Written by attorney Charles Albert Ross

Representing Individuals in Internal Investigations in the Health Care Industry

Representing Individuals in Internal Investigations

in the Health Care Industry.

Regulators and prosecutors often initiate various types of investigations which focus on suspected wrongdoing at hospitals, physician practice groups, pharmaceutical companies and many other health care concerns. Typically, in-house counsel for the entity in question will contact outside attorneys who are experienced in representing institutions under investigation. Those attorneys will become counsel for the entity in question and commonly begin an internal investigation. Directors, officers, and employees all may need their own separate, independent attorneys. Outside counsel for the entity often feel it is important to conduct the investigation first then figure out whether individuals need separate counsel later.

A. Privilege protections are stronger and more available for both companies and individuals dealing with internal investigations.

On July 9, 2008, then Deputy Attorney General Mark Filip sent a letter to Senators Patrick Leahy and Arlene Specter which set out policy changes with respect to the way the United States Department of Justice (“DOJ") evaluates decisions to investigate, charge, and prosecute corporate crime. See Exhibit A. In a series of previous memoranda and policy statements which began in the aftermath of the high profile corporate failures such as Enron and WorldCom, the DOJ had evaluated a company’s cooperation based upon such factors as whether it was willing to waive the attorney-client privilege, whether it refrained from entering joint defense agreements with lawyers for individual targets, and its refusal to pay the legal fees of directors, officers or employees under scrutiny. A brief history of DOJ corporate charging policy is helpful to understand the potential benefit of the newly minted Filip Memo. See Exhibit B.

In 1999, then Deputy Attorney General Eric Holder issued the first in the linage of memoranda on how the DOJ would evaluate a company’s cooperation. Prosecutors were instructed to consider the company’s willingness to: (a) waive the attorney client and work protection privilege; (b) indemnify directors, officers and employees for legal fees; (c) discipline or terminate guilty employees; and (d) participate in joint defense agreements with counsel for individuals.

In January 2003, then Deputy Attorney General Larry D. Thompson issued a more expansive policy statement entitled Principles of Federal Prosecution of Business Organizations. This document was closely based upon a previously issued statement by Mr. Thompson’s predecessor, Eric Holder. The Thompson Memo stated that prosecutors should ask:

Whether the corporation appears to be protecting its culpable employees and agents [and that] a corporation’s promise of support to culpable employees and agents, either through the advancing of attorneys fees, through retaining the employees without sanction for their misconduct, or through providing information to the employees about the government’s investigation pursuant to joint defense agreement, may be considered by the prosecutor in weighing the extent and value of the corporation’s cooperation.

The Thompson memo was roundly and repeatedly criticized by defense counsel and a broad spectrum of groups and individuals in the legal community, including the American Bar Association and the American Civil Liberties Union. In June 2006, the Honorable Lewis Kaplan issued a decision in United States v. Stein, the KPMG tax shelter case, which railed against the government’s use of the Thompson memo to extract privilege waivers and cut off legal fees for individual employees who had been indicted. Ultimately, Judge Kaplan dismissed the charges against a number of KPMG defendants, holding that the U.S. Attorney’s Office for the Southern District of New York violated the rights of each individual former employee and denied them counsel under the Fifth and Sixth Amendments to the United States Constitution.

In December 2006, Senator Arlen Specter introduced the Attorney-Client Protection Act of 2006, which is currently pending before Congress. The House of Representatives has passed a version of the bill, though the Senate has not. The bill seeks to preclude the government from considering privilege waiver as a factor in evaluating a company’s cooperation. Moreover, the bill would prohibit the DOJ’s consideration of payment of legal fees, entry into joint defense agreements, and decisions not to terminate or discipline employees in evaluating a company’s cooperation.

In an effort to forestall enactment of the legislation, the DOJ issued yet another policy statement drafted by then Deputy Attorney General Paul McNulty, Mark Filip’s predecessor. The McNulty Memo restricted privilege waiver to instances in which there is a “legitimate need" for the information and approval was sought and obtained from the highest level of the DOJ. A distinction was drawn between so-called “Category I" information – purely factual information relating to underlying wrongdoing – and “Category II information – material protected by the attorney-client privilege and/or work product doctrine. Prosecutors were directed to attempt to obtain Category I information first. Refusal to waive privilege with respect to Category I information could be considered in evaluating cooperation, while a refusal with respect to Category II information could not be considered.

In consideration of the Stein decision discussed above, the McNulty Memo forbade prosecutors from considering whether companies indemnified employees unless “the totality of the circumstances show that [fee payment] was intended to impede the criminal investigation." The Memo was roundly criticized by many including more than thirty former U.S. Attorneys. In June [ ], Senator Specter introduced his legislation and on August 28, 2008, the United States Court of Appeals for the Second Circuit upheld Judge Kaplan’s ruling in the Stein case. That same day, the Filip Memo was released.

In his July 9, 2008, letter to Senators Leahy and Spector, Deputy Attorney General Filip stated unequivocally that: “[t]he government’s key measure of cooperation will be the same for a corporation as for an individual: to what extent has the corporation timely disclosed the relevant facts about misconduct? That will be the operative question – not whether the corporation waived attorney-client privilege or work product protection in making its disclosures." In addition, he stated prosecutors will not consider whether the company paid legal fees for employees, entered into joint defense agreements or retained or sanctioned employees in evaluating whether the company would receive credit for cooperation. This represents a significant change in the landscape of how internal investigations can be conducted.

However, facts are often the product of privileged interviews with company employees. Thus, in order to disclose “facts" a company may find itself on the horns of the waiver dilemma yet again. While there is still pressure to waive privilege, a company whose counsel wants to work more closely with individual counsel may be much more aggressive in this regard.

It has been stated that for a company to be indicted is tantamount to the “corporate death penalty." In the past, with the tremendous pressure to avoid even being charged, outside counsel for an entity would simply become an adjunct prosecutor. The attorney-client privilege was waived and the contents of interviews with employees would be turned over. Employees who decided to put up a fight were cut off from legal fees, fired and their attorneys shut out from learning the details of what had transpired in the company. These changes certainly permit more active teamwork among all lawyers.

B. Counsel for individuals should be brought into the investigation as soon as possible.

Generally, an institution will receive either a visit from a law enforcement agent, a call from a prosecutor or a subpoena. It is vitally important for in-house counsel to immediately determine what the issues are in the inquiry. Outside counsel for the institution should be engaged immediately in order to effectively determine if there is a problem or the inquiry is routine. While expense is a factor, it is a mistake to not at least get the perspective of an outside lawyer well versed in the defense of health care institutions. Once outside counsel is in place, the scope of the potential problem can be determined.

Prior to the DOJ changes in its approach to corporate prosecutions, counsel for a company would most often conduct an internal investigation without obtaining lawyers for individuals. That way, in-house counsel could gather all the information necessary and determine the problems without having to worry that potential targets were represented. Prosecutors were free to then seek a privilege waiver from the company. Companies were anxious to effectuate the waiver so that they could be seen as cooperative by prosecutors. However, since entering joint defense agreements cannot be held against the company, company counsel should engage counsel for key individuals who are potential targets immediately and consider bringing them in before they interview these employees. This way, if a joint defense agreement is executed both company counsel and individual counsel can rely on the Filip Memo and the agreement to protect privileged communications.

C. Conclusion

Although these increased protections apply only to DOJ investigations and not regulatory investigations, counsel can enter joint defense agreements and make efforts to retain privileged materials. Bring individual counsel for employees in as soon as possible as this will aid the process and fairly provide protection to the real people whose lives are directly affected by an investigation.

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