“things that go bump in the night: strategic and …

“THINGS THAT GO BUMP IN THE NIGHT:STRATEGIC AND ETHICAL ELEMENTS TO CONSIDER

WHEN INVOLVED IN TRADE SECRET LITIGATION”

PARALLEL CIVIL AND CRIMINAL PROCEEDINGS

MICHAEL P. LYNN, P.C.LYNN STODGHILL MELSHEIMER & TILLOTSON, L.L.P.

750 N. ST. PAUL ST., SUITE 1400DALLAS, TX 75201

©1998 by Michael P. Lynn, P.C.

Special thanks to Chad Johnson

ADVANCED INTELLECTUAL PROPERTY LAW COURSEJULY 24, 1998

SAN ANTONIO, TEXAS

I

Table of Contents

I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1A. What Is a Parallel Civil and Criminal Prosecution? . . . . . . . . . . . . . . . . . . . . . . . . . 1B. The “Creeping Criminalization of the Trade Secret Area . . . . . . . . . . . . . . . . . . . . 1C. The Structure of this Outline and Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3D. The Criminal Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

1. State Criminal Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32. Federal Criminal Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33. Derivative Criminal Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

II. FROM THE VANTAGE OF THE VICTIM COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . 4A. The Typical Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4B. The Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

1. Speed: The Victim Company Must Move Quickly . . . . . . . . . . . . . . . . . . 42. More Disclosure: The Victim Company May Lose

More Secrets in The Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43. Employee Poses No Realistic Threat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44. Employee and Investors May Pose Too Great A Threat . . . . . . . . . . . . . . 4

C. Turning to the Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41. Stay of the Civil Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52. Stay Of Discovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63. Protective Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

D. Losing Control of the Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81. Can You Maintain the Confidentiality of the Information Supplied to the

Prosecutor? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9a. The Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9b. The Government Privileges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9c. The Victim Company Has a Work Product Privilege . . . . . . . . . 10d. Limited Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10e. Summary -- From the Victim Company’s Vantage . . . . . . . . . . 10

III. FROM THE VANTAGE OF THE TARGET DEFENDANT . . . . . . . . . . . . . . . . . . . . . . 10A. The Typical Setting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10B. Who Are You Representing? -- the Multiple Defendant Problem . . . . . . . . . . . . . 10

1. The Initial Question . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112. Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

a. Cost--Just Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11b. Cost--Blind Luck and Blind Travesty . . . . . . . . . . . . . . . . . . . . . 11c. If all of the Accused Don’t Talk, Then Potentially

the Government Has No Case . . . . . . . . . . . . . . . . . . . . . . . . . . . 11d. Ethical and Legal Problems With Representing All of the

Defendants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11(1) The Cross-Affidavit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11(2) The Danger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11(3) A Practical Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

C. Who Has the 5th Amendment Privilege? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12D. Who May Invoke the Fifth Amendment Privilege? . . . . . . . . . . . . . . . . . . . . . . . . 12

1. Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

2. Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123. Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

a. What is a Corporate Document . . . . . . . . . . . . . . . . . . . . . . . . . . 13b. Who Is to Produce the Document or Answer Discovery? . . . . . 13

(1) The Custody Problem . . . . . . . . . . . . . . . . . . . . . . . . . . 13(2) The “Kordel” Problem . . . . . . . . . . . . . . . . . . . . . . . . . 13

c. Who Guides the Litigation? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14d. Potential Traps For The Unwary . . . . . . . . . . . . . . . . . . . . . . . . 15

(1) Obstruction of Justice . . . . . . . . . . . . . . . . . . . . . . . . . . 15(a) Destruction of Documents . . . . . . . . . . . . . . . . 15(b) Corruptly Advising . . . . . . . . . . . . . . . . . . . . . 15

(2) Contempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15(3) The Required Documents Exception . . . . . . . . . . . . . . . 15

E. What Are the Civil Consequences of Invoking the 5th Amendment? . . . . . . . . . . 161. Inference and Instruction in Civil Case . . . . . . . . . . . . . . . . . . . . . . . . . . 162. Difficulty in Asserting Counterclaim . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

F. What Are the Tactical Considerations You Will Face Immediately? . . . . . . . . . . 171. How to Invoke the 5th Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172. What to Expect from a Skilled Opponent . . . . . . . . . . . . . . . . . . . . . . . . 17

a. Detailed and Precise Questions Compelling 5th AmendmentResponse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

b. Use of the Protective Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17c. The Victim Company’s Motion to Preclude . . . . . . . . . . . . . . . . 17

3. More Traps: Collateral Estoppel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18a. The Rule & Its Permutations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18b. Related Doctrines of Judicial Admission . . . . . . . . . . . . . . . . . . 19

IV. DYNAMICS OF A PARALLEL CIVIL -- CRIMINAL PROCEEDING . . . . . . . . . . . . . 19A. An Example of Trial Strategy from the Target Defendant’s Perspective . . . . . . . 19

1. Search & Seizure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19a. Implications--The Search for the Informant . . . . . . . . . . . . . . . . 19

(1) Civil Attachment or Garnishment . . . . . . . . . . . . . . . . . 19(2) Criminal Search and Seizure . . . . . . . . . . . . . . . . . . . . . 19

b. Implications--The FBI Interview . . . . . . . . . . . . . . . . . . . . . . . . 19c. Implications--Damage Control Within the Target Company . . . 19

(1) Two Critical Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . 20d. Some Suggestions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

(1) Take Action Quickly . . . . . . . . . . . . . . . . . . . . . . . . . . . 20(2) Representatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

2. Early Discovery, Hearings, and TRO Hearings . . . . . . . . . . . . . . . . . . . . 20a. TRO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20b. To Stay or Not To Stay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20c. Accelerated Discovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

3. Trial Schedule -- A Suggestion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21a. One Scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

