Privileges Protect OLC Memos Supporting Obama’s Recess Appointment of CFPB Director Richard Cordray 1

Citing the deliberative process privilege, SDNY Judge Rakoff thwarted the New  York Times’ attempt to obtain a copy of Department of Justice Office of Legal Counsel’s

President Obama appoints Richard Cordray as the first CFPB Director

President Obama appoints Richard Cordray as the first CFPB Director

legal memoranda allegedly supporting President Obama’s January 2012 recess appointment of Richard Cordray as Director of the Consumer Financial Protection Bureau (CFPB).  In its opinion, available at this link, Judge Rakoff ruled that the Times failed to prove that White House Press Secretary Jay Carney’s remarks or the temporal connection of the Cordray appointment (January 4) and the OLC memo (January 6) constituted presidential approval sufficient to warrant waiver of the deliberative process privilege.  New York Times Co. v. U.S. Dep’t of Justice, 2013 WL 174222 (S.D.N.Y. Jan. 7, 2013).

Recess Appointment

On January 4, 2012, while the U.S. Senate was in recess, President Obama appointed Richard Cordray as CFPB Director.  The Constitution permits recess appointments, but presidents traditionally do not make appointments during a recess lasting less than 10 days.  During the Senate’s December-January winter break, it held so-called “pro forma” sessions to prevent the recess from officially lasting more than three days.  The Cordray appointment created legal and political controversy because it came during a period when the Senate was not formally in recess.

The OLC sought to quell the controversy by publishing a legal memorandum authored by Virginia Seitz, OLC Ass’t Attorney General.  In the memo, available here, Seitz argued that the Senate’s pro forma sessions could not prevent the President’s constitutional authority to make appointments during a Senate recess.  The memo cited two prior OLC memos, authored by Jack L. Goldsmith and John P. Elwood, as precedent.

NYT FOIA Request

The Times filed suit to enforce its FOIA request for access to the Goldsmith and Elwood memoranda.  The DoJ countered that Exemption 5 protected the memoranda from disclosure because the deliberative process privilege, attorney-client privilege, and presidential communications privilege covered their contents.  The Times conceded that deliberative process privilege covered the memoranda but argued that the DoJ had waived the privilege.

Privilege Issues

The Court correctly stated that the government may waive the deliberative process privilege in two situations.  First, the so-called “working law” waiver applies when the governmental document is more properly categorized as stating or interpreting the agency’s law and policies rather than as a document containing predecisional agency deliberations.  Second, the adoption or incorporation waiver provides that a document containing predecisional deliberations loses its privileged status when the governmental agency adopts its contents as policy.

The Times argued that President Obama adopted the OLC memo–thus waiving the privilege–when he made the January 4, 2012 Cordray recess appointment.  For proof, the Times argued that the chronology between the OLC memo and the appointment proved the president’s adoption.  President Obama made the January 4 recess appointment following meetings with OLC attorneys.  Then, on January 6, 2012, the OLC sent the White House the Seitz memorandum memorializing its verbal recommendations.

The Times also argued that White House Press Secretary Jay Carney’s comments in his January 12, 2012 press briefing proved the President’s adoption.   A reporter questioned whether the President made the recess appointment without OLC approval because the appointment was made on January 4, 2012 and the Seitz memo was finalized on January 6, 2012.  In response, Mr. Carney stated that the President made the decision following receipt of a verbal opinion and that it was common for OLC memos memorializing verbal opinions to take some time to prepare.  This video clip from the January 12, 2012 White House Press Briefing shows Mr. Carney’s remarks regarding the OLC memo.

Ruling

The Court ruled that chronology alone did not prove that the president adopted the reasoning of the Seitz memo–and certainly not the reasoning set forth in the Goldsmith and Elwood memoranda. Moreover, the Court noted that Mr. Carney’s remarks did not show that the President adopted the reasoning of the Goldsmith and Elwood memoranda.  To show adoption waiver of the deliberative process privilege, the party seeking the information must show that the decisionmaker–here the President–relied on the document’s analysis and conclusions.  A decisionmaker can rely on a document’s conclusions without agreeing with the underlying reasoning.  If a decisionmaker reviews an agency recommendation and makes a “yes or no” determination without providing reasoning for the decision, then a court may not infer that she adopted the agency’s reasoning.

Here, Judge Rakoff ruled that the Times produced no evidence that President Obama expressly adopted the reasoning of the Goldsmith and Elwood memoranda in making the Cordray recess appointment. And without this evidence, the deliberative process privilege remained intact to protect the memoranda from public disclosure.

