It’s Alive!

1. Ethics Update for the In-House Counsel:Whistleblowers, Compliance, Privilege, Work Product, and New Decisions of NotePresented by: Gary Parsons & David SmythBrooks, Pierce, McLendon, Humphrey & Leonard, LLP

2. It’s Alive!

3. Insider Trading Bounty Program • 20 years of little use • Insider Trading and Securities Fraud Enforcement Act of 1988 • Authorized bounties of up to 10% of civil penalties in insider trading cases • Complete SEC discretion Whistleblower - 1

4. Information-sharing Problems in U.S. Government • 9/11 • Nigerian Hijacker – 2009 • SEC • Putnam Investments – 2003 • Bernie Madoff – 2008 Whistleblower – 1-2

5. Dodd-Frank Section 922 • Required the SEC to establish a program to pay financial rewards to people who provide information about possible securities violations to the SEC. • The statute mandates payment of 10-30% of the monetary sanctions from an enforcement action generated by a whistleblower tip. Whistleblower - 3

6. Privilege – The General Rule Federal • A client has a privilege to refuse to disclose and • to prevent any other person from disclosing • confidential communications • made for the purpose of facilitating the rendition of professional legal services to the client Privilege - 1

7. Privilege – The General RuleFederal • between himself or his representative and his lawyer or his lawyer's representative, or • between his lawyer and the lawyer's representative, or • by him or his lawyer to a lawyer representing another in a matter of common interest, or • between representatives of the client or between the client and a representative of the client, or • between lawyers representing the client. Privilege - 1

8. Privilege – The General RuleState • Attorney-client relationship existed at the time the communication was made • Communication was made in confidence • Communication relates to a matter about which the attorney is being professionally consulted • Communication was made in the course of giving or seeking legal advice for a proper purpose although litigation need not be contemplated and • Client has not waived the privilege. Privilege - 2

9. Privilege – Who Owns • Belongs to the client • Lawyer must assert until: • Authorized to disclose by client • Ordered to disclose by Court • Other ethical rule exception applies Privilege – 2-3

10. Privilege – Privileged Communications • Any expression through which a client undertakes to convey information to the attorney – or vice versa • Must be for purpose of facilitating rendition of legal services • Does not extend to threats against the lawyer or other persons Privilege - 3

11. Privilege – “Non-Privileged Communications” • Pre-existing facts forming basis of communications. • “What did you tell your lawyer about the amount you claimed as a business expense?” • PRIVILEGED • “Did you spend the amount you claimed for a business expense?” • NOT Privilege - 3

12. Privilege – “Non-Privileged Communications” • Facts obtained by the attorney from third parties and communicated to the client are not privileged. • Ask “What do you know about?” • Not “What did your lawyer tell you about?” • Can’t stop questioning by saying “All she knows came from me as her lawyer.” Privilege - 3

13. Privilege – Basic Facts Concerning the Attorney-Client Relationship “Confidential communications” do not include: • The client’s identity • The client consulted with a lawyer; • The client retained a lawyer; • The lawyer’s identity; or • The dates the lawyer was consulted or retained. Privilege - 4

14. Privilege – Basic Facts Concerning the Attorney-Client Relationship • Lawyers’ billing records, expense reports and travel records are generally held not privileged. • Because they do not disclose the substance of the advice sought or given. • If those records reveal the client’s motive in seeking representation, litigation strategy, or specific issues researched or considered • They are protected from disclosure. Privilege – 4-5

15. Privilege – Documents Presented to Attorney • Pre-existing documents gathered by the client and turned over to the lawyer do not become privileged. • If they could have been subpoenaed from the client, can be obtained from the lawyer. Privilege - 5

16. Whistleblowers – Who is Eligible? • A whistleblower, • who voluntarily provides the SEC, • with original information, • that leads to a successful enforcement action by the Commission resulting in monetary sanctions of more than $1 million Whistleblowers - 4

17. Whistleblowers – Who is Excluded? • Corporate principals who receive reports of violations • Compliance personnel • Investigators • Attorneys • Auditors Whistleblowers – 6-8

18. Whistleblowers – Other Exclusions • Information that was obtained in a way that violated federal or state criminal law • Foreign government officials • Those downstream Whistleblowers - 8

19. Exceptions to Exclusions • Reasonable basis to believe substantial financial injury to the company or investors • Reasonable basis to believe conduct that will impede an investigation of the misconduct; or • If at least 120 days have elapsed since the whistleblower provided the information through the company’s internal reporting system. These don’t apply to attorneys. Whistleblowers – 8-9

20. Whistleblowers – Factors Affecting Awards • Increasing Factors • significance of the information • degree of assistance provided • programmatic interest of the SEC • participation in internal compliance programs • 120-day lookback provision Whistleblowers – 9-10