B. An Example of Trial Strategy from the Victim Company’s Perspective . . . . . . . 221. Accelerated Discovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

a. Why Accelerated Discovery? . . . . . . . . . . . . . . . . . . . . . . . . . . . 22b. Interviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22c. Informant’s Apprehension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

d. Preparation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222. The Pretrial Hearings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

a. TRO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22b. Confidentiality Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22c. Bond Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

3. Trial Schedule -- A Suggestion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23a. Try the Preliminary Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . 23b. Try the Criminal Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23c. Try the Civil Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

4. The 5th Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23a. Response to the Fifth Amendment . . . . . . . . . . . . . . . . . . . . . . . 23b. A Defendant Can Forego the Fifth . . . . . . . . . . . . . . . . . . . . . . . 23

V. SUMMARY AND CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Parallel Civil and Criminal Proceedings I-1

Parallel Civil and Criminal Proceedings: “Things That Go Bumpin the Night: Strategic and Ethical Elements to Consider WhenInvolved in Trade Secret Litigation”

I. INTRODUCTIONA. What Is a Parallel Civil and CriminalProsecution?

The theft of a trade secret can result in bothcriminal as well as civil proceedings andconsequences. See, e.g., Continental Data Systems,Inc. v. Exxon Corp., 638 F.Supp. 432 (E.D. Pa.1986); Lewis, On Behalf of Nat. Semiconductor v.Sporck, 656 F.Supp. 574, 582 (N.D. Cal. 1982)(noted allegation of trade secret theft as RICOviolation). A parallel civil and criminalprosecution of trade secret theft is one in whichan allegation is made in the criminal courts, andeither at the same time or sequentially, a likeallegation is made in the civil courts. N. Kaplan,P. Friedman, R. Bennett, H. Trainor, PARALLEL

GRAND JURY AND ADMINISTRATIVE AGENCY

INVESTIGATION, at p. 6 (1981). Many tradesecret cases are planned and executed by theprivate litigant rather than the government withthe government’s involvement arising after thecivil investigations.

Parallel civil and criminal proceedingspresent unique challenges for the practitioner. Atwo-front war often puts the client in aprecarious position. This paper will address thehazards of parallel proceedings and suggestsome ways to avoid, or at least limit, some ofthose hazards.

The stakes for the client in parallelproceedings are high. Stiff criminal penalties,including imprisonment and fines, are obviousrisks. Consequences of a civil suit can also bedevastating, including damages, injunctive reliefand, if the civil plaintiff is the government,forfeiture, restitution, and suspension ofgovernment-provided benefits and opportunities.

Because the parallel proceeding dilemmausually arises in the context of a federal, ratherthan a state, criminal investigation orprosecution, this paper will focus on federalexamples of concurrent cases. In large part, theidentical considerations will arise regardless ofwhether the criminal case is initiated by the stateor federal government.

B. The “Creeping Criminalization of theTrade Secret Area

As the importance and prevalence ofindustrial espionage has increased as a threat toindustry, the use of parallel civil and criminaltrade secret prosecutions has correspondinglyincreased. IBM cooperated with the FBI todevelop allegations against Hitachi. See Swordin Hand, IBM Stands Watch Over Its Jewels,Legal Times, Mar. 12, 1984. The F.B.I. assistedMiles Laboratories, Inc., the producer of suchcommercial products as Bactine, Alka Seltzer,Flintstones and One-A-Day vitamins, in theinvestigation of a two count federal civil suitwhich charged a senior employee with industrialespionage. See United Press International,Regional News, April 29, 1986. Criminalallegations arose from Cadence Design Systemsallegations that one of its ex-employees e-mailedproprietary software to his home computerbefore leaving Cadence. Police found thissoftware in a raid. Police Raid Stuns AvantElectronics, ENGINEERING TIMES, Dec. 11, 1995at 1. “Losses from industrial espionage aredifficult to gage with estimates ranging from $25billion to $100 billion annually.” World Trade,1997 WL 7470 915 at P. 1. The FBI is reportedto be investigating about 800 cases of economicespionage involving allies and adversaries in 23countries.

According to Asia Inc., 1997 WL 100 60046 (March 1, 1997)

“[T]here has been a doubling of espionageactivities in the Southeast Asia Region inthe past ten years, particularly by Japan,China and Russia. According to intelligenceanalysts, the main target for economicespionage are R&D programs intelecommunications, biotechnology, energy,transportation technology and computerhardware and software. . . . Much of thisactivity works on the principle that it’scheaper and quicker to obtain someoneelse’s R&D through bribery or theft, than to

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I-2 Parallel Civil and Criminal Proceedings

spend years and large sums of money trying to introduction may prevent its distribution duringachieve something similar.” the most profitable period of the legitimateId. product’s introduction. Failure to pursue the

The Justice Department continues to competitor’s offending product may result in aninvestigate the General Motors-VW matter inability to recover initial start up and R&Drelated to VW hiring J. Ignacio Lopez de costs.Arriortua. The Detroit News, 1998 WL3825012 With product lives shortening and technical(May 22, 1998). innovation the rule rather than the exception, the

Texas Instruments successfully prosecuted manager of the high technology company istwo employees who misappropriated trade rightfully frustrated by a civil justice systemsecrets. See THE DALLAS MORNING NEWS, which appears too slow to catch the determined1986 WL 4330892 (Aug. 2, 1986). General thief. To be slow in the industrial espionage areaElectric has prosecuted various defendants in will usually give the thief time to capitalize onHouston, Cleveland, and New York for alleged the theft. The criminal justice system is oftenindustrial espionage. See Company pleads quicker but is also a dangerous alternative toguilty to stealing GE secrets, HOUSTON CHRON., both the victim as well as the target companies.Mar. 4, 1986; Turbine firm fined $80,000, While discovery in the traditional civil senseHOUSTON POST, Mar 4. 1986; Information is unavailable in the criminal courts, theThieves Are Now Corporate Enemy No. 1, government can use surprise search and seizureBUSINESS WEEK, May 5, 1986 at 120; GE of the target company’s records at the beginningFights Industrial Spying In Its Hometown, of a case. Such tactics are usually unexpectedAssociated Press, Nov. 16, 1986; The Case of and can prove valuable in prosecuting the civilthe Terminal Secrets, D MAGAZINE, Nov. 1986, case. The government in the Texas Instruments’pp. 103-108, 168-170. case seized a tape the defendants had allegedly

