defense agreement has historically been viewed as an extension the attorney-client relationship protecting communications between clients and counsel to the degree they share common interests and where such communications are intended to facilitate effective representation. Continental Oil Co. v. United States. 330 F. 2d 347(9th Cir. 1964).

The application of the joint defense privilege is viewed as an exception to the requirement that for communications to be protected under attorney-client privilege, they had to be made in confidence between attorney and client. In one of the earliest American cases applying the rule, the Supreme Court of Virginia held that defendants who were under joint indictments and who met with their attorneys for the purposes of planning for a joint defense had the power to prevent one of the attorneys from testifying regarding the communications that took place between them. Chahoon v. Commonwealth. 62 Va 822 (1871).

The joint defense privilege is well-recognized within the Ninth Circuit and elsewhere. See, e.g. Hunydee v. United States, 355 F.2d 183 (9th Cir. 1965); Valier Financial Corp. of Am., 828 F.2d 579. 583 n.7 (9th Cir. 1987): United Stales v. Henke. 222 F3d 633 (9th Cir 2000): In re Santa Fe Intern Corp., 272 F.3d 705. 719 (5th Cir 2001); United States v. Evans. 113 F.3d 1457. 1467 (7th Cir 1997); United States v. Aramor: 88 F.3d 1369, 1392 (4th Cir. 1996); United States v. Schwinuner, 892 F. 2d 237, 243 (2n Cir. 1989).

The privilege is applicable not only in criminal cases, but in civil and administrative matters as well. Western Fuels Asso. v. Burlington N R. Co.. 102 F.R.D. 203 (0. Wyo. 1984) (civil codefendants); In re LTV Secur. Litig., 89 F.R.D. 595 (N.D. Tex 1981) (administrative proceedings). The privilege is equally applicable both before and after an indictment has issued. Continental Oil v. United States. 330 F. 2d 347.350 (9th Cir. 1964).

Complete commonality of interests is not required for protection of the joint defense privilege; however, the protection sought must involve a common purpose related to the parties defense, even though their interests are not compatible in all respects. United States v. McPartlin, 595 F.2d 1321 (7th Cir 1979). The rule does not apply when there is no common interest to be promoted by a joint consultation of the parties. Id. at 1336. Caution on this issue is appropriate, however, as courts have occasionally cast doubt as to whether the statements of employee participants in a joint defense agreement to attorneys representing the corporation were meant to further a common purpose of both the corporation and the employees. United States v. Kepliner, 776 F.2d 678, 701 (7th Cir. 1985). Thus the opportunity exists for a finding that no joint defense privilege applied in circumstances such as meetings with officers together with low level employees where the common interest as defined by having similar power or control for decision making within the corporation is not present.

In addition to confidential communications between parties with common interests, the joint defense privilege has also been extended to shared work product. Haines v. Liggett Group. Inc, 975 F.2d 81 (3rd Cir. 1992). United States v. AT&T. 642 F.2d 1285 (D.C. Cir 1990).

It is well established that a joint defense agreement cannot be waived without the consent of all parties to the privilege. Doe 89-129.902 F.2d 244.248 (4t Cir. 1990). Most joint defense agreements are structured so as to ensure that no privileged information obtained from one member to the agreement can later be used against another member. In United States v. Henke, 222 F.3d 633 (9th Cir. 2000), the court reaffirmed the principal that privileged information obtained in the course of a joint defense meeting must remain confidential. Henke involved three co-defendants who participated in joint defense meetings where confidential information was discussed concerning their knowledge of the conspiracy to falsely report revenue. Id. at 636-37. One of the three defendants accepted a plea and became a government witness. The other defendants anticipated that his testimony would conflict with statements he had made in the course of joint defense meetings. Counsel for one of the remaining defendants then moved to withdraw because it placed him in the untenable position of having to choose between zealously representing the client by cross examining the testifying co-defendant with information that was the obtained under the joint defense privilege, or maintaining the confidentiality of the privileged information as required by the applicable rules of ethics and the joint defense agreement at the expense of the client.

The trial court denied counsel’s request to withdraw. Counsel conducted no cross examination of the testifying witness out of fear that it would lead to inquiries into material covered by the joint defense privilege. Id. at 637. The Ninth Circuit held that the trial court erred in not acknowledging the conflict. Id. at 638. The Court firmly stated that it was not saying that joint defense meetings are, in and of themselves, disqualifying. It noted that there would be circumstances information about a former co­ defendant learned in the course of a joint defense agreement would not breach counsel’s duty of confidentiality. Id.

The Ninth Circuit has suggested that a party to a joint defense agreement has the right to ask the court for injunctive relief or disqualification of counsel as provided in the agreement if the party believes that a disclosure is about to be made in violation of the agreement. Waller v. Financial C01p.. 828 F.2d 579. 584 (9th Cir. 1987).

Notwithstanding its relatively universal acceptance, the joint defense privilege is the source of some divergent opinions. For example, two recent cases cast doubt on whether joint defense material can remain cloaked in confidentiality in certain circumstances. In United States v. Stepney, 246 F. Supp. 2d 1069. (N.D. Cal. 2003), the district court ordered the parties to provide copies of their joint defense agreements in camera. and further ordered that the agreements had to include a limited waiver of confidentiality if any of the members later decided to testify. The Stepney outcome appears to be a result of its unusual posture and unique facts. Nearly thirty defendants were charged with gang-related drug and weapons offenses. and some of them sought to share information with each other. Id. at 1071-72. At an initial appearance, the court ordered that any joint defense agreements be in writing and submitted to the court ex parte. No agreements were ever filed, but a year later one of the attorneys moved to withdraw claiming a duty of loyalty had been created with another defendant who had since become a government witness. The attorney did not believe he had obtained any confidential information from the cooperating defendant, but felt that the joint defense agreement had created an implied attorney-client relationship. Id. at 1072. The trial court denied the motion to withdraw, concluding that no general duty of loyalty is implied from a joint defense relationship.

While Stepney did recognize that joint defense agreements ‘·impose an ethical duty of confidentiality on participating attorneys,”‘ the court went out of its way to express its belief that the interests of any two of the defendants were unlikely to coincide other than in that particular case. Id. at I077-78. The trial judge found that owing to the large number of defendants, the variety of incidents, and varying degrees of alleged culpability, the case was likely to lead to conflicts of interest that might result in disqualification of defense attorneys late in the proceedings. Id. at 1078. Thus, the court ordered that any of the defendants entering into joint defense agreements would be required to waive any duty of confidentiality for purposes of cross examining any testifying defendants. The authority the court cited for this order was its inherent supervisory authority. its constitutional obligation to explore potential conflicts of interest to ensure a defendant’s Sixth Amendment rights are adequately protected. and the statutorily mandated inquiry into potential conflicts in instances of multiple representation under Federal Rule of Criminal Procedure 44(c)(2). Id. 1077-78. The district court’s order in this case was not appealed.