21. Whistleblowers – Factors Affecting Awards • Decreasing Factors • whistleblower culpability • delay in reporting violation • interference with internal compliance programs • potential adverse incentives (CFTC only) Whistleblowers – 10-11

22. Whistleblowers – Treatment of Culpable Individuals • No amnesty for whistleblowers. Also, those who are convicted of a criminal violation related to the action cannot receive an award • In calculating the $1 million threshold, the SEC will exclude any monetary sanctions the whistleblower has been ordered to pay • But not categorically excluded from eligibility Whistleblowers - 11

23. Whistleblowers – Whistleblower Confidentiality • The rules allow anonymous reporting if a whistleblower is represented by an attorney • The SEC has said it will not disclose information that could reasonably be expected to reveal whistleblower identities Whistleblowers - 11

24. Whistleblowers – New Cause of Action for Retaliation • No employer may discharge, demote, suspend, threaten, harass a whistleblower for: • providing information to the SEC • assisting in any investigation or judicial or administrative action • making disclosures protected under SOX or any rule subject to the SEC’s jurisdiction Whistleblowers – 11-12

25. Whistleblowers – Reasonable Belief • Protections apply even if a whistleblower is not ultimately entitled to an award • Must have a “reasonable belief” that the information demonstrates a possible violation • See Beacom v. Oracle America, Inc. (8th Cir. June 6, 2016) Whistleblowers - 12

26. Privilege – Communications by Corporate Employees (Upjohn) • Upjohn Co. v. United States, 449 U.S. 383 (1981): • Rejected the “control group” test • Was based on federal common law, so not binding beyond federal courts • Had considerable influence in state courts around the country Privilege – 5-6

27. Privilege – Communications by Corporate Employees (Upjohn) • Control group test had limited the privilege to “senior management, guiding and integrating the several operations” • Upjohn Court said failed to recognize that privilege exists • not only to protect the giving of advice • but giving of information to the lawyer to enable him or her to give sound and informed advice Privilege - 6

28. Privilege – Communications by Corporate Employees (Upjohn) • Upjohn Court refused to craft a specific bright line test • But is clear that information will be privileged if: • communicated for the express purpose of securing legal advice for the corporation • relates to the specific corporate duties of the communicating employee • is treated as confidential within the corporation itself Privilege – 6-7

29. Potential State Action Issue • United States v. Stein (2d Cir. 2008) • Thompson memo: Prosecutors should consider whether employees are being protected by having legal fees advanced. • Prosecutors told KPMG • they’d have to “take that into account.” • KPMG should tell employees they should be “totally open” with the USAO “even if that [meant admitting] criminal wrongdoing.” Whistleblowers – 19-21

30. Potential State Action Issue • Gilman v. Marsh McLennan (2d Cir. 2016) • “A company . . . typically has supremely reasonable, independent interests for conducting an internal investigation and for cooperating with a governmental investigation.” • “A rule that deems all such companies to be government actors would be incompatible with corporate governance and modern regulation.” Whistleblowers – 19-21

31. Potential State Action Issue • Yates Memo: If a company wants to win any credit for cooperation, it must turn over all information it can find about employees suspected of misconduct. • Does this turn a company into an arm of the DOJ, and let prosecutors evade constitutional protections against self-incrimination? Whistleblowers – 19-21

32. Privilege – Communications by Corporate Employees (In-House Counsel) • In-house counsel treated as same as outside counsel for privilege analysis • Communications related to business matters, management decisions, or business advice • Neither soliciting or predominantly delivering legal advice • Not protected Privilege – 7-8

33. Privilege – Communications by Corporate Employees (In-House Counsel) • One indicator courts look to is the lawyer’s position in the organization • Lawyer working in the legal department – presumed to be giving legal advice • Lawyer working in business or management side, presumed not • Presumption is rebuttable • Party asserting privilege has burden of proof Privilege - 8

34. Privilege – Communications by Corporate Employees (Compliance Officers) • Subject of much debate • Some argue that because compliance officers are not providing legal advice, privilege cannot apply • But – communications that combine business and legal advice can be privileged • So long as one of the primary purposes was obtaining legal advice Privilege – 8-9

35. Privilege – Communications by Corporate Employees (Internal Compliance Investigations) • Good recent decision from D.C. Cir. Held that if one of the significant purposes of the investigation was to obtain or provide legal advice, privilege applies • Regardless of whether investigation was conducted pursuant to program required by statute or regulation • “Helping a corporation comply with a statute – although required by law – does not transform legal advice into business advice.” Privilege –9