Another Victory for Obama Administration

The New York Times decision, issued on January 7, 2013, marks the second deliberative process privilege victory for the Obama Administration in the span of five days.  On January 2, 2013, the Southern District of New York, in an opinion authored by Judge Colleen McMahon, ruled that the deliberative process privilege protected from FOIA disclosure legal memoranda allegedly supporting the administration’s use of drones to unilaterally kill suspected terrorists, including American citizens.  The decision, explained in an earlier PoP post, similarly held that the administration had not waived the deliberative process privilege through comments made by President Obama and Attorney General Holder.   Consequently, the Obama Administration, in a matter of days, successfully protected from public disclosure the legal bases for its drone program decision and recess appointment decision.

Crime-Fraud Exception: Former General Counsel Ordered to Submit to In Camera Interview in FCPA Grand Jury Investigation 1

A Philadelphia federal Judge, law book and gavelcourt, asked to enforce a grand jury subpoena of a target company’s former General Counsel, ordered the GC to submit to an in camera interview.  The court ordered the interview to determine whether the crime-fraud exception to the attorney-client privilege applied so that the attorney could testify without violating the attorney-client privilege.  In re Grand Jury Subpoena, 2012 WL 5587438 (E.D. Pa. Nov. 13, 2012).  And in doing so, the court became one of the few to order an in camera attorney interview before deciding whether to enforce a grand jury subpoena.

The Investigation and Subpoena

The Philadelphia U.S. Attorney’s Office subpoenaed the former General Counsel of a company to testify before a grand jury investigating whether the company violated the Foreign Corrupt Practices Act.  The Government conceded that much of the General Counsel’s testimony would include matters protected by the attorney-client privilege, but argued that the crime-fraud exception applied to overcome the privilege.  The Court deferred ruling on the Government’s motion to compel until it could conduct an in camera interview with the General Counsel.

Elements of Crime-Fraud Exception

This case reiterates the elements a party must prove to invoke the crime-fraud exception to the attorney-client privilege. The crime-fraud exception applies (1) when the client was committing or intending to commit a fraud or crime and (2) the attorney-client communications were in furtherance of that alleged crime or fraud.  The exception applies regardless whether the attorney was actually aware that her advice was being used for “nefarious purposes.”  And while courts have not clarified the evidentiary standard for invoking the exception, it is clear that the burden is “not a particularly heavy one.”

Requirements for In Camera Interview

But a different, and even easier, burden exists to obtain an in camera review of putatively privileged documents or, in this case, putatively privileged testimony.  Relying on United States v. Zolin, 491 U.S. 554 (1989), the court held that, to obtain an in camera interview of an attorney to aid in a crime-fraud exception determination, the Government must show “a factual basis adequate to support a good faith belief by a reasonable person that in camera review of the materials may reveal evidence to establish a claim that the crime-fraud exception applies.” This burden, which is “not a stringent one,” is all that is required because the decision thereafter lies entirely within the court’s discretion.

The Zolin standard applies to an in camera review of documents.  The district court, while acknowledging the lack of Supreme Court or significant appellate court authority, saw no difference between conducting an in camera document review and an in camera examination.

Interview with Parameters

Although the court held that the Government hurdled the low threshold to obtain an in camera interview of the General Counsel, it implemented protective measures due to concerns of (1) attorney-client confidentiality and (2) grand jury secrecy.  The court allowed counsel for the Government and the target company (the GC’s former employer) to submit questions for the court to ask the General Counsel, but precluded their attendance at the examination.

Corporate Attorney-Client Privilege “Cautiously and Narrowly” Applied to In-House Counsel 1

Another judicial decision reminds us that courts impose a heightened evidentiary burden on in-house counsel seeking to protect communications (particularly emails) under the corporate attorney-client privilege.  In Adair v. EQT Production Co., 285 F.R.D. 376 (W.D. Va. 2012), the court, reviewing a privilege log and an in-house lawyer’s affidavit, ruled that none of the lawyer’s emails at issue were privileged.  And in issuing the ruling, the court provided helpful lessons and reminders for in-house lawyers.