The other troubling case on this issue is United States v. Almeida. 341 F.3d 1318 (11th Cir. 2003). in which one of the two parties to a joint defense agreement in a drug conspiracy case decided to cooperate with the government. There, the prosecutor urged the court to prohibit the remaining defendant’s counsel from cross examining the testifying defendant with information obtained in the course of the joint defense privilege. The trial court agreed with the prosecutor assertion of privilege on behalf of the government witness, and the defendant was convicted. The Eleventh Circuit vacated the conviction on the grounds that defendant was denied his Sixth Amendment right to have counsel untainted by conflicts. Id. at 1323. The court held that the testifying defendant waived the benefit of the joint defense privilege when he decided to testify on behalf of the government in exchange for a reduced sentence. Its holding relied on the principal, cited from a I 50 year old Michigan case. that where an accomplice tums state’s witness and attempts to convict others by testimony that also incriminates himself. he thereby waives the privilege against disclosing communications between himself and counsel. Id. at 1325.

Stepney and Almeida suggest that in some situations the court may actually imply a waiver of the joint defense privilege, even where the agreement of the parties includes a no-waiver provision by which the client acknowledges that she or he runs the risk of having their attorney disqualified because of the inability to use privileged joint defense material in cross examination. This issue raises possible implications for counsel seeking to prevent privileged information from being disclosed by a former joint defense member who turns into a government witness and who thus may have an incentive to disclose information learned from other members either in debriefing the government or in their testimony. Nothing in these cases, however, suggests that a joint defense member cannot seek injunctive relief to enforce the terms of the agreement in such circumstances.

Consequences Inaccurate Disclosures

Another potential snare for corporate counsel lies in the crime-fraud exception to attorney client privilege. This issue arises in the cases where counsel for the corporation is provided false information in the course of the internal investigation, and such information is used in counsel’s presentation to the government to obtain a benefit for the client. When the underlying information is shown to be false. the government may argue that the crime-fraud exception extinguishes any privilege between the attorney and the corporation, thus leaving all of counsel’s interviews with the members of the corporate entity unprotected. Under this doctrine, the privilege is pierced where it is shown that the communications were in adherence of an intended or present illegality, and that there is some relationship between the communication and the illegality. In re Grand Jury Proceedings, 87 F3d 377 (9th Cir 1996). It is the client’s intentions that are at issue. thus the privilege may be broken in circumstances were counsel is not aware of the illegality involved. Id. at 381-82. The government need not even prove that the communications helped the targets commit the crime. Id. at 382.

In addition to losing the protection of attorney client privilege, counsel runs the risk of criminal prosecution if the attorney provides inaccurate information to others or otherwise acts in a way from which a culpable mens rea may be inferred. The government may assume in such circumstances that counsel is acting with the intent to defraud, even if the reality is that counsel was unaware or only negligent in providing inaccurate information.

United Stales v. Beckner. provides a cautionary and sobering example 134 F3d 714 (5th Cir 1998). Beckner, a former U.S. Attorney, represented a client under investigation by the SEC for fraudulently soliciting investments to fund a development. Beckner opposed an SEC motion to appoint a receiver and asserted his client’s Fifth Amendment privilege in declining to produce certain demanded documents. Id. at 715-16. After learning his client was continuing to engage in criminal activity with respect to the investment scheme, Beckner urged the client to reform his business practices. The client did not follow counsel’s advice and Beckner withdrew. Id. at 717. However, Beckner was subsequently charged with obstruction of justice based on withholding information from the grand jury and with aiding and abetting in his client’s criminal scheme to defraud investors. One of the counts was based on a claimed misrepresentation that Beckner made in a statement to a reporter concerning the nature of the investments. Id. at 717-18. The Fifth circuit reversed Beckner’s convictions, holding that the government offered insufficient proof of Beckner·s knowledge. Id. at 718. Ironically, what saved Beckner on the aiding and abetting charge related to the statement to a reporter was evidence that he was actually misquoted in the newspaper. Id. at 721. While unwitting assistance in a client’s criminal fraud could not sustain the conviction. even an eventual vindication such as Beckner’s would come at an enormous professional and emotional cost.

Voluntary Disclosures

When assessing the data obtained in an internal investigation, counsel must have a view toward the possibility of voluntary disclosure to the government. The question of whether the corporation will submit a voluntary disclosure is critically important for several reasons. First. if you complete an investigation before the government is aware of any potential violation. You may under certain agency rules be able to stop an indictment of your client altogether. Your client’s reputation may also benefit by generating good will for coming forward without the threat of prosecution.

Under the federal sentencing guidelines themselves. mitigation is available as a result of cooperation and voluntary disclosure. On the other hand. the guidelines also provide for increased seriousness levels, and thus penalties, where there is evidence that the corporate management encouraged or tolerated illegal conduct. USSG §8C2.5(b). Further penalty enhancements exist for cases where the organization willfully impedes or attempts to impede the investigation. USSG §8C2.5(e). The guidelines provide for significant reductions in seriousness level if the organization self-reports the offense, as well as in cases where the organization fully cooperates in the investigation and where there is affirmative acceptance of criminal responsibility. USSG §8C2.5(g). To qualify for such reductions, cooperation must be timely and thorough- this often, but not always, requires the company to provide enough information so that law enforcement can identify the culpable individual(s) within the entity. Id. at Application Note 12. There are also downward adjustments if the offense occurred despite an effective program to prevent and detect violations of law. USSG §8C2.5(f).

As an aside, Sarbanes-Oxley may affect compliance programs. On October 22, 2002, the SEC issued Rule Proposals, which, if adopted, would effectively require the certifying officers to design, establish, maintain, evaluate, and report on the corporation’s internal controls and procedures for financial reporting. This is defined in the proposal as “a process effected by an entity’s board of directors, management and other personnel. . .regarding compliance with applicable laws and regulations.” If this proposal is adopted, compliance programs will not only be an issue for those public companies seeking mitigation, they will be legally mandated.

Another benefit of voluntary disclosure is that if counsel knows what caused the problem, counsel is in a position to help the client create the compliance programs necessary to prevent future recurrences. The risk of creating a compliance program is that if the corporation docs not live up to it, it can later be used as a roadmap for future prosecution.

A noteworthy problem with the decision to make a voluntary disclosure is that when counsel turns over privileged information to the government the corporation no longer has control of that data. Thus, material provided to the government as part of a voluntary disclosure waives attorney client privilege as to that material. In re Worlds of Wonder 147 F.R.D. 208 (N.D. Cal 1992), see also Weil v. Investment/Indicators, Research & Management, 647 F.2d 18, 24 (9th Cir.1981). The Worlds of Wonder principle that voluntary disclosure to an investigating government agency waives the privilege as to all other adversaries was reaffirmed in United States v. Family Practice Associates of San Diego, 162 F.R.D. 624 (S.D. Cal 1995).

A different, but equally challenging situation is where counsel advises the corporate client of the discovery of criminal conduct within the organization and recommends a voluntary disclosure only to be only to be met with corporate management’s refusal to disclose. If the conduct discovered by counsel was historical in context and the organization refuses to proceed with a self-disclosure, counsel’s ethical obligation to preserve the confidences and secrets of the client under DR 4-101 preclude any further action. However, if the attorney believes that the criminal conduct is ongoing, and the corporate client still refuses to disclose, counsel’s only remedy would be to resign.