Several forces appear to be compelling the copied, which became the basis of thecriminalization of industrial espionage. First, is prosecution and the parallel civil case. See THE

the importance technology plays in an DALLAS MORNING NEWS, 1986 WL 4330892increasingly competitive world. John Young, (Aug. 2, 1986). In the 1985 GE case, the searchChief Executive of Hewlett-Packard was quoted produced GE drawings which served as the basisas stating: “Technology Is America’s Only for a criminal as well as a civil prosecution. SeeCompetitive Advantage.” Fortune, Feb. 2, 1987 supra at p. 2. F.B.I. agents raided Brauat 29. In the same article, one commentator Manufacturing Co. in an investigation of anassessing the business environment during the alleged industrial espionage scheme which thenext decade stated: “Competition that puts an victim company claims resulted in a $35 millionincreasing premium on constant innovation, loss. In the raid of December 12, 1987, federalflexible production runs, and swift assaults on authorities seized blue-prints, drawings and priceglobal markets promises to be nasty and data which allegedly belonged to Brau’s mainexpensive.” Id. at 29. In such a world, litigation competitor, Crown Cork and Seal Co. ofin both the civil and criminal court is inevitable Philadelphia. These documents now form theand increasing. See Engineer Accused of High- basis of a civil lawsuit brought by Crown corkTech Thievery, LOS ANGELES TIMES, August 7, against Brau Manufacturing. See Brau Probe1987, Metro, Part 2, Page 1, Column 4; Cambex Centers On Industrial Spying, CRAINS

Sues EMC for Theft of Trade Secrets, P. R. CLEVELAND BUS., January 4, 1988, Vol. 9, No.NEWSWIRE, January 6, 1988; Jury Awards Shell 1, Sec. 1, Pg. 2.Oil Nearly $1 Million in Espionage Case, In a majority of these cases the prosecutionsASSOCIATED PRESS, January 20, 1987; came under state trade secret laws. At that timeCorporate Espionage at Norcross’s Bell Labs, the federal government lacked anyATLANTA BUS. CHRO., Vol. 9, No. 57, Sec. 1, comprehensive legislation for trade secret theft.Pg. 1A, June 29, 1987. Swift assaults on a For example, in 1996, Eastman Kodak Co., wascompetitor’s offending product just prior to its forced to proceed against their chief rival,


Minnesota Mining & Manufacturing Corp. (3M), 1. State Criminal Statutesunder the federal racketeering laws. Kodak Texas defines “trade secret” as a propertyasserted that 3M had basically given a former which, if stolen, may serve as the basis of a theftKodak employee a “wish list” of confidential prosecution. TEX. PENAL CODE ANN. §31.05(b)items, which the employee provided. See Mike (Vernon 1994) (“A person commits an offenseMills, Testing the Limits on Trade Secrets, THE if, without the owner’s effective consent, heWASHINGTON POST, Dec. 9, 1997, at C01. But knowingly: (1) steals a trade secret; (2) makesat the time there was no federal trade secret law a copy of an article representing a trade secret;under which the government could pursue 3M. or (3) communicates or transmits a tradeThis would soon change. secret.”); Falcone v. State, 682 S.W.2d 418

Later that same year the President signed (Tex. App.--Houston [1st Dist.] 1984, no writ);into law the Economic Espionage Act of 1996, Atkins v. State, 667 S.W.2d 540 (Tex. App.--(EEA). 18 U.S.C. §s§1831-1839 (1996). Dallas 1983, no writ) (“Apparently, theft of aRecognizing the growth of trade secret theft and trade secret under Texas law is a unique andthe need for more severe penalties, the Act made broad-based offense, especially since the subjectthe theft of trade secrets a federal offense. The matter of the offense does not even have to beEEA contains two primary parts: “one ‘secret’ in the strict sense of being keptprohibiting the theft of trade secrets with intent concealed from the knowledge of other”). Anto benefit a foreign government and another offense under this section is a third degreeprohibiting trade secret theft more generally.” felony. TEX. PENAL CODE ANN. §31.05(c)Lorin L. Reisner, Criminal Prosecution of Trade (Vernon 1994).Secret Theft, 219 N.Y.L.J. 59 (Mar. 30, 1998).With the passage of this Act, victim companies 2. Federal Criminal Statutesare no longer confined to prosecutions under Federal statutes dealing with industrialstate law. Trade Secret Theft may now be espionage are set forth below:criminally prosecuted with the full weight of the C Federal Trade Secrets Act, 18 U.S.C.federal government. §1905 (1984)

C. The Structure of this Outline andDisclaimer

The purpose of this outline is to survey and §§1831-1839 (1996).identify the areas and issues with which the C Federal Espionage Act, 18 U.S.C.A. §§11,general practitioner in the area should be 791-794, 2388, 3241 (1976)familiar. C Federal Toxic Substance Control Act, 15

In hopes of making this outline more useful, U.S.C. §§2601-2629)I have divided the issues surveyed by the role the C Federal Mail Fraud Statute, 18 U.S.C.participant may play in a parallel prosecution. §1341 (1979)Thus, the issues confronting the attorney for the C Freedom of Information Act, 5 U.S.C. §552victim company are first reviewed. I next surveythe issues from the view point of the target 3. Derivative Criminal Liabilitydefendant. Finally, as an illustration I present a A corporation may be criminally responsiblechronology of the typical parallel civil and for the conduct of its employees. Criminalcriminal prosecution to illustrate the dilemmas liability of its agents, may attach without proofraised by concurrent prosecution of industrial that the conduct was within the agent’s actualespionage. authority and though it may have been contrary

D. The Criminal StatutesMany of the more important industrial states denied, 459 U.S. 991, 103 S. Ct. 347, 74 L. Ed.

have already clearly criminalized the trade secret 2d 387 (1982); United States v. Beusch, 596area. F.2d 871, 877 (9th Cir. 1979). See also, United

C National Stolen Property Act, 18 U.S.C.§§10, 2311, 2314, 2315, 3237 (1979)

C Economic Espionage Act, 18 U.S.C.

to express corporate instructions. United Statesv. Cincotta, 689 F.2nd 238 (1st Cir.), cert.

