Interesting Article With Inviting Opening on Upjohn Warnings (5/17/13)

Professional and law student readers will likely know what "Upjohn warnings" are.  In the classic internal investigation, lawyers representing the entity may interview individuals within the entity.  In order to insure that the individuals are not confused about who the investigating lawyers represent -- they represent the entity and not the individual -- good form and ethics require that the lawyers give adequate notice to the individual.  The notice is commonly referred to as "Upjohn warnings."  See Upjohn Co. v. United States, 449 U.S. 383 (1981).  I previously wrote on the issue Upjohn Warnings in Entity Investigations (Federal Tax Crimes Blog 10/14/09), here.

The current New York Times Magazine has an interesting article which begins with an Upjohn warning.  Anita Raghavan, Rajat Gupta’s Lust for Zeros (NYT 5/17/13), here.  I excerpt that opening:

Late one Friday morning, Rajat Gupta was rushing through security at Philadelphia International Airport, carry-on in tow, when his cellphone rang. When Gupta heard from Goldman Sachs, on whose board he sat, it was often from its chief executive, Lloyd Blankfein. But on this morning, it was Gregory K. Palm, his old Harvard Business School classmate and the bank’s general counsel, on the line. Palm sounded unusually serious. So Gupta asked if he could call him back from the other side of security. 

When he did, Palm quickly made two odd disclosures. First, he told Gupta that he had arranged for a colleague to listen in on their conversation. Then he said, “We are representing the corporation, and not you.” Palm wanted to make sure that there was no doubt that this was not a privileged conversation. If the matter evolved into something bigger, their discussion could be handed over to law-enforcement officers.
As Gupta listened, Palm stuck to the script that he worked out beforehand. “What can you tell me about Raj Rajaratnam, and have you ever provided him with information about what we do?” he asked.

Of course Gupta knew Raj Rajaratnam, the billionaire head of the Galleon Group hedge fund and No. 236 on the Forbes 400 list. He had worked with him on a number of projects since stepping down from the top job at McKinsey, the consulting giant, in 2003. But Rajaratnam’s name had turned radioactive since his arrest, on Oct. 16, 2009, for trading on closely guarded corporate information.

“What are you talking about?” Gupta asked, seemingly taken aback. 

Palm explained that Goldman officials had come to believe Gupta may have provided Rajaratnam with crucial information about the firm. Ever cool, Gupta calmly denied that he had given Rajaratnam confidential information about Goldman. Then Gupta said that he and Rajaratnam had indeed been business partners on an investment fund called New Silk Route. Teaming up with Rajaratnam seemed to be his plan for a spectacular career finale — a bid not only to stay vital after stepping down from McKinsey but also to establish himself in the elite circle of billionaires, like the private-equity giant Henry Kravis, that made up his new coterie. 

Gupta didn’t say all that to Palm, of course. Instead, he explained why it would have been ludicrous for him to give Rajaratnam information: the two had had a falling out over a soured $10 million investment. Gupta told Palm that he had hired accountants and lawyers and was planning to sue his former partner; he would have done so already, he said, were it not for Rajaratnam’s arrest. “Why would I help out someone with whom I had a dispute?” he asked rhetorically. He said he was happy to discuss the issue more, but he had to catch a flight to Boston. 

Over the course of the day, Palm and Gupta had a number of follow-up conversations. In one, Palm recommended that Gupta get his own lawyer. Gupta eventually retained the renowned defense attorney Gary Naftalis — not out of any real concern, he would later say, but as a precautionary measure. Indeed, Gupta seemed so unconcerned with the call he received that Friday, Dec. 11, 2009, that he never even mentioned it to business associates.

There are a lot of prominent players in the article in addition to Gupta, some of which most readers will be familiar with:  Goldman Sachs, Lloyd Blankfein, Jeffrey Skilling,  Raj Rajaratnam, Gary Naftalis, Warren Buffett, Mckinsey & Co., Bill Clinton, Bill Gates, Henry Kreavis, Henry M. Paulson, Jr., Stephen A. Schwarzman, Sandy Weill, Pete Peterson,

This is only the lead to catch the reader's interest with an Upjohn warning.  Mr. Gupta was in trouble from the get-go.  And the article gives a count account of his trajectory through the stratosphere of great success and then the fall.

For those wanting more on Upjohn itself, here is  cut and paste from my Federal Tax Crimes book:

2. Attorney-Client Privilege in a Corporate Setting.

a. General - the Upjohn Case.

