The attorney-client privilege quandary

By Juliana Morehead, J.D., CFE

Fraud & The Law

In May 2006, following a six-month stretch of intensive negotiations with federal prosecutors, the infamous securities class action law firm, Milberg Weiss Bershad & Schulman, refused to hand over confidential information traditionally protected under the deeply rooted attorney-client privilege. For this reason, Milberg Weiss claims it was indicted on 20 counts in a conspiracy for obstruction of justice, perjury, bribery, and fraud. In essence, Milberg Weiss and two of its partners, David Bershad and Steven Schulman, are accused of conspiring to kickback fees to plaintiffs in shareholder derivative and class action suits. Specifically, the government claims that the firm paid individuals more than $11 million to serve as plaintiffs in such suits and that the firm received more than $200 million in attorneys' fees from these actions.

For Milberg Weiss, the attorney-client privilege is an indispensable component of its business, which is protecting the confidential information of its clients. Whereas clients are free to waive the attorney-client privilege, counsel may not. By turning over privileged and confidential documents, Milberg Weiss might not only subject its legal techniques to public view but will likely violate its client confidentiality agreements. Although waiver requests have been effective in prosecuting massive corporate frauds, the case against Milberg Weiss and partners is seminal in introducing the waiver sweep to the corporate law firm setting. As of publication, no trial date has been set for the legal super giant and its two partners. However, because the issue of attorney-client privilege is so important in the American legal system, the issue of waiver of attorney-client privilege will be addressed here before the resolution of the Milberg Weiss suit.

Because the attorney-client privilege is deeply entrenched in legal history, it's a principle upon which most attorneys rely to honor and maintain client relationships. Recognizing the corporation or other business entity as a client seems to have placed the privilege in a quandary. Along the same vein, prosecutors have started using waiver of the privilege as a tactic to encourage company cooperation with criminal investigations. Here we'll address the instable state of waiving the principle as it relates to corporations, and in particular, internal investigations. However, before delving into the fibers of corporate waiver, it's necessary to define the privilege.

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