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States v. Peters, 732 F.2d 1004, 1008 (1st Cir. 2. More Disclosure: The Victim Company1984); United States v. Bi-Co Pavers, Inc., 741 May Lose More Secrets in The TrialF.2d 730, 737 (5th Cir. 1984); United States v. Often, the victim company’s managementCadillac Overall Supply Co., 568 F.2d 1078, fails to consider that to move against the target1090 (5th Cir.), cert. denied, 437 U.S. 903, 98 company may result in disclosing other companyS. Ct. 3088, 57 L. Ed. 2d 1133 (1978); United trade secrets, including the timing of theStates v. Hilton Hotels Corp., 467 F.2d 1000, marketing and production of the new product.1004 (9th Cir.), cert. denied, 409 U.S. 1125, 93 See Frances A. McMorris, Corporate-Spy CaseS. Ct. 938, 35 L. Ed. 2d 256 (1973); United Rebounds on Bristol, WALL ST. J., Feb. 2, 1998,States v. Gibson Products Co., Inc., 426 F.Supp. at B5. Thus, the lawsuit may actually injure the768, 770 (S.D. Tex. 1976). victim company more than the industrial

II. FROM THE VANTAGE OF THEVICTIM COMPANYA. The Typical Case

The Company suspects that technical threat alone and the lawsuit may injure employeeinformation is leaking to a competitor. It seems morale. Moreover, a former employee can be ahighly coincidental that the competitor is able to dangerous witness. Such employees tend to become to market with almost precisely the same good engineers and they know the securityproduct within weeks of the product measures in place at the victim company andannouncement by your client’s company. they usually know the technical literature, thus

Within the last couple of years, the victim making it easier for the defense lawyer to castcompany has laid off a number of its talented but doubt on the true trade secret status of theless senior engineers and programmers. Indeed, information allegedly taken.within the last several weeks one of theemployees who left has just returned to work at 4. Employee and Investors May Pose Tooyour client’s company and has recounted to an Great A Threatemployee that the competitor has your client’s Others may be involved in the “theft”. Aidentical drawings and test data. bank or an investor may know about the

You, as the lawyer for the victim company importance of the secret or would not haveare asked to meet with company management to invested in the competing product. Joining aplan for litigation. What do you say and what do bank or investor may prove risky because theyyou do? may be able to engage better counsel than the

B. The Considerations1. Speed: The Victim Company Must MoveQuickly “To call the government or not to call the

When a trade secret is taken, management government.” If the government is called, youfor the victim company almost always wants to had better have a case. Prosecutors are usuallymove quickly to prevent any further damage busy, underpaid, and don’t have the staff offrom the theft. In many cases, the loss of the major law firms. See Today’s Gumshoes:trade secret comes just as the research is nearing Private Eyes Keeping Busy in White-Collarits final stage and the product is near Fraud Capital: Orange County, LOS ANGELES

introduction. Thus, any delay in prosecuting the TIMES, November 29, 1987, Bus., Part 4, P. 10,target company may result in the potential that Column 1 (“Police agencies, often understaffedthe target company will introduce a similar and overworked with overt criminal cases, rarelyproduct and drive both the price and market place generally civil matters such as industrialshare of the new product to a point at which espionage at the top of their priority lists. AndR&D costs may not be recovered. even some business related criminal activities,

espionage proven at trial.

3. Employee Poses No Realistic ThreatThe ex-employee may not be much of a

employee can on his own.

C. Turning to the Government

including fraud, are low priorities with police















because the dollar amounts involved are to make out a clear case of hardship or inequityrelatively small and because such crimes are if there is even the possibility that the stay willoften difficult and expensive to investigate. But work injustice on someone else. See GATXto many businesses, such things can be matters Aircraft Corp. v. M/V Courtney Leigh, 768of economic life or death.”) F.2d 711, 716 (5th Cir. 1985) (“A stay can be

A phone call and a visit to the government justified only if, based on a balancing of theis usually not very effective because it wastes the parties’ interests, there is a clear inequity to theprosecutor’s time and presumes the prosecutor suppliant who is required to defend whileunderstands the technical issues. Such a visit another action remains unresolved if the ordermay do more harm than good. If the prosecutor granting a stay can be framed to containis unimpressed with your presentation, you are reasonable limits on its duration”); see alsounlikely to obtain another serious audience. Landis v. North American Co., 299 U.S. 248, 57Your visit may also make it difficult to organize S. Ct. 163, 81 L. Ed. 153 (1936); In re Davis,your own “undercover” operations without 730 F.2d 176, 178 (5th Cir. 1984); Hines v.being drawn into a civil rights allegation that the D’Artois, 531 F.2d 726 (5th Cir. 1976);victim company is conspiring with the state to Dellinger v. Mitchell, 442 F.2d 782 (D.C. Cir.deprive the target company’s owners of their 1971). That the accused must invoke the Fifthcivil rights. Amendment is an insufficient showing of