Privileged Nature of the Internal Audit

Counsel’s analysis and work product obtained during an internal investigation is protected by the attorney-client privilege and work product doctrine. See O.R.S. 40.225/0EC Rule 503 for Lawyer-Client Privilege. See also State ex rei OHSU v. Hass. 325 Or 492 (1997). If the client decides to disclose material related to the internal investigation to the government in an attempt to gain leniency or in compliance with a statutory duty, such a disclosure may constitute a waiver of any privilege that the investigation once had.

In Oregon, the statute regulating environmental quality creates a limited privilege for an internal environmental audit that is independent of the attorney-client privilege. O.R.S. 498.963( 1) states that in order to encourage compliance with environmental regulations, a privilege is recognized in any civil or administrative proceeding protecting the confidentiality of communications relating to a voluntary internal environmental audit. Notably, however, the statue does not apply to a criminal investigation or proceeding. O.R.S. 498.962(2). It also creates a means by which a prosecutor may obtain an environmental audit report which is asserted to be privileged, along with a process for in camera review by the court to determine if the privilege applies.

Notwithstanding the existence of privileges to protect the contents of an internal investigation, the United States Department of Justice issued a memo in January 2003 outlining certain principles concerning prosecution of business entities. The memo directs prosecutors who are gauging the adequacy of an organization’s cooperation to consider whether the corporation is willing to waive both attorney-client and work product protections with respect to its internal investigation and to communications between officers, directors, employees and counsel. Memorandum from Larry D. Thompson, Deputy Attorney General, to the Heads of Department Components and United States Attorneys (Jan. 20, 2003). Thus, in order to obtain a declination of prosecution, there may be circumstances when counsel is required to waive any privilege related to the internal investigation and advice given to the corporation concerning the conduct at issue.


There are significant incentives for a corporation to conduct an internal investigation when it learns or suspects criminal wrongdoing from within. There are also legal doctrines that may destroy the privileged status of the information obtained by counsel. Additionally, ethical issues often make performing the internal investigation a complicated task. None of these challenges should deter a thorough internal factual audit when criminal conduct is suspected. This information is needed so that the entity can decide whether to make early use of voluntary disclosure provisions found in the various statutory schemes. or where appropriate, to marshal an all-out factual or legal defense.

The Privilege Against Self-Incrimination in Civil Proceedings

from Oregon State Bar Litigation Journal, by By Janet Lee Hoffman, with special thanks to Joe O’Leary and Brandon Williams for their assistance, Spring 2005

Click to download “The Privilege Against Self-Incrimination in Civil Proceedings”


Recent years have shown an increase in civil proceedings and attending parallel criminal prosecutions. This arrangement can occur in a variety of contexts, for example: (1) the Securities and Exchange Commission investigates improprieties on the part of a corporation and initiates an investigation and civil enforcement action that ultimately result in the federal government charging officers and directors with various crimes based largely upon the same illicit conduct the SEC has alleged; (2) the Department of Labor initiates an investigation that results in a finding of both civil and criminal ERISA violations; or (3) employment litigation arises where an employee sues the employer for the conduct that could potentially form the basis of a criminal matter. Manifold other examples come to mind, such as allegations of civil fraud, civil RICO complaints, and state bar investigations involving an attorney’s conduct that might also be criminal in nature.

Parallel civil and criminal proceedings become even more complicated when a lawyer is jointly defending a corporation and an individual employee, officer, or director of the corporation. In that instance, the lawyer may face the dilemma of advising the corporation to comply with all discovery requests while also advising the individual employee, officer, or director to invoke the Fifth Amendment right against self-incrimination to avoid potential criminal liability.

The following discussion addresses this legal quandary.

1. The Ubiquitous Doctrine of the Right against Self- Incrimination

Lawyers and non-lawyers alike typically think of the right against self- incrimination as a principle that arises only in criminal proceedings. The reality, however, is that the decision about whether to invoke the privilege in a civil proceeding may be equally important. Periodically, both in-house counsel and attorneys representing individuals or corporations come to a critical fork in the road in a civil proceeding where serious consideration is required as to whether an individual client should invoke the privilege against self-incrimination. This issue arises in civil matters where criminal liability might also manifest, such as claims of fraudulent conduct, negligence, or administrative enforcement actions. In some cases, state or federal prosecutors may be closely monitoring the developments in a civil matter in contemplating the possibility of seeking criminal charges, which, if known to the prospective criminal defendant, makes the decision about whether to invoke the right against self-incrimination even more critical. In other circumstances, unbeknownst to the client or his counsel, there may already be a criminal case underway involving the same client in the parallel civil matter.

In a situation where the client faces the possibility of providing information in a civil proceeding that could later be used against them in a separate criminal case, the government is in a unique position of taking full advantage of the fruits of the civil discovery process to obtain potentially incriminating information to be used against the client in a criminal matter. Therefore, when responding to civil discovery requests, both documentary and testimonial in nature, counsel should undertake a careful analysis of areas of possible criminal exposure. If the potential for criminal exposure is significant, it may be in the client’s best interest to invoke the right against self-incrimination in response to civil discovery requests. This decision, of course, must weigh the impact the invocation will have in the civil matter, such as the possibility that an adverse inference will be drawn against the client. However, that consequence may be avoided in certain circumstances by seeking a stay of the civil discovery or even of the entire civil proceeding until conclusion of the parallel criminal matter.

As the Supreme Court observed, “[i]n civil proceedings, there are costs when a party asserts the privilege against self-in- crimination; ‘[i]t will, for example, always disadvantage opposing parties… since it keeps them from obtaining information they could otherwise get.’” Baxter v. Palmigiano, 425 U.S. 308, 318 (1976), quoting United States v. 4003-4005 5th Ave., 55 F.3d 78, 82 (2d Cir.1995). “Consequently, ‘the Fifth Amendment does not forbid adverse inferences against parties to civil actions when they refuse to testify in response to probative evidence offered against them.‘” Baxter, 425 U.S. at 318. Accord United States v. Solano-Godines, 120 F.3d 957, 962 (9th Cir. 1997) (“In civil proceedings. . .the Fifth Amendment does not forbid fact finders from drawing adverse inferences against a party who refuses to testify.”).

This poses a certain predicament for counsel in that the negative inferences the civil jury may permissibly infer arising from the refusal to testify might jeopar- dize an otherwise winnable case, yet on the other hand, by invoking the Fifth, the litigant might avoid serious criminal consequences.

“Consequently, ‘the Fifth Amendment does not forbid adverse inferences against parties to civil actions when they refuse to testify in response to probative evidence offered against them.’”

2. An Individual’s Privilege Against Self-Incrimination May Be Asserted In Civil And Criminal Proceedings Alike.

Under the Fifth and Fourteenth Amendments to the United States Constitution, and Article I, section 12 of the Oregon Constitution, a person may not be compelled to give self-incriminating testimony in any stage of a criminal proceeding. This privilege, however, is not limited to circumstances where there is a pending criminal action. A person may not be compelled to give testimony in any proceeding, civil or criminal, formal or informal, before administrative, legislative or judicial bodies, when that person’s answers may tend to incriminate him in future criminal proceedings. See Lefkowitz v. Cunningham, 431 US 801, 804-805 (1977) (Fifth Amendment privilege avail- able in criminal as well as civil proceedings where the testimony might later subject the witness to criminal prosecution); State v. Langan, 301 Or 1, 5 (1986) (Article I, section 12 privilege against self-incrimination applies in any judicial or non-judicial setting where compelled testimony is sought that might be used against the witness in a criminal prosecution). As the United States Supreme Court affirmed in United States v. Balsys:

[The privilege against self- incrimination] “can be asserted in any proceeding, civil or criminal, administrative or judicial, investigatory or adjudicatory,” in which the witness reasonably believes that the information sought, or discoverable as a result of his testimony, could be used in a subsequent state or federal criminal proceeding. Kastigar v. United States, 406 U.S. 441, 444-445, 92 S.Ct. 1653,1656, 32 L.Ed.2d 212 (1972); see also McCarthy v. Arndstein, 266 U.S. 34, 40, 45 S.Ct. 16, 17, 69 L.Ed. 158 (1924) (the privilege “applies alike to civil and criminal proceedings, wherever the answer might tend to subject to criminal responsibility him who gives it.”).

