Lawyers and Obstruction: the Stevens Case (NonTax) Lessons for Tax Lawyers (9/5/11)

This is a guest blog by Scott Schumacher.  Scott is an Associate Professor of Law and Director of the Graduate Program in Taxation at the University of Washington School of Law in Seattle, Washington. Prior to entering academia, he was an attorney with the Department of Justice Tax Division and in private practice with the law firm of Chicoine & Hallett in Seattle. He writes frequently on criminal tax matters and is one of the authors, along with our blog host Jack Townsend, of the book Tax Crimes, here.

In May of this year, the U.S. District Court for the District of Maryland granted a motion for judgment of acquittal in the case of United States v. Stevens (No.: RWT 10 CR 0694 (D. Md. 2011), here. Lauren Stevens, former vice president and associate general counsel of pharmaceutical giant GlaxoSmithKline (GSK), had been charged with obstruction of justice and making false statements during a civil investigation by the FDA.

In a stinging rebuke of the government’s case, the court held that “only with a jaundiced eye and with an inference of guilt that's inconsistent with the presumption of innocence could a reasonable jury ever convict this defendant, and that “it would be a miscarriage of justice to permit this case to go to the jury.” The court concluded that “the defendant in this case should never have been prosecuted and she should be permitted to resume her career.”

Even though the court acquitted Stevens, as I discuss in the Tax Notes article, “Stevens: Is Zealous Advocacy Obstruction of Justice?”, 132 Tax Notes 1169 (9/12/11) here, this prosecution has implications for any lawyer, including tax lawyers, who regularly deal with the government.

Stevens was indicted under 18 USC 1512(c), which prohibits corruptly obstructing, influencing, or impeding any official proceeding. Significantly for tax lawyers, language similar to § 1512(c) is contained in 26 U.S.C. § 7212, which punishes corruptly obstructing or impeding the due administration of the Internal Revenue Code. One of the dangers of these “omnibus” obstruction statutes is that they have been construed to prohibit an extremely broad range of conduct.

As readers of this blog know, the application of these omnibus statutes is limited somewhat by the mental state the government is required to prove. Only “corrupt” endeavors to obstruct or impede are subject to criminal sanctions. However, the term “corrupt” has been given inconsistent application by the courts, and the definitions used provided meager protection. “Corruptly” has been defined as acting “with the intent to secure an unlawful benefit either for oneself or for another.” Other courts have held that it “really means unlawful.” The Tax Division interprets “corruptly’ in the context of § 7212(a) to mean “to act with the intent to secure an unlawful advantage or benefit either for oneself or another.”

The problem with many of these definitions is that they are circular. An action is corrupt if it is designed to secure an unlawful benefit, with one court going so far as to hold that “to obstruct or impede the due administration of justice is per se unlawful and tantamount to doing the act corruptly.” United States v. Ogle, 613 F.2d 233, 238 (10th Cir. 1979). Under this reasoning, an action is corrupt because it is illegal, and it is illegal because it is corrupt. Thus, if the government believes an attorney is improperly standing in its way or providing statements that are misleading, these actions are designed to provide an improper advantage to the client and are “corrupt.” There is, of course, enormous potential for abuse with “standards” such as these.

Congress recognized this and added a legal services safe harbor in 18 U.S.C. § 1515(c), which provides: “This chapter does not prohibit or punish the providing of lawful, bona fide, legal representation services in connection with or anticipation of an official proceeding.” Notably, there is no such legal-services safe harbor in or applicable to § 7212. Thus, if an attorney were charged with obstructing or impeding the IRS under § 7212, there is no statutory exception for attorneys providing bona fide legal services.

The court in Stevens held that the Ms. Stevens was entitled to the benefit of § 1515(c), stating that the responses were “sent to the FDA in the course of her bona fide legal representation of a client and in good faith reliance of both external and internal lawyers for GlaxoSmithKline.” The court also held that the evidence showed that Stevens obtained the advice and counsel of numerous lawyers, that she made full disclosure to the lawyers and every letter she wrote was done by a consensus, and that the evidence, taken as a whole, did not demonstrate an attempt by Stevens or GSK to mislead the FDA.

Thus, one of the takeaways from Stevens lawyers dealing with the IRS and other government agencies should memorialize everything provided to the government and, more importantly, everything that is not provided. If possible, lawyers should consult with co-counsel on what to present to the IRS and how documents and arguments should be presented. The goal is to demonstrate that the lawyer acted in good faith and made the statements as part of his or her bona fide legal representation. While the safe harbor of § 1515(c) is not applicable to § 7212 prosecutions, proof that the lawyer acted in good faith in providing legal representation to a client will go a long way to demonstrate the lawyer did not act corruptly.