Once the victim company begins to act as an hardship and will not result in a stay. Wehling v.agent of the government it may become liable for Columbia Broadcasting System, 608 F.2d 1084acting as the government. For example, in (5th Cir. 1979).addition to the antitrust and defamationcounterclaims you can expect in an industrial 1. Stay of the Civil Caseespionage case, you may be faced with a civil Courts have generally balanced therights claim as well. See generally, 42 U.S.C. following interests in determining whether a§1983 (1994), (private corporation attempting parallel civil case should be stayed: (1) Theto use court proceedings to acquire trade secret interest of the plaintiff in proceedingasset is arguably acting under color of state law.) expeditiously with the civil case, weighed againstSee e.g., Martin-Marietta Corp. v. Bendix the prejudice he or she may suffer as a result ofCorp., 690 F.2d 558 (6th Cir. 1982); Sartin v. a delay; (2) the defendant’s interests as well asCommissioner of Public Safety, 535 F.2d 430 the burden on him; (3) the convenience for the(8th Cir. 1976) (arrest without probable cause court; (4) the interest of those individuals whocan be basis for §1983 claim); Stevens v. Rifkin, are not parties to the civil proceeding; and (5)608 F.Supp. 710 (N.D. Cal. 1984) (§1983 for the public interest. See e.g., FSLIC v. Molinaro,defamation);. In sum, you may want to wait to 889 F.2d 899, 903 (9th Cir. 1989); Unitedmake the call to the government until you have States v. Certain Real Property Located atfully developed your case. 5137/5139 Cent. Ave., Charlotte, N.C., 776

Once the criminal process begins, the target F.Supp. 1090 (W.D.N.C. 1991); Southwestgroup may move to stay your civil proceeding Marine, Inc. v. Triple A. Machine Shop, Inc.,until the criminal prosecution is completed. One 720 F.Supp. 805 (N.D. Cal. 1989); Arden Waymay move to stay the entire case, all discovery Assoc. v. Boesky, 660 F.Supp. 1494 (S.D.N.Y.or a discreet part of discovery, such as an 1987); Golden Quality Ice Cream Co. v.upcoming deposition. The factor that weighs Deerfield Specialty Papers, Inc., 87 F.R.D. 53,the most heavily in the determination of whether 56-58 (E.D.Pa. 1980).a case is stayed is the status of the moving party. In Molinaro, the court denied a bankIf the government moves for a stay, the civil case director’s motion to stay a parallel civil case.is generally abated. Private parties, on the other Although no indictment had been returned, thehand, are much less likely to be successful absent defendant argued that he was entitled to a stayabuse by the government. Older cases generally of the civil case pending the outcome of thehold against the stay, usually requiring a movant criminal investigation. The defendant feared that



















the criminal investigators would take improper pending resolution of a grand jury investigation.advantage of evidence uncovered during the civil The court decided that a stay of discovery wasproceedings. The Ninth Circuit Court of appropriate because the facts underlying bothAppeals affirmed the district court’s denial of the proceedings were closely intertwined and thestay, explaining that a stay is not likely to be delay would not cause unnecessary harm to thegranted where an indictment has not yet been plaintiff. See also SEC v. First Financial Groupreturned and no Fifth Amendment right is of Texas, Inc., 659 F.2d 660 (5th Cir. 1981);threatened. In weighing the factors, the Wehling v. Columbia Broadcast System, 608appellate court held that, on balance, there was F.2d 1084 (5th Cir. 1979); In re Piperi, 137no need to interrupt the conduct of the civil B.R. 644 (Bankr. S.D. Tex. 1991).case. The court explained that the “FSLIC Like an application to stay the proceedings,would be prejudiced by delay since Molinaro a stay of discovery is more likely to becontinued to attempt to dispose of his assets; the successful when the government is actingaction had been pending for a year, and the court improperly or in bad faith. For example, inhad an interest in clearing its docket; and the United States v. Parrott, 248 F.Supp. 196, 203interests of non-parties . . . and the public would (D.D.C. 1965), the court found that thebe frustrated by further delay. Molinaro, 889 government’s deliberate choice to pursue theF.2d at 903. civil action while purposefully delaying the

However, where a defendant’s Fifth criminal proceedings unfairly prejudiced theAmendment rights are in jeopardy and a delay of defendants. Bad faith may also be evident whenthe civil proceedings will not impact substantially the government improperly utilizes the grandon the public interest, a stay may be granted. jury process to obtain evidence for a civil suit orLikewise, where an indictment has been handed where the government never intended to pursuedown and the defendant is waiting to be tried on the criminal prosecution.the facts which underlie the civil complaint, athreat to the defendant’s Fifth Amendment rights 3. Protective Ordersand the concern that he may be forced to Instead of a stay, a target party may seek adisclose the grounds of his defense may protective order shielding civil discovery fromnecessitate a stay. Dienstag v. Bronsen, 49 disclosure to the prosecution. See e.g., TEX. R.F.R.D. 327 (S.D.N.Y. 1970) (granting stay). A CIV. P. 166b(5)(a). In Martindell v.stay is, of course, the most desirable remedy to International Tel. & Tel. Corp.; 594 F.2d 291,the parallel proceedings problem. It should 292 (2nd Cir. 1979), shareholders of aalmost always be considered and, in the vast corporation instituted a derivative suit againstmajority of instances, privilege dictates that it be certain officers and directors. While the civilsought. But courts are reluctant to grant long action was pending, depositions were taken ofstays and a court’s decision on the matter is certain witnesses under a protective order. Theprotected by the abuse of discretion standard. order of confidentiality provided that theSee e.g., Molinaro, 889 F.2d at 903. deposition transcripts would be made available