524 U.S. 666, 672 (1998) (emphasis added).

The scope of the privilege is in no way limited to questions that narrowly concern the ultimate issue out of which criminal liability might flow. The Supreme Court has held that the privilege is to be construed liberally “in favor of the right it was intended to secure.” Hoffman v. United States, 341 US 479, 486 (1951). Hoffman makes clear that the scope of the privilege “not only extends to answers that would in themselves support a conviction under a federal criminal statute but likewise embraces those which would furnish a link in the chain of evidence needed to prosecute the claim- ant for a federal crime.” Id. Therefore, a party can only be compelled to testify de- spite a claim of privilege under the Fifth Amendment if a judge is convinced that it is “perfectly clear, from a careful consideration of all the circumstances in [the] case, that the witness is mistaken, and that the answer cannot possibly have” a tendency to incriminate. Id. at 488.

Notably, a corporation does not share the same Fifth Amendment protection against compelled self-incrimination that an individual officer or director of the corporation has. In Braswell v. United States, 487 U.S. 99 (1988), the United States Supreme Court stated:

The rule was first articulated by the Court in the case of Hale v. Henkel, 201 U.S. 43, 26 S.Ct. 370, 50 L.Ed. 652 (1906). Hale, a corporate officer had been served with a subpoena ordering him to produce corporate records and to testify concerning certain corporate transactions. Although Hale was protected by personal immunity, he sought to resist the demand for the records by interposing a Fifth Amendment privilege on behalf of the corporation. The Court rejected that argument: “[W]e are of the opinion that there is a clear distinction…between an individual and a corporation, and…the latter has no right to refuse to submit its books and papers for an examination at the suit of the State.” Id., at 74, 26 S.Ct., at 379. The Court explained that the corporation “is a creature of the State,” ibid., with powers limited by the State. As such, the State may, in the exercise of its right to oversee the corporation, demand the production of corporate records. Id., at 75, 26 S.Ct., at 379.

Any misunderstanding of this principle could result in serious consequences where counsel fails to recognize the individual’s right against self-incrimination might be jeopardized by the demands of civil discovery. 487 U.S. at 105. Therefore, it is crucial for counsel advocating for the rights of a corporation to understand that although a corporation has no right against self-incrimination, an individual corporate employee still enjoys that right to the fullest. Any misunderstanding of this principle could result in serious consequences where counsel fails to recognize the individual’s right against self-incrimination might be jeopardized by the demands of civil discovery. (See discussion at section (3) below)…

3. The Privilege against Self- Incrimination Extends to the Production of Documents that Could Provide a Link In the Chain Needed to Prosecute Where the Act of Production Implies an Assertion of Fact.

The privilege against self-incrimination is not limited to testimony or verbal responses to questioning, but also applies to requests for production of documents. In United States v. Hubbell, 530 U.S. 27 (2000), the Court reaffirmed the “act of production” doctrine. Under this principle, an individual can invoke the Fifth Amendment privilege when compelled to turn over documents that are incriminating or that may lead to inculpating evidence, if the act of producing the documents themselves implies assertions of fact. It is not merely the fact that the compelled documents may contain incriminating evidence that justifies invocation of the privilege. Rather, it is the testimonial nature of production of potentially inculpatory documents that triggers the privilege because by comply- ing with the order to produce, the individual is effectively admitting that the documents exist, were in his possession or control, and were authentic. Id. at 37. See also United States v. Doe, 465 US 605, 612-613 (1984) (distinguishing between the contents of the records, which are not privileged, and the act of producing the records which was a privileged act.)

United States v. Hubbell arose out of the Independent Counsel’s investigation of the Whitewater Development Corporation. In Hubbell the Independent Counsel had served the defendant with a subpoena ducestecum seeking an expansive range of information relating to the defendant’s financial situation. The subpoena ordered him to gather and pro- vide “any and all” documents related to his and his family’s sources of income. This request included his bank records, records of expenses, all tax return information, and all documents related to his work with specific individuals. Hubbell, 530 U.S. at 46-50. The Court concluded that the response to the subpoena required both “mental and physical steps necessary to provide…an accurate inventory of the many sources of potentially incriminating evidence sought.” Id. at 42. The breadth of the demand for production by the subpoena required a response that was the “functional equivalent of the prepa- ration of an answer to either a detailed written interrogatory or a series of oral questions at a discovery deposition.” Id. at 41-42. The Court found it was:

“undeniable that providing a catalog of existing documents fitting within any of the eleven broadly worded subpoena categories could provide a prosecutor with a “lead to incriminating evidence,” or “a link in the chain of evidence needed to prosecute.”

Id. at 42 (quoting Doe v. United States, 487 US 201 (1988) and Hoffman v. United
States, 341 US 479 (1951)).
Like in Hubbell, information sought in civil discovery, along with the often interrogatory-like nature of the preliminary paragraphs ordering a party to explain the disposition of other material no longer in their possession, makes it “unquestionably necessary for [the defendant] to make extensive use of ‘the con- tents of his own mind’ in identifying the…documents responsive to the requests in the subpoena.” Hubbell, 530 U.S. at 43 (quoting Curcio v. Unit- ed States, 354 U.S. 118, 128 (1957)). For example, in a recent civil case, based on an allegation of a fraudulent will, the plaintiff’s request for production of a certain category of “documents” defined documents to include:

all documents in your actual or constructive possession, custody or control.

If any document was, but is no longer, in your possession and control or was known to you but is no longer in existence, state whether it is:

a) missing or lost;

b) has been destroyed;

c) has been transferred, voluntarily or involuntarily to other; or

d) otherwise disposed of and in each instance, explain in detail the circumstances surrounding the authorization for such disposition and state the date or approximate date thereof.

Oregon law concerning the as- sertion of privilege in the act
of production is virtually un- developed as compared to the law established under the Fifth Amendment.

The same request for production also asked for any documents evidencing deposits of the deceased funds in the defendant’s bank account, bank transfers and written authorizations to sign checks on behalf of the deceased. The acknowledgement by the defendant of the mere existence of any of these documents in the defendant’s possession would in itself have been incriminating.

Such a broad definition of requested documents and the specific requests for individual categories of documents demonstrates how the assembly and production of such materials and the potential response to this request for production required testimonial acts that are protected by the Fifth Amendment and Article I, section 12, as such acts require the party to communicate as to the existence, possession, and authenticity of the broad categories of documents ordered to be produced.

