The U.S. Department of Justice's (DOJ's) release of the Yates Memo in September 2015 likely makes JDAs even riskier for parties facing allegations of corporate wrongdoing. Memorandum from Sally Quillian Yates, Deputy Attorney Gen., U.S. Dep't of Justice, to All U.S. Attorneys et al., Individual Accountability for Corporate Wrongdoing (Sept. 9, 2015) [hereinafter Yates Memo]. The Yates Memo announces a stringent "all or nothing" policy with respect to when a corporation may receive cooperation credit (leniency in the form of reduced fines, penalties, or even the avoidance of formal charges in recognition for cooperation with an investigation or prosecution) from federal prosecutors. The effect of this new policy on JDAs is still not yet fully realized. However, both corporate counsel and counsel for individual executives should be careful to recognize that the Yates Memo may have altered the landscape.
Law Underlying Joint Defense Agreements Prior to the Yates Memo
The enforceability of JDAs is rooted in the so-called joint defense doctrine or common interest doctrine. The scope and permutations of the joint defense doctrine vary significantly by jurisdiction. Compare United States v. Schwimmer, 892 F.2d 237, 243–44 (2d Cir. 1989) (describing the doctrine as an "extension of the attorney-client privilege," which does not even require the attorney for the communicating party to be present when the communication is made to the other party's attorney), with Katz v. AT&T Corp., 191 F.R.D. 433, 436–37 (E.D. Pa. 2000) (recognizing that the common interest doctrine does not create an independent privilege and requires a showing that the communication is independently privileged). These jurisdictional differences are beyond the scope of this article.
Virtually every jurisdiction recognizes, at the very least, that the joint defense doctrine allows a party to share privileged information with other represented codefendants for the purpose of furthering a common legal goal or defense strategy, without waiving the attorney-client privilege or work product doctrine as to the information shared. Schwimmer, 892 F.2d at 243–44.
For the doctrine to apply, two or more parties must agree they: (1) have a common legal purpose or strategy, and (2) expect the privileged information they share in furtherance of the common purpose will be kept confidential by the other commonly interested party. See, e.g., Schwimmer, 892 F.2d at 244.
In the context of corporate white-collar cases, parties generally recognize this unity of interest fairly early. Typically, once a company becomes aware of allegations of criminal wrongdoing, it initiates an internal investigation through its counsel. Any implicated individual targets retain their own separate counsel. The parties then will enter into a written or oral JDA so that they can freely share information to best determine what happened and how to defend against the allegations. For the attorney representing the individual executive, a JDA gives him or her access to crucial information in the custody of the company and the other employees. For the company, JDAs allow for a thorough and accurate investigation of the alleged misconduct by securing the cooperation of key individual employees who have firsthand knowledge of the facts and information.
So long as the parties to the JDA share the common interest in defending against the government's allegations, privileged information shared among them in furtherance of this common interest should be protected from disclosure. Even after a party leaves the joint defense group to cooperate with the government, the privileged information shared with the cooperating defendant during the period when all defendants shared a common interest cannot be disclosed. At least, this was the state of the law prior to issuance of the Yates Memo.
Enter the Yates Memo
The Yates Memo revised the DOJ's policies regarding eligibility of cooperation credit for companies faced with allegations of corporate wrongdoing. See U.S. Attorneys' Manual § 9-28.300 (2014) (providing prior to the release of the Yates Memo that the DOJ would consider "the corporation's willingness to provide relevant information and evidence and identify relevant actors within and outside the corporation, including senior executives"). The Yates Memo announced an increased emphasis on bringing criminal and civil cases against corporate individuals as a means to deter illegal activity. Yates Memo, supra, at 1–2. In doing so, the DOJ adopted an "all or nothing" approach to when a company may receive cooperation credit. The Memo states:
In order for a company to receive any consideration for cooperation . . . , the company must completely disclose to the [DOJ] all relevant facts about individual misconduct. Companies cannot pick and choose what facts to disclose. That is, to be eligible for any credit for cooperation, the company must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority, and provide to the [DOJ] all facts relating to that misconduct. If a company seeking cooperation credit declines to learn of such facts or to provide [the DOJ] with complete factual information about individual wrongdoers, its cooperation will not be considered a mitigating factor . . . .