2. Stay Of Discovery not to be used for purposes other than litigation.Where a stay of the entire civil case is not While the civil case was in progress, the

available, counsel may seek the next best thing - government, which was not otherwise a party toa stay of discovery. Under Federal Rule of the suit, moved to gain access to the depositionCriminal Procedure 30(b) and Texas Rule of transcripts in aid of its investigation of potentialCivil Procedure 166b(5), civil discovery may be criminal violations.stayed in order to prevent annoyance, In denying the government access to theharassment or oppression. For example in materials insulated by the protective order, theIntegrated Generics, Inc. v. Bowen, 678 F.Supp. Second Circuit emphasized the importance of1004, 1009 (E.D.N.Y. 1988), the defendant Federal Rule of Civil Procedure 26(c) andobtained a stay of discovery under Rule 30(b)

only to the parties and their counsel, and were






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protective orders issued thereunder. The court directors in the underlying civil matter. Becauseexplained: of concern regarding an ongoing grand jury

[A]bsent a showing of improvidence in the investigation, the officers and directors moved togrant of a Rule 26(c) protective order or stay discovery pending the outcome of thesome extraordinary circumstance or criminal case. The court denied the stay;compelling need, none of which appear however, the court issued a protective orderhere, a witness shall be entitled to rely upon which sealed the deposition transcripts andthe enforceability of a protective order limited their use to purposes connected with theagainst any third parties, including the litigation. Id. at 1469.Government, and that such an order should Subsequently, the grand jury issued anot be vacated or modified merely to subpoena demanding that the sealed depositionaccommodate the Government’s desire to transcript be produced. Notwithstanding theinspect protected testimony for possible use fact that the officers and directors had soughtin a criminal investigation, either as the protective order to preserve their Fifthevidence or as the subject of a possible Amendment rights, the court enforced the grandperjury charge. jury subpoena. Id. at 1474. The court

Martindell, 594 F.2d at 296; see also GAF explained:Corp. v. Eastman Kodak Co., 415 F.Supp. 129, A grand jury, subject only to the limitations132 (S.D.N.Y. 1976) of [the] [F]ifth [A]mendment has the right

Likewise, in D’Ipollito v. American Oil Co., to all relevant evidence. A protective order,272 F.Supp. 310, 312 (S.D.N.Y. 1967), the while a significant impediment to a grandcourt denied defendant’s motion for a stay, but jury investigation, cannot effectively deal inordered that the deposition transcripts be sealed all instances with the problems posed bypending resolution of the parallel criminal case. civil litigants and witnesses who plead theThe court found the protective order to be an [F]ifth [A]mendment during pretrialappropriate remedy where (1) the plaintiff’s discovery. It is not therefore a substitutecomplaint was similar to the indictment, (2) for invocation of the privilege, and it shouldplaintiff was providing evidence in aid of the not be afforded that status.prosecution and (3) the plaintiff would be Id. at 1474-75. Thus, although a protectivebenefitted in the civil case by a conviction in the order may be useful in certain instances, itconcurrent criminal proceeding. probably will not prevent intrusion by a grand

In Waldbaum v. Worldvision Enterprises, jury. See Glenmede Trust Co. v. Thompson 56Inc., 84 F.R.D. 95 (S.D.N.Y. 1979), the plaintiff F.3d 476, 483 (3rd Cir. 1995); Pansy v.requested that his deposition be stayed pending Borough of Stroudsburg, 23 F.3d 772 (3rd Cir.the outcome of a parallel criminal investigation. 1994); Sharjah Inv. Co. v. P.C. Telemart, Inc.,In addition, plaintiff asked the court to seal the 107 F.R.D. 81, 83 (S.D.N.Y. 1985).transcripts of previously taken depositions. The Some commentators have argued thatcourt denied the stay motion, but granted the courts should stay parallel civil and criminalrequest to seal discovery. The distinction, cases. See Note, Using Equitable Powers Toaccording to the court, was that a protective Coordinate Parallel Civil and Criminal Actions,order generally will not impair the non-moving 98 HARV. L. REV. 1023 (1985). Several courtsparty’s conduct of discovery. Waldbaum, 84 have eased the burden for obtaining a stay in aF.R.D. at 97. As such, “the court may issue an civil proceeding in the context of a concurrentorder helping to protect plaintiff’s [F]ifth criminal proceeding. Thus, for example, in Afro-[A]mendment rights without any detriment to Lecon, Inc. v. United States, 820 F.2d 1198,the defendant. Id. at 98 (citing with approval, 1202 (Fed. Cir. 1987), the court reasoned:D’Ippolito, 272 F.Supp. at 312). The Constitution does not require a stay of

In United States v. Under Seal, 836 F.2d civil proceedings pending the outcome of1468 (4th Cir. 1988), plaintiffs had noticed the criminal proceedings. A court, however,depositions of several corporate officers and has the discretion to stay civil proceedings,










postpone civil discovery, or impose search and seizure correctly, you may never beprotective orders and conditions able to prove the authenticity of the seized“‘when the interests of justice seem [ ] documents. If you decide to work with theto require such action . . . .’” (deletion government, it is important for the governmentin text, citations omitted). as well as the victim company to follow proper

The Afro case went on to conclude: “[w]e agree procedures in the seizure. Documents should bethat a party may not claim a Fifth Amendment catalogued by desk and by room. The order ofprivilege and proceed with his suit.” Id. at 1205. documents on desks should be recorded. The

If not stayed, the civil defendant may slow order of documents in the file room should bethe civil case by invoking the 5th Amendment. reviewed. The word processing disks should beThe defendant in a trade secret misappropriation searched for backup documents which may givecase has a right to invoke the 5th Amendment the alert investigator drafts of incriminatingand decline to answer questions posed during a documents. Encrypted documents should becivil proceeding. The court should sustain the seized for latter review. The secretarial andprivilege unless it is perfectly clear that the clerical personnel in the target company shouldwitness’ answers cannot possibly have a be asked for help. A representative of the victimtendency to incriminate. United States v. company should be present at the prosecutorsD’Apice, 664 F.2d 75, 76 (5th Cir. 1981) (citing office when the documents are returned.Hoffman v. United States, 341 U.S. 479, 488 71 Generally, I request a letter from the prosecutorS. Ct. 814, 95 L. Ed. 1118 (1951)). Thus, the requesting the presence of a representative totarget group of defendants may slow or assist in the investigation before I will allow acompletely forestall the victim company’s victim company representative to attend ainvestigation. Robert Heidt, The Conjurer’s meeting to review the seized documents.Circle--The Fifth Amendment Privilege in Civil If the search and seizure is not successfulCases, 91 YALE L.J. 1062, 1065 (1982) (arguing and leads to an unsuccessful prosecution, thethat 5th Amendment can be the defendant’s most victim company may face serious counterclaims.effective weapon in civil case). These claims may include civil rights charges,