Oregon law concerning the assertion of privilege in the act of production is virtually undeveloped as compared to the law established under the Fifth Amendment. No Oregon case since State v. Jancsek, 302 Or 270 (1986), has attempted to analyze the issue of the privilege against self-incrimination with respect to the compelled production of documents under Article I, section 12 of the Oregon Constitution.

In Jancsek, the Court disposed of the state constitutional issue on the narrowest possible grounds by concluding that the document sought to be disclosed, a letter containing admissions by the defendant to murdering his wife, was specifically identified, its contents were already known by the state, its existence was conceded by the defendant, and it was in the custody of another person, not the defendant. Thus, the act of producing the letter did not compel the defendant to do anything as the letter was not even in his possession. Id. at 285. The Court further found that disclosure on those facts did not implicate the act of production doctrine under the Fifth Amendment.

Jancsek is easily distinguished from the circumstances most parties may face in civil matters where the issue of asserting the privilege arises. The documents sought in civil discovery are often described in the broadest of terms and without the specificity present in Jancsek. Requests for production in civil litigation are typically much more analogous to the broad subpoena in Hubbell, seeking “any and all” information related to broad categories of potentially relevant information.

Although the testimonial nature of production was brought up in Empire Wholesale Lumber Co. v. Meyers, 192 Or App 221 (2004), there, the assertion of the privilege and the court’s discussion was based solely on the Fifth Amendment, and not on Article I, section 12. Id. at 223. As to the Fifth Amendment analysis, the court relied on Hubbell and concluded that the privilege could be invoked by a defendant/debtor against whom the plaintiff had obtained a judgment and was seeking to compel the defendant/debtor to answer questions and produce documents related to his income. Id. at 227.

4. Risk of Waiver of Fifth Amendment Protection through Discovery Responses Versus the Risk of Adverse Consequences as Result of Invocation of the Privilege

Counsel should be wary of circumstances where the court finds a waiver of the privilege against self- incrimination as a result of answering questions posed in depositions or in response to broadly worded requests for productions like the one cited above. In Rogers v. United States, 340 U.S. 367, 374 (1951), the court held that once a witness makes an incriminating admission, he cannot refuse to disclose details unless such further disclosure would pose a real danger of further incrimination. Despite the general rule that “disclosure of a fact waives the privilege as to the details,” the various circuits have interpreted Rogers with varying degrees of protection for the witness. The rule in the Ninth Circuit provides the witness with greater protection, stating that “an ordinary witness may ‘pick the point beyond which he will not go,’ and refuse to answer any questions about a matter already discussed, even if the facts already revealed are incriminating, as long as the answers sought may tend to further incriminate him.” In re Master Key Litigation, 507 F.2d 292, 294 (9th Cir.1974) (quoting Shendal v. United States, 312 F.2d 564, 566 (9th Cir. 1963)). See also United States v. Seifert, 648 F.2d 557, 561 (9th Cir. 1980) (quoting the Ninth Circuit rule from Master Key and Shendal to hold that testimony of a witness during direct examination did not waive privilege for any question on cross examination that could possibly incriminate witness further than statements already made).

Because the privilege against self-incrimination is a right of constitutional magnitude,“the detriment to the party asserting it should be no more than is necessary to prevent unfair and unnecessary prejudice to the other side.”

However, “[w]here a witness asserts a valid privilege against self-incrimination on cross-examination, all or part of that witness’s testimony must be stricken if invocation of the privilege blocks inquiry into matters which are ‘direct’ and are not merely ‘collateral.’” Seifert, 648 F.2d at 561-562. “The distinction between matters which are ‘collateral’ and those which are ‘direct’ is not precise or easy. It can be drawn only by reference to the particular facts of the particular case, and. . .‘[a] trial court has wide discretion to determine whether a witness’s testimony must be stricken because cross-examination was restricted.’” Id. at 561-62 (quoting United States v. Star, 470 F.2d 1214, 1217-18 (9th Cir. 1972)).

If an implied waiver of the privilege through answers to discovery is at one end of the spectrum of potential pitfalls to be avoided, at the opposite end is the risk of adverse consequences in the civil suit resulting from a party’s assertion of the privilege. Unlike criminal cases, where the jury is instructed not to draw adverse inferences from a defendant’s silence, such inferences are permissible in a civil case when a party invokes the privilege against self-incrimination. Baxter v. Pal- migiano, 425 U.S. 308, 318 (1976). In fact, in order to prevent unfairness, a court has discretion in fashioning an appropriate remedy in response to a civil party’s in- vocation. SEC v. Colello, 139 F.3d 674, 677 (9th Cir. 1998) (citing Wehling v. Columbia Broadcasting System, 608 F.2d 1084, 1089 (5th Cir. 1979)). And the remedy could be permitting an adverse inference, burden shifting, or even a dismissal of the action. Another remedy, discussed below, is a stay of all or part of the proceeding.

In determining a response to invocation of the privilege, courts have developed a test by which the interest of one party’s right against self-incrimination is weighed against the other party’s right to a fair proceeding. The balance is examined on a case-by-case basis, but the factors for consideration uniformly discussed among the courts include:

(1) the importance of the information sought; (2) whether there are alternative means to obtain the information; and, (3) whether there are remedies less drastic than outright dismissal of the action. Serafino v. Hasbro, Inc., 83 F.3d 515, 518-19 (1st Cir. 1996). Courts have also consistently held “that an adverse inference can only be drawn when independent evidence exists of the fact to which the party refuses to answer.” Doe ex rel. Rudy-Glanzer v. Glanzer, 232 F.3d 1258,1265 (9th Cir. 2000). Because the privilege against self-incrimination is a right of constitutional magnitude, “the detriment to the party asserting it should be no more than is necessary to prevent unfair and unnecessary prejudice to the other side.” Id. (quoting SEC v. Graystone Nash, Inc., 25 F.3d 187, 192 (3rd Cir. 1994)).

5. Moving to Stay the Civil Proceeding in Order to Protect the Client In Both the Civil and Criminal Matters

In order to avoid the difficult position of having to decide between waiving the privilege and incriminating one’s self on the one hand, or, on the other, asserting the privilege and damaging one’s position in a civil matter, counsel should consider moving for a stay of a portion or the entirety of the civil proceeding until the parallel criminal matter is resolved. While no Oregon court has addressed the issue of a stay to protect a party’s right against self-incrimination when parallel civil and criminal proceedings are pending, federal and other state courts have developed a uniform framework for resolving this issue. Under that analysis, it is well-settled that a court’s determination on a motion to stay proceedings is discretionary and, therefore, not a matter of constitutional entitlement. Such a stay may postpone the entire proceeding or may be narrowly tailored to particular discovery processes. In considering whether to grant a stay of the civil proceeding, the court weighs the following factors:

(1) the extent to which the defendant’s Fifth Amendment rights are implicated;

(2) similarities between the civil and criminal cases;

(3) the status of the criminal case;

(4) the interest of the plaintiffs in proceeding expeditiously with the litigation, and the potential prejudice of de- lay;

(5) the burden which any particular aspect of the pro- c e e d i n g s m a y i m p o s e o n defendants;

(6) the convenience of the court in the management of its cases, and the efficient use of judicial resources;

(7) the interests of persons not parties to the civil litigation; and

(8) the interest of the public in the pending civil or criminal litigation.