36. Privilege – Communications by Corporate Employees (Compliance Officers) • As risk increases, reach a point at which no longer “routine” • When “special” situation arises: • Involve General Counsel’s office or outside lawyer • Take the usual Upjohn measures • Lawyers conduct the interviews • Treat the information as confidential within the company • Limit disclosures to employees who “need to know” to do their jobs Privilege - 10

37. Privilege – Communications by Corporate Employees (Former Employees) • Most courts allow ex parte contact with former corporate employees who have no existing relationship with the corporation • But NC Prof Conduct Rule 4.2, cmt. [2] prohibits lawyer from speaking with any former employee who “participated substantially in the legal representation of the organization in the matter” Privilege - 10

38. Privilege – Communications by Corporate Employees (Former Employees) • Even if former employee not involved in the representation • Cannot seek or obtain privileged communications with the former employer’s lawyer • If lawyer receives document from former employee that may be privileged • Must immediately return it to the former employee Privilege - 10

39. Privilege - Waiver • Over-disclosure within the organization can waive: • If disclosed to other than those who • “need to know the content to perform their job effectively or • to make informed decisions concerning or affected by the subject matter of the communication” Privilege – 11-12

40. Privilege – Inadvertent Waiver • Ethical issues: • When receive writing from opposing lawyer mistakenly sent • Must notify the opposing lawyer, so he or she can take measures to protect the client • May, in your professional judgment, return unread • Not required to do so Privilege - 13

41. Privilege – Inadvertent Waiver • Ethical issues: • This includes inadvertently provided metadata • But NC says cannot search metadata • If unintentionally view confidential metadata, must • Notify sender • May not use the information without consent of the other party Privilege – 13-14

42. Privilege – Litigating Privilege Issues • Burden of Proof • On the party asserting the privilege • Not on the party seeking the communications • Party claiming privilege must produce evidence establishing all the elements of the privilege • Document-by-document • Conversation-by-conversation Privilege - 16

43. Privilege – Multi-Jurisdictional Practice (Foreign Nations) • Foreign privilege laws vary • Often hold that communications between in-house lawyers and the lawyer’s employer are not privileged • Privilege only available to communications with “external” lawyers • “Follows from in-house lawyer’s economic dependence and close ties with his employer that he did not enjoy the level of professional independence comparable to that of an external lawyer” Privilege - 21

44. Privilege – Joint Defense or Common Interest Privilege • Supreme Court Standard 503(b)(3) extends attorney-client privilege to communications by the client or the client’s lawyer to “to a lawyer representing another in a matter of common interest” • Requires a meeting of the minds • Does not require a writing or that litigation has commenced • Can be oral • Can be entered into before any civil or criminal litigation begins • Once privilege exists, cannot be unilaterally waived Privilege – 22-23

45. Work Product Immunity • What it is not • Applies only to “documents and tangible things” • Not to what lawyer has said to parties other than client • Not to discoverable facts contained in documents Privilege - 23

46. Work Product Immunity • “Documents and tangible things” • Examples—letters, interview notes, interview transcripts, surveillance tapes, studies, “post-it” notes attached to files by the lawyer • Division of authority on whether lawyer’s selection of documents to show a witness during deposition preparation are protected • Some cases – yes • Some cases – no • Check your jurisdiction before preparing the witness, or make sure you show them nothing that you don’t want the other side to see Privilege – 23-24

47. Work Product Immunity • Fact vs. Opinion Work Product • Fact WP – does not contain lawyer’s or other party representative’s mental impressions, conclusions, opinions, or legal theories concerning the litigation • Opinion WP – does contain lawyer’s or other party representative’s mental impressions, conclusions, opinions, or legal theories concerning the litigation Privilege - 24

48. Work Product Immunity • Opinion Work Product • Some courts hold is absolutely protected • Most federal courts have permitted discovery on showing of “extraordinary circumstances” • Even those say “opinion work product enjoys a nearly absolute immunity, and can be discovered only in very rare and extraordinary circumstances.” Privilege - 27

49. Whistleblowers – SEC Enforcement • Adopting Release claimed enforcement authority for violations by employers who retaliate against whistleblowers • Department of Labor historically has not done so under SOX. • In re Paradigm Capital Mgmt. (June 2014) Whistleblowers – 13

50. Whistleblowers – Who is Excluded? • Whistleblowers overseas, under SOX and Dodd-Frank. Carnero v. Boston Scientific Corp. (1st Cir. 2006) (SOX); Liu v. Siemens AG (2d Cir. 2014) (D-F). • Those reporting internally (maybe). Asadi v. G.E. Energy (USA), LLC (5th Cir. 2013) (excludes internal reporters); Berman v. Neo@Ogilvy LLC (2d Cir. 2015) (includes internal reporters). Problems for you! (if you’re in-house) Whistleblowers - 12