In-House Counsel’s Emails at Issue

The Adair case involves claims for royalties from gas fields operated by EQT Production in Southwest Virginia. The plaintiffs moved to compelBusiness meeting with work on contract the production of several emails either sent or received by an EQT in-house lawyer.  During the time the emails were created, this in-house lawyer served in various legal capacities, including Vice-President and General Counsel, Vice-President of Legislative and Regulatory Affairs, Managing Director of External Affairs, and Deputy General Counsel.  And in each of these roles, the lawyer reported directly to EQT’s General Counsel.

The in-house counsel asserted that all these emails were privileged and produced a privilege log and supporting affidavit.  But the privilege log did not describe the emails as “seeking legal advice” and his affidavit did not specifically describe the emails were for providing legal advice.  The in-house lawyer merely stated that he communicated, in his legal capacity, with company employess when responding to a media inquiry, commenting on pending state legislation, and dealing with royalty issues before the state Oil and Gas Board.

The Ruling–Lessons and Reminders

The court decided to review five emails in camera because the privilege log sufficiently described the emails as pertaining to legal advice; however, the court held that all other emails were not privileged and must be produced.  The court’s ruling contains several lessons and reminders for in-house lawyers seeking to establish and maintain the corporate attorney-client privilege.

  • Burden of Proof for In-House Lawyers

The court provided a succinct yet alarming reminder of the heavy evidentiary burden for proving the attorney-client privilege applies to in-house counsel’s communications.  The court bluntly stated that “the determination of whether the attorney-client privilege applies . . . becomes more difficult when the sender or recipient . . . is in-house counsel for a corporate entity.” The court echoed other courts’ concern that in-house lawyers use the privilege to create a “large zone of secrecy” for corporate communications that are otherwise relevant to a particular dispute.  Because of this concern, the court “cautiously and narrowly” applied the corporate attorney-client privilege to communications involving in-house counsel.

  • Privilege Log

The Adair ruling emphasizes the growing importance of adequate descriptions of privileged documents in the party’s privilege log.  The court noted that the party seeking privileged information has little information to challenge a privilege claim and must rely on the opposing party’s privilege log descriptions.  The court held that the party withholding documents under a privilege claim “must specifically and factually support its claim of privilege by way of evidence, not just argument.”

And this burden begins with the privilege log.  The log’s privilege descriptions must meet the party’s burden of showing the communications are actually privileged.  This requirement means, at the very least, that the privilege log identify each communication as created for the purpose of the in-house counsel rendering legal advice or as otherwise of a predominantly legal character.  In Adair, the court found that the majority of entries on the privilege log failed to indicate that the emails were for legal advice.  This failure in large part sunk the privilege claims without the need for an in camera review.

  • Conflict of Privilege Laws

Many lawyers and some courts neglect consideration of the conflict of privilege laws issue when considering whether an evidentiary privilege applies.  In Adair, the case at the time of the ruling involved only state-law claims. And although the case was pending in federal court, the court applied the law of the forum state–Virginia–rather than federal law.

PoP Analysis

The Adair ruling represents yet another example of courts imposing a heightened scrutiny to in-house lawyers’ privilege claims.  Other recent decisions from a Wisconsin court and an Idaho court further illustrate the continued scrutiny of the corporate attorney-client privilege.  But the Adair court’s emphasis on how in-house counsel must satisfy their heightened burden is instructive.  Few courts highlight the importance of a company providing a specific description of the privileged communication in the privilege log, but Adair makes clear that the company must initially meet its burden in the privilege log by stating that the communication was created for the purpose of the in-house lawyer rendering legal advice or is otherwise for legal-advice purposes.

The Adair court also criticized the in-house attorney’s affidavit filed in opposition to the motion to compel.  Courts clearly require in-house lawyers to “specifically show,” via affidavit, that the communication was for legal-advice purposes, and Adair emphasizes this point. The court held that the affidavit was too general and contained mere conclusory statements that the in-house lawyer “considered the communications privileged” or that, “in his view, he was acting in a legal capacity.”  Adair shows that in-house lawyers’ supporting affidavits must be specific and tailored for each communication.

Finally, while the court correctly applied Virginia state privilege law (as opposed to federal privilege law) in this diversity case, it did not indicate whether that included Virginia’s conflict of laws rules.  Courts and lawyers should remember that application of state law in diversity actions includes that state’s conflict of laws rules; so, it could be that, based on the location and substance of the privileged communications, Virginia’s conflict of privilege laws rules would direct the federal court to apply a different state’s privilege law.  The Adair decision is silent on whether another state’s privilege law was implicated, but a conflict of privilege law analysis should be considered in diversity cases where state privilege law applies.