King v. Olympic Pipeline Company, 104
Wash. App. 338, 352-353 (2001) (citing
Keating v. Office of Thrift Supervision, 45
F3d 322, 324-325 (9th Cir. 1995)).

On the one hand, invoking the Fifth Amendment may protect against potential criminal liability. On the other hand, such invocation may jeopardize a civil litigant’s case.

The court in King reversed the trial court’s denial of a motion to stay discovery of a civil suit resulting from a deadly explosion caused by the rupture of an underground pipeline. At the time the civil suit was pending, several individual defendants in the action were also the focus of a federal criminal investigation regarding the explosion. Id. at 345-346. As a matter of first impression, it was in King where the federal framework dis- cussed in Keating was adopted.

In Keating, the application of the federal test led to a denial of the requested stay of an administrative SEC proceeding. Keating appealed an administrative denial of his motion for a stay of a civil enforcement proceeding pending the resolution of all criminal proceedings against him. He argued that the pending criminal case had forced him to invoke the Fifth Amendment privilege during the agency hearing, which, ac- cording to Keating, deprived him of the opportunity to fully defend himself in the agency action. The Court rejected Keating’s claim because the agency had severed the counts related to the pending criminal charges. Id. at 326. Additionally, the court considered “the interest of the public in the pending civil and criminal litigation,” reasoning “that Keating had [had] adequate time to prepare for the [Office of Thrift Supervision] hearing” and, given the numerous delays in the proceedings, “any burden on Keating was far outweighed by the public interest in a speedy resolution of the case.” Id. at 325.

The factors outlined in these cases provide a good foundation upon which to balance the competing interests at stake concerning a party’s invocation of the privilege. On the one hand, invoking the Fifth Amendment may protect against potential criminal liability. On the other hand, such invocation may jeopardize a civil litigant’s case.

6. The Corporate Attorney’s Ultimate Ethical Conflict

The above discussion highlights concerns as to a corporate counsel’s inherent ethical conflict in a civil case when abiding by civil discovery rules that might produce information detrimental to a corporate employee’s constitutional right to remain silent. Generally, Rule 1.13 of the Oregon Rules of Professional Conduct, captioned “Organization as a Client,” governs this issue. Specifically subsection (g) provides:

A lawyer representing an organization may also represent any of its directors, officers, employees, members, shareholders or other constituents, subject to the provisions of Rule 1.7. If the organization’s consent to the dual representation is required by Rule 1.7, the consent may only be given by an appropriate official of the organization other than the individual who is to be represented, or by the shareholders.

Also related to this issue, Rule 1.7(a) provides that, with limited exception, a lawyer “shall not represent a client if the representation involves a current conflict of interest,” which exists if, in pertinent part, 1) representing one client will be directly adverse to another client, or 2) a significant risk arises that representing one or more clients will be materially limited by the lawyer’s responsibilities to another client or former client. Notwithstanding these conflicts, Rule 1.7(b) provides that a lawyer may represent a client if:

(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

(2) the representation is not prohibited by law;

(3) the representation does not obligate the lawyer to contend for something on behalf of one client that the lawyer has a duty to oppose on behalf of another client, and

(4) each affected client gives informed consent, confirmed in writing.

As these ethical rules demonstrate, the Oregon State Bar has recognized the precarious nature of representing the interests of individuals within a corporation while also advocating for the corporation as a whole. Rule 1.7(a), without further limitation, arguably would effectively prohibit an attorney from advocating for a corporation that is disclosing corporate records under a s u b p o e n a d u c e s t e c u m — r e c o r d s that might criminally implicate an employee of the corporation who is also represented by the lawyer. And although Rule 1.7(b) provides exceptions to the otherwise prohibited dual representation, the four conditions cited above arguably prevent a lawyer representing a corporation from also representing a corporate employee where there is potential criminal exposure for the simple reason that a corporation may be injured by the employee’s invocation of the right against self incrimination, or more importantly, the failure to assert the Fifth Amendment guarantee may be devastating to the employee.

The option of invoking the right against self-incrimination must be considered and evaluated in circumstances where providing testimony…places the client in a position where he is forced to provide information that may be used as a “link in the chain” of evidence used to prosecute him in a parallel or subsequent criminal proceeding.

7. Proposed Solutions and Practice Tips

Although the above discussion has highlighted the dilemma that counsel faces about whether to assert the right against self-incrimination, there are options available that might eliminate the conflict. First, in corporate situations where criminal conduct is also implicated, it is advisable to obtain separate counsel for the officer, director, or employee, who may be implicated. Second, counsel should consider moving for a stay of the civil case or discovery pending resolution of the criminal proceeding. Third, it may simply be best to assert the right against self-incrimination in the civil matter and suffer the potentially adverse consequences at that phase. Fourth, counsel may work to settle the pending parallel criminal matter so that disclosure in the civil case no longer poses the difficulty it otherwise would. Lastly, counsel could strive to settle the parallel civil matter before the criminal case and before the defendant is in a position of possible self-incrimination.


The option of invoking the right against self-incrimination must be considered and evaluated in circumstances where providing testimony or even complying with civil discovery, including the production of documents, places the client in a position where he is forced to provide information that may be used as a “link in the chain” of evidence used to prosecute him in a parallel or subsequent criminal proceeding. The initial act of producing documents responsive to broad civil discovery requests typically requires significant physical and mental processes on the part of the client. The responses will often imply statements of facts and are therefore testimonial in nature. If such requests are responded to, counsel must assume that the government will have access to that information and will evaluate it for the purpose of determining whether criminal liability may be proven from it. For these reasons, the thorough evaluation of the right against self-incrimination in a civil proceeding is absolutely critical.

The Collateral Consequences of a Parallel Investigation, or ‘Excuse Me, Can I Talk to You, Please?’

from Oregon State Bar Litigation Journal, by Janet Hoffman and Carrie Menikoff , Spring 2006

Click to download “The Collateral Consequences of a Parallel Investigation, or ‘Excuse Me, Can I Talk to You, Please?'”


Many litigators may find themselves defending allegations that their client violated an administrative regulatory scheme such as the Securities Exchange Act of 1934, the Clean Water Act, or the federal tax laws. Civil attorneys must consider the possibility that their civil case may involve criminal prosecution since these administrative regulatory schemes include criminal penalties for violations of the same provisions. As a matter of public policy, certain offenses will carry an increased risk of criminal prosecution where there is evidence of falsification of data, concealment of evidence, or repeated violations by the same individual or company. And since the civil authorities can share their findings with the criminal authorities (so long as certain criteria are met), the practitioner will need to assess whether cooperation at an early stage is imperative to avoid debarment and other serious penalties or whether the value gained by cooperation is outweighed by the risk of disclosing possibly incriminating evidence.