The defendant may “talk” with the defamation and slander, conspiracy to convertgovernment but invoke the 5th Amendment in the target company’s property, and ironically,the civil depositions thus allowing the clever misappropriation of the trade secrets of thedefendant to defend the criminal proceeding and competing company. By allowing theslow the investigation in the civil proceeding. government to join the case you lose controlSee Annot., Right of Witness in Federal Court over several aspects:To Claim Privilege Against Self Incrimination C you will not have control of when theafter giving Sworn Evidence on Same Matter in indictments are brought;Other Proceeding, 42 A.L.R. Fed. 793 (1979). C you will not have control of the trial date;

The selective use of the Fifth Amendment is C you cannot (it is unlawful) and should notpartially offset by the rule that the victim ever claim to have control of thecompany is entitled to an instruction to the jury prosecution of the case. To suggest thatstating that they may draw a negative inference the criminal claims will be dismissed if thefrom the defendant invoking the 5th civil case is settled could be characterized asAmendment. See Baxter v. Palmigiano, 425 extortion.U.S. 308, 318, 96 S.Ct. 1551, 47 L.Ed. 2d 810(1976). 1. Can You Maintain the Confidentiality of the

D. Losing Control of the CaseOnce the government joins the case, you, counsel usually locates the witnesses and

the victim company, lose control of the case. develops the testimony, reviews the documents,You will not have control of the documents summarizes the depositions and prepares aseized. If the government fails to conduct the working chronology of the wrong doing. In

Information Supplied to the Prosecutor?a. The Problem: The victim company’s









addition, the victim company’s counsel prepares great deference to the head of the department orworking outlines of the expected direction the agency. “In private litigation, therefore,target company and its counsel are likely to take. determination of the head of the department orThe government, often shorthanded and almost agency that disclosure should not be allowed is,always underpaid, deserves the full cooperation for all practical purposes final andof the victim company and its counsel. Yet such unreviewable.” 4 Moore’s Federal Practice,cooperation, and the unfettered discussion in §26.61 [5.-1] (1979).which co-counsel traditionally engage, must be Despite such clear language, in somestructured to avoid premature disclosure of the circumstances the clever defendant can forcevictim company’s civil case to the target disclosure even when a department head assertscompany. To assist in this structure, both the a privilege. The Freedom of Information Actgovernment and the victim company possess provides a statutory basis for parties seekingprivileges which may be asserted to protect their information from the government. Under federaldiscussion. discovery, the general rule requires disclosure

b. The Government Privileges: A private where the litigant’s need for the informationparty cannot compel a government official to appears to outweigh the government’s need totestify and produce documents in a private protect the information. See e.g., Pilar v. SSlitigation where a departmental rule forbids such Hess Petrol, 55 F.R.D. 159 (D. Md. 1972)disclosure except upon permission of the head of (where government made investigation ofthe department. United States ex rel. Touhy v. shipboard fire that was subject of civil suit andRagen, 340 U.S. 462, 71 S. Ct. 416, 95 L. Ed. government had active litigation in progress,417 (1951). A similar rule governs a Justice government required to produce officialDepartment employee such as the prosecutor. conclusion of Department of Labor as to causeSee 28 C.F.R. §16.22 (1998). of fire).

If a demand is made upon the Justice The courts uniformly hold that pure factualDepartment, the Attorney General may assert a information is not protected by executivenumber of privileges: (1) the privilege not to privilege. See e.g., Machin v. Zuckert, 316 F.2ddisclose the identity of informers; (2) a privilege 336 (D.C. Cir.1963). Arguably, informationfor military or state secrets; (3) a privilege for such as studies, policy manuals and simplecertain reports generated by the government that listings or indexes of information are also subjectare made confidential by statutes; (4) a general to FOIA requests.privilege under the “housekeeping” statute; and Weighing against a broad interpretation of(5) a constitutional privilege to refuse to disclose an FOIA request has been the court’s inclinationwhatever the executive chooses to keep secret -- to recognize executive privilege in litigationincluding discussions concerning litigation. See between private parties. See Friedman v. BacheKaiser Aluminum & Chem. Corp. v. United Halsey Stuart Shields, Inc., 738 F.2d 1336,States, 157 F.Supp. 939, 946 (Ct. Cl. 1958). 1352 (D.C. Cir. 1984).The government may also invoke the Freedom The government may, of course, waive itsof Information Act, which reserves unto the privilege. United States v. Reynolds, 345 U.S.agency head the decision whether to release 1, 73 S. Ct. 528, 97 L. Ed. 727 (1953). Waivercertain information. may be as simple as providing a copy of the