The question is who is the client in a corporate setting?  Whose communications to a lawyer engaged by the corporation are entitled to this protection?  In Upjohn Co. v. United States, the Supreme Court rejected the seemingly objective test that would allow the privilege only to communications by persons within the corporate control group.  The Supreme Court instead applied a less formulaic approach based upon factors such as whether the communications to the attorney were otherwise within the scope of the employee’s duties to the corporation, whether the employee’s superiors within the corporation directed the employee to make the communications in order to assist the attorney in representing the corporation, whether the corporation otherwise kept the information confidential, and whether the information was otherwise available. 

The privilege is, of course, the corporation’s privilege with respect to communications to a corporation’s lawyer.  It is not the employee’s privilege, even if the employee is a member of a control group (e.g., officer or director).  The danger is that the officer may confuse the corporation’s privilege with his own privilege, on some misguided notion that the attorney is somehow also the attorney for the officer or director.  And, so long as the officer is in the control group, he or she may have some assurance that the corporation will assert the privilege, thus protecting the officer’s communications to the attorney, but if the officer is not within the group or leaves the group (e.g., by leaving the corporation, willingly or not so willingly), the then former officer may find that the new control group is not so interested in asserting a privilege to help the former officer. 

This phenomenon is aptly shown in the recent accounting scandals (Enron, et al.).  Corporations appear increasingly willing to trade their privileges for more favorable treatment by prosecutors investigating or prosecuting the corporation’s misdeeds through its officers, usually former officers.  Often, because of the Government’s prosecution policies for corporations, the Government will be reluctant to charge the corporation because the inevitable effect will be to further harm shareholders or other innocent employees or interested parties that have already been burned by the underlying fraudulent conduct.  In order to encourage the Government not to prosecute the corporation, the corporation may be required to waive the privileges (attorney-client, as well as the work product privilege) that might otherwise apply with respect to the underlying conduct.  Furthermore, in the event the corporation is charged, its sentencing will be reduced when it discloses all pertinent information.  In short, officers of corporations take substantial risk in undertaking risky behavior that the corporation will not act to protect them. 

One of the side effects of the corporation’s waiver of the attorney-client privilege in order to curry favor with the prosecutors is, to state the obvious, it has waived the privilege.  For the attorney-client privilege, any waiver is a waiver in all contexts.  Thus, for example, corporations have made disclosures of attorney-client privileged information to the Government subject to a reservation of the privilege; courts have rejected the reservation of the privilege, saying that if that nuance is to be recognized, Congress rather than the courts must do it.  Of course, as in other areas where the attorney-client privilege fails, the proponent may still be able to assert work product privilege which is not subject to the unconditional waiver rule. 

b. Problems in Internal Investigations. 

Delicate issues regarding the attorney-client provisions can arise in any setting where a person may be confused as to whether the lawyer is representing him or her.  This is often encountered in the corporate setting, particularly with respect to internal investigations into actions that may have criminal aspects.  The entity, often a corporation but other types of entities are included, may have an outside legal team conduct the investigation pursuant to an appropriate attorney-client privilege with the corporation.  As noted above, under Upjohn, that privilege may extend to certain high-level officers.  But, within its normal contours, it would not apply to many of the persons within the entity that would be interviewed within the scope of the internal investigation.  But, in order to avoid confusion in the employee’s mind (thus potentially affecting his or her valuable right to remain silent), the better part of wisdom is for the attorney conducting the internal investigation to warn the employee at the outset that the attorney represents the entity and not that individual being interviewed.  This warning is commonly referred to as an Upjohn warning, for reasons that should be obvious.  Indeed, the Upjohn warning, properly given, can be quite elaborate with several components, which in the aggregate is often referred to in the plural as Upjohn warnings, so I use the plural here. 

The Upjohn warnings are particularly important for three reasons.  First, most obviously, is to put the interviewee on clear notice that the attorney doing the interview is not the interviewee’s attorney and therefore the interviewee cannot rely upon the attorney to protect his or her interests or to keep the statements confidential.  Second, and related, the lawyer ethically is bound to make sure the interviewee understands that the lawyer is not representing him or her.  Third, although the statements would be at least attorney work product and, in context, even confidential attorney-client communications as to the entity, the entity can make the choice to waive any protections afforded by the attorney-client or work product privileges.  Indeed, as noted above, in many criminal investigations where the entity is a potential target, there may be great pressure on the entity to waive these privileges and even where the prosecutor may not be formally exerting the pressure, the entity could believe that waiving the privileges would be in its best interests.  The employee’s statements could then be delivered up to the prosecutors on a silver platter and be used against the employee.  But, by the same token, a prosecutor’s ability to use the statements may be compromised if the interview had not been properly warned that the interviewing attorneys were not representing him or her and, where there is murkiness about whether the proper warning had been given, the entity’s bargaining power with the prosecutor may be compromised.