When representing a client under investigation for such violations, there is often a tension between the natural impulse to cooperate with authorities to avoid litigation or civil penalties and the need to protect oneself by asserting the Fifth Amendment and other constitutional rights. To determine which approach is most advantageous, it is important to understand the risks the client faces should he choose to cooperate with civil authorities. By cooperating with the regulatory agency, the individual may be providing discovery (such as a recorded statement or documents) that the criminal authorities could never otherwise obtain under the criminal discovery rules.[1]

Government sources essentially define parallel proceedings as independent, simultaneous investigations, enforcement actions or prosecutions involving allegations and parties that are substantially the same.[2] For example, the Securities and Exchange Commission (“SEC”) and the Department of Justice (“DOJ”) can simultaneously investigate and prosecute violations of securities law to pursue both civil and criminal penalties. A parallel proceeding is legitimate if it is conducted in good faith.[3] That is to say, the civil and administrative investigation must be justified by genuine civil enforcement case purposes. Put differently, the civil discovery process may not be used as a pretext to gather information for a criminal investigation. Yet even where the civil investigation may have been initiated for a legitimate administrative or regulatory purpose, one must look to the manner in which information is subsequently developed and shared between the two separate agencies to determine whether an otherwise proper parallel proceeding has merged into a single improper prosecution.

In the civil enforcement context alone, the stakes for the individual or corporation under investigation are high. For instance, corporations who do not cooperate may face stiffer penalties.[4] The civil agency can debar individuals or entities to prevent them from receiving federal funds or from bidding on government contracts.[5]

For both individuals and corporations, this could mean the loss of livelihood. Succumbing to the coercive force of threatened government sanction, individuals may choose to cooperate fully to avoid the penalties, even though cooperation increases the risk of criminal prosecution because the individual may (wittingly or unwittingly) disgorge incriminating evidence.

The Coordination between Civil and Criminal Authorities

Practitioners also need to be aware that it is often policy within the federal civil administrative agency to notify the criminal authorities of potential criminal activity. Some agencies will furnish the criminal authorities with pleadings and hearing summaries even before it makes a criminal referral.[6] After a formal criminal referral has been made, the inter-agency coordination may even increase. For example, some civil investigators are directed to keep the United States Attorney advised on all aspects of the civil case, once a referral has been made.[7]

Significantly, any information obtained as a result of legitimate civil discovery may be–and often will be–shared with criminal enforcement agents. Indeed, federal law enforcement agencies will undertake joint investigations and collaborate when prosecuting civil and criminal violations.[8]

As EPA policy states, there is no legal bar to using administrative mechanisms for purposes of investigating suspected criminal matters, so long as the agents do not intentionally mislead a person about the possibility that information gathered will be used in the criminal enforcement context.[9]

Notably, however, in any joint investigation, “civil and criminal attorneys must each have a good faith basis for every information-gathering action taken, independent of the investigatory needs of their counterparts.”[10]

The civil authorities have expansive investigatory powers. The SEC, for example, may investigate and commence informal or formal enforcement actions. If it undertakes a formal investigation, a Formal Order of Private Investigation is required. Through this formal investigation, it has the power to compel testimony of witnesses and production of documents from anywhere within the United States. Further, according to SEC rules, all documents and information are non-public.[11] Yet SEC rules allow for the sharing of information with other government agencies. This rule is significant because it allows the DOJ to obtain this non-public information. Moreover, it is now common practice for the SEC to coordinate its investigation with the DOJ. SEC staff members are regularly detailed to the Justice Department to assist in criminal investigations and prosecutions of securities violations.[12]

Given this close cooperation between federal agencies, parallel proceedings present both the opportunity for the government to conduct efficient investigations and to abuse the investigative process if the rules are not followed.

When a government agency initiates an investigation, the penalties that the government can impose, should it decide to pursue an enforcement action, are sufficiently severe that many defendants have no choice but to yield to the demands of the staff investigators, knowing full well that any information gathered might be shared with other government agencies.[13]

Nevertheless, no defendant who is heading toward a criminal trial wants to be unwittingly put in a position of providing testimony in a civil action that will later be used against him in the criminal case. It is important, therefore, to determine the full scope of the investigation facing the defendant before he testifies because a defendant cannot make a full knowing and voluntary waiver of his Fifth Amendment rights if he is misled about the true, dual nature of the investigation or proceeding. As one district court explained, “it is unrealistic to suppose that defendant will be on guard against incriminating himself when he is unaware that criminal proceedings are contemplated.”[14]

Although a defendant has a constitutional right not to provide compelled testimony, in the civil arena, assertion of the Fifth Amendment privilege comes at a price.[15]

Indeed, the decision to take the fifth in a civil proceeding will not go unpunished. If he invokes his right to be free from providing compelled testimony in the civil action based on the uncertainty of criminal proceedings, the judge or jury is permitted to draw an adverse inference against one who refuses to testify.[16] Moreover, refusing to provide evidence may potentially preclude the defendant from presenting evidence on his behalf.[17]

In a civil case, courts have held, the defendants cannot have it the both ways.

By hiding behind the protections of the Fifth Amendment as to his contentions, the defendant may give up the right to prove them.[18]

Outlining the Contours of Proper Parallel Proceedings

Courts that have considered the constitutional questions raised by simultaneous civil and criminal investigations or proceedings in the enforcement of federal law provide some guidance for practitioners seeking to define the contours of proper or legitimate parallel proceedings. In United States v. Kordel, the Supreme Court enunciated some standards for evaluating the propriety of parallel proceedings.[19] Put simply, Kordel stated that the government cannot bring a civil action solely to obtain evidence for a criminal prosecution, adding that it may be an abuse of process should the government “fail to advise the defendant in its civil proceeding that it contemplates his criminal prosecution.”[20] Notably, the Supreme Court acknowledged that where there are parallel proceedings, there may be “special circumstances that might suggest the unconstitutionality or even the impropriety of [the] criminal prosecution.[21] The question that remains after Kordel is what are those “special circumstances”?

Significantly, at the core of the opinion in Kordel is the notion that the government must not act in such a manner as to subvert the “fundamental fairness” requirement of the due process clause or depart from the proper standards in the administration of justice. One component of fairness is that individuals have a right to expect candor from the government.

Lower courts examining the propriety of parallel proceedings since Kordel have found that it is a “flagrant disregard of individuals’ rights” to “deliberately deceive, or even lull” someone into incriminating oneself in the civil context when “activities of a criminal nature are under investigation.”[22] In other words, a government agent must not affirmatively mislead the defendant into believing that an investigation is exclusively civil in nature and will not lead to criminal charges.[23] Put simply, they cannot lie about the status of an investigation.[24] Government agents cross this line when they anticipate bringing criminal charges against a subject of a civil investigation, fail to advise individuals that they anticipate their criminal prosecution, and then employ a strategy to conceal the criminal investigation.[25]

More specifically, it is not a parallel investigation when staff from the separate civil and criminal agencies (i) meet regularly, (ii) identify targets, (iii) share documents, (iv) cooperate in establishing jurisdiction for false statement cases, (v) discuss information needed for a criminal prosecution, and/or (v) actively shield their intentions behind the guise of a civil prosecution to obtain evidence not otherwise available through criminal discovery.[26]In so doing, the government has “engaged in an obnoxious form of using parallel proceedings.”[27]

Even in those cases where the civil authorities have initiated a legitimate civil enforcement investigation, a subsequent government prosecution based on deceit or trickery concerning the existence of the criminal proceeding is improper.[28]