Yates Memo, supra, at 3. While this paragraph says nothing about JDAs or the joint defense doctrine, the practical impact of the Yates Memo on JDAs could be substantial. In addition to preexisting risks attendant to JDAs, in a post–Yates Memo world, counsel for corporations and individual executives should ask themselves several questions before entering into a JDA:
Is there a common interest at all? One of the most important questions for practitioners, especially with internal investigations of criminal conduct, is whether there is a common interest at all. Usually, when allegations of corporate wrongdoing are made, the company and individual employees involved are presumed to have aligned interests, such that application of the common interest doctrine or a JDA is relatively uncontroversial.
The Yates Memo could call this presumption into question. Companies and individual targets are now on clear notice that if a company hopes to receive cooperation credit, it must provide to the government all relevant facts and identify all individuals involved in the wrongdoing. Moreover, the DOJ has issued warnings elsewhere in the U.S. Attorneys' Manual that a company "may wish to avoid putting itself in the position of being disabled, by virtue of a . . . joint defense or similar agreement, from providing some relevant facts to the government and thereby limiting its ability to seek . . . cooperation credit" (U.S. Attorneys' Manual § 9-28.730 (2015)), and where a company "is actually prohibited from disclosing [evidence] to the government[,] . . . the company seeking cooperation will bear the burden of explaining the restrictions it is facing to the prosecutor" (id. § 9-28.700 n.1). The DOJ's not-so-subtle message is clear: "We can't tell you not to do it, but you better not do it."
Corporate counsel and counsel for individuals should carefully and continuously examine the circumstances of each case, including public statements of the parties and other clues, to determine whether the parties' interests are sufficiently aligned. For example, if a company decides early on in a particular matter to cooperate with the government in order to be eligible for cooperation credit, it's difficult to see how the company could share a common interest with an individual target. The divergent interests of the parties could be used by the government to claim that there was never a sufficient common interest to support a JDA or application of the joint defense doctrine.
What information should be disclosed? Because of the increased risk that JDAs may be susceptible to challenge in a post–Yates Memo world, counsel for companies and individuals must more carefully consider the type of information they will share under a JDA. This is particularly true for attorneys representing individual executives, who are now on notice that the DOJ has heavily incentivized companies to provide all information they have obtained regarding alleged criminal conduct to receive cooperation credit. While the safeguards that have traditionally governed disclosure of information received pursuant to JDAs remain, the Yates Memo opens the doors to prosecutors aggressively challenging the enforceability or the scope of a JDA between a company and an employee. See United States v. Gonzalez, 669 F.3d 974, 982(9th Cir. 2012) ("[T]he case law is clear that one party to a JDA cannot unilaterally waive the privilege for other holders."); SEC v. Nicita, No. 07-cv-0772, 2008 WL 170010, at *2–4 (S.D. Cal. Jan. 16, 2008) (requiring SEC to return and not rely on joint defense materials produced unilaterally by a cooperating party). Rather than lose the potential to receive cooperation credit, the company may not resist the government's position on the enforceability or parameters of a JDA.
Should you enter into a JDA? With all of these risks, both parties should seriously consider whether to enter into a JDA at all. As with many legal issues, the answer to this question will depend on the particular circumstances of each case. If there are multiple individual defendants involved, it may be more beneficial for the individual defendants to establish a joint defense group that excludes the company. Another solution may be for the parties to set forth the basis for a finding of a common interest and the scope of the JDA in a written agreement.
Given the importance and utility of JDAs to corporations and individuals facing allegations of corporate criminal wrongdoing, it's doubtful that JDAs will fall out of use entirely. However, the Yates Memo, at least for now, has the potential to significantly alter the landscape regarding the enforceability and scope of JDAs, which counsel should seriously consider.