Additionally, the government may overstep its bounds when it identifies an individual as a subject or a target of the investigation, yet fails to alert him of the possibility of criminal exposure. Some will argue, however, that a standard, routine warning (given to all witnesses) alerting the defendant that his testimony may be shared with the criminal authorities is sufficient to insulate the government from any challenge as to the propriety of the two investigations. But when the defendant is the subject or target of the investigation such boilerplate warnings may be insufficient. In United States v. Thayer, the court found these warnings meaningless when the defendant was unaware that investigators were focusing on his conduct. In this context, “the giving of the warning can not have much significance where the defendant was, so to speak, then within the sights of the Government and did not receive an explanation of the true import of the [ ] inquiry.”[29] Put simply, the government’s failure to inform the defendant that he is a target or subject of a criminal investigation may depart from the proper standards in the administration of justice and violate defendant’s due process rights.[30] It is worth noting that this principle is consistent with Justice Department policy. DOJ rules require that before the government can compel a witness’s testimony to the grand jury, if that witness is a subject or target of the grand jury investigation, then the authorities must tell him and must advise him of his rights.[31]

Practice Tips

Where the defendant faces the possibility of providing information in a civil proceeding that could later be used against him in a separate criminal case, the government is in a unique position to obtain potentially incriminating information, which it will make full use of in a criminal prosecution. Therefore, if the client’s potential for criminal exposure is significant, it may be in his best interest to invoke his right against self-incrimination. Of course, this decision must be weighed against the impact it will have on the civil matter, such as the likelihood of an adverse inference being drawn against the defendant. The defendant, however, may choose to cooperate because of the preferential treatment he may later receive from the criminal authorities. In the criminal case, the prosecution will likely rely on “cooperating witnesses” and will, therefore, offer the best deals to those individuals who provide meaningful information early in its investigation.

Given the risks flowing from a regulatory investigation, it is incumbent on counsel to make full use of any protections available to the client who faces possible parallel proceedings. One such protection is the proffer agreement. In those cases where counsel is aware of potential criminal liability and civil authorities require that the client provide a statement and produce documents, the practitioner can try to negotiate a proffer agreement that will allow the disclosure of information while at the same time protect against the direct use of his statement as well as the “testimonial” aspect of his document production.[32]

In essence, the government agrees to review what the client has to offer on the condition that it will not use directly the client’s statements. In the case of a document production, the government agrees that it will not use the act of production to prove that the documents were ever in the client’s possession or control. It should be noted that standard proffer agreements allow the government to use derivative evidence and permit use of the prior statement for impeachment purposes.

In summary, simultaneous civil and criminal proceedings pose problems for defendants that a single criminal prosecution does not. Separate civil and criminal government agencies can pool resources, share information, and make joint tactical decisions when investigating violations of federal law. And when done appropriately, they can do all this without compromising an individual’s constitutional rights. Therefore, it is up to the practitioner to be alert to the possibility of parallel proceedings and identify all the agencies who may be involved in the matter under investigation. Should the client face dual prosecution, counsel should weigh the risks and benefits of the following options: (i) contacting the criminal authorities to negotiate proffer agreements binding both the civil and criminal authorities; (ii) becoming a cooperating witness; (iii) invoking the Fifth Amendment privilege; or (vi) seeking a stay of civil discovery while the criminal case is pending. With timely knowledge of all the facts and parties involved in the proceedings, counsel can assist the client in adopting an appropriate strategy in the regulatory proceeding, and if necessary, can approach their counterparts in the criminal proceeding early on to negotiate a more favorable deal.


[1] See Fed. R. Crim. P. 16. The prosecution cannot compel a defendant to make a statement. Likewise, it cannot subpoena a defendant’s documents where the act of production is testimonial in nature. See note 15, infra.

[2] For purposes of this article, the term “parallel proceedings” refers to all stages of the government agency’s case, from the dual investigations through the filing of a civil complaint or criminal indictment.

[3] SEC v. Dresser Indus., Inc., 628 F.2d 1368, 1374 (D.C. Cir. 1980) (en banc); United States v. Basurto, 497 F.2d 781, 793 (9 th Cir. 1974).

[4] See generally U.S. Dept. of Justice, Jan. 20, 2003 Memorandum from Deputy Attorney General Larry Thompson, titled “Principles of Federal Prosecution of Business Organizations.”

[5] 48 C.F.R. § 9.406, et seq. (addressing debarment generally). See also 40 C.F.R. § 32.600, et seq. (regulations governing suspension and debarment in EPA enforcement actions).

[6] U.S. Trustee Manual, Vol. 5: Chapter 5-13.4.2: Parallel Proceedings.

[7] Id. at Chapter 5-13.4.3.

[8] The sharing of information is not automatically a two-way street. Civil authorities are not automatically entitled to obtain grand jury materials. The civil enforcement attorneys must make an application to the court for release of the materials subject to the limitations of Fed. R. Crim. P. 6(e).

[9] U.S. Environmental Protection Agency, June 21, 1994 Memorandum from Steven A. Herman on Parallel Proceedings Policy

[10] Environment and Natural Resources Division, Directive 99-21, Integrated Enforcement Policy, Sec. IV(b).

[11] See SEC Rules Relating to Investigations, Rule 2.

[12] U.S. Securities and Exchange Commission GPRA: 1999 Annual Performance Report at 6. The SEC staff will make the non-public information available through a formal order “granting access” to the other agency.

[13] The SEC can fine offenders and ban them from participating in the financial services industry altogether or from serving on the board of directors of a publicly traded corporation.

[14] United States v. Rand, 308 F. Supp. 1231, 1237 (N.D. Ohio 1970).

[15] The privilege against self-incrimination is not limited to oral testimony but can also apply to requests for production of documents. An individual can invoke his Fifth Amendment privilege when compelled to turn over documents that are incriminating or that may lead to inculpatory evidence if the act of production itself implies an assertion of fact. United States v. Hubbell, 530 U.S. 27 (2000).

[16] Baxter v. Palmigiano, 425 U.S. 308, 318 (1976); United States v. Solano-Godines, 120 F.3d 957, 962 (9th Cir. 1997).

[17] SEC v. Benson, 657 F. Supp. 1122, 1129 (S.D. N.Y. 1987).

[18] Id.

[19] United States v. Kordel, 397 U.S. 1 (1970).

[20] Id. at 11.

[21] Id.

[22] United States v. Grunewald, 987 F.2d 531, 534 (8th Cir. 1993).

[23] 477 F.2d 13, 18 (9th Cir. 1973).

[24] SEC v. ESM Government Securities, Inc., 645 F.2d 310, 316 (5 th Cir. 1981); United States v. Stringer, et al., —F. Supp.2d—, 2006 WL 44193 (D. Or. Jan. 9, 2006).

[25] Stringer, note 24, supra. See also United States v. Scrushy, 366 F. Supp.2d 1134, 1140 (N.D. Ala. 2005).

[26] Id.

[27] United States v. Rand, 308 F. Supp. 1231, 1234 (N.D. Ohio 1970).

[28] United States v. Tweel, 550 F.2d 297, 299 (5 th Cir. 1977).

[29] 214 F. Supp. 929 (D. Colo. 1963). See United States v. Stringer, note 24, supra, at *5 (finding such warnings to be inadequate when the civil and criminal agencies actively conceal the existence of the criminal authorities’ involvement).

[30] Id. at 932-22.

[31] U.S. Attorney’s Manual, Sec. 9-11.151.

[32] See note 15, supra.