The courts have claimed the power to privileged document to a private party to thereview the decision of an agency or department litigation. Fireman’s Fund Indemnity Co. v.head not to produce documents or submit to United States, 103 F.Supp. 915 (N.D. Fla.examination before trial and to make a final 1952). Thus, a party should take care to alertdetermination of the legitimacy of the claim of the government to particularly sensitiveprivilege. Branch v. Phillips Petroleum Co., documents and information so that such638 F.2d 873, 883 (5th Cir. 1981); Broussard v. information will not be produced.Socony Mobil Oil Co., 350 F.2d 346 (5th Cir.1965). The tendency of the courts is to give














c. The Victim Company Has a Work of greater civil penalties. If the victim companyProduct Privilege: The victim company may moves too slowly, the industrial espionage mayalso have a privilege apart from the government succeed before the company investigation.privileges described above. In United States v. Legal nature and management judgment areAmerican Tel. & Tel. Co., 642 F.2d 1285 (D.C. the key to success although even with the best ofCir. 1980), the court held that MCI, an judgment, success is elusive. Thus, counsel tointervenor in the case, had sufficient common the victim company should (i) assess the caseinterests with the Justice Department, as far as quickly and determine if it is truly one in need ofdeveloping legal theories and analysis of criminal investigation; (ii) begin the investigationdocuments so as to protect the secret quickly and generally should not involve theinformation from disclosure where both parties government until a case has been developed; andhad made the same antitrust claims against (iii) be prepared to follow the criminal searchAT&T. The court reasoned that MCI’s and seizure almost immediately with civilcontributing the “fruit” of its analysis to the discovery of the principals of the allegedGovernment (relating to common issues), served conspiracy.to further the Government’s preparation andeliminated duplication of effort. See also GAFCorp. v. Eastman Kodak Co., 85 F.R.D. 46(S.D.N.Y. 1979). But see D’Ippolito v. CitiesService Co., 39 F.R.D. 610 (S.D.N.Y. 1965) In early spring, you arrive at your office a(where plaintiff in a private suit turned over little late having enjoyed the scene of newlyinformation to the Justice Department; court blooming flowers and rich green grass. You areheld privilege waived because they were not co- having your second cup of coffee when yourparties); United States v. American Tel. & Tel. secretary notifies you that one of your favoriteCo., 642 F.2d 1285, 1300 (work product clients is on the telephone and is speakingprivilege arguably does not apply to the sharing nonsense. You pick up the telephone andof evidence). discover that the FBI or the Postal Inspectors

As long as the proposed disclosure can be have a search warrant and are seizing the recordsreconciled with the policy objectives of the work of the company. You also hear that theproduct privilege, the confidentiality should be government is interviewing a number of clericalmaintained. See Permian Corp. v. United workers and mid-management personnel. HeStates, 665 F.2d 1214, 1219 (D.C. Cir. 1981); asks for your advice.Hartford Fire Ins. Co. v. Garvey, 109 F.R.D. Be careful and be correct.323, 328 (N.D. Cal. 1985).

d. Limited Protection Once the informationsought by the government, from the victim 1. The Initial Question:company, is subpoenaed by the grand jury, the Are you representing the company, anwitness is entitled to limited protection and will individual or some combination of persons whonot be forced to disclose what was presented to may have called you and the company? Are youthe grand jury. In re Russo, 53 F.R.D. 564, 571 to be paid by an insurance company? Will the(C.D. Cal. 1971); B. Wigmore, Evidence §2362 arrest or indictment of one of the scientists orat 736 (McNaughton Rev. 1961). engineers at the target company force the

e. Summary -- From the Victim Company’s company force an involuntary bankruptcy? You,Vantage: The preparation for a parallel criminal of course, may finish your coffee.and civil proceeding is a difficult and potentiallyhigh risk venture. If the victim company moves 2. Considerationstoo quickly, the prosecution may fail. Failuremay expose the victim company to the possibility

III. FROM THE VANTAGE OF THETARGET DEFENDANTA. The Typical Setting

B. Who Are You Representing? -- theMultiple Defendant Problem

company into bankruptcy? Will the victim





a. Cost--Just Money A criminal case is States v. Garafola, 428 F.Supp. 620 (D.N.J.expensive and time consuming. Because 1977), aff’d sub nom; United States v. Dolan,criminal cases move quickly and the civil 570 F.2d 1177 (3rd Cir. 1978) (where Judgeramifications are so difficult to perceive at the Lacey suggested the form of affidavit to beoutset of the litigation, your individual clients signed by counsel compelling detailed affirmativemay ask you to represent all of them. Whether disclosures of the absence of a conflict andyou can do this will depend upon a resolution of affirmative statements that counsel understandsdelicate conflict of interest issues. the ethical constraints in such representations).

b. Cost--Blind Luck and Blind Travesty If In some cases counsel for a number ofall the individuals at the target company invoke defendants attempts to avoid the conflict bythe 5th Amendment, the government may offer requiring each defendant to represent to him thatthe wrong person immunity. That is, the chief of he knows of nothing that could assist thethe criminal activity could receive immunity in government in prosecuting the case against onereturn for testimony. This erroneous choice of the other defendants.could be a benefit to the others you represent or (2) The Dangerit could ultimately hurt their case. You may be Such affidavits are discoverable if one of theable to argue that if the “worst” person in defendants turn on his colleagues and disavowsconspiracy goes free, then those less involved the affidavit. Depending on how detailed theshould get at least as good a deal. This statements are they may “freeze” the defendantargument may be easier to present to the court to a story long before the case is tried and all thethan your clients and their families who will facts are truly known. Most good trial lawyersnaturally want the best “deal” possible. See prefer to give the witnesses time to comeTEX. DISCIPLINARY RULE OF PROFESSIONAL forward with the correct facts rather thanCONDUCT 1.06 (1996). compelling a defendant to subscribe to a story

c. If all of the Accused Don’t Talk, Then process, and perhaps his own lawyer, give rise toPotentially the Government Has No Case If all a selective memory.the defendants refuse to talk, which is their right A growing number of courts will raise theunder the 5th Amendment, then the prosecutor multiple representation problem on their ownmay not be able to make its case. Robert Heidt, motion. Cuyler v. Sullivan, 446 U.S. 335, 100The Conjurer’s Circle--The Fifth Amendment S. Ct. 1708 (1980), 64 L. Ed. 2d 333; Colon v.Privilege in Civil Cases, 91 Yale L.J. 1062, Fogg, 603 F.2d 403, 407 (2nd Cir. 1979);1081 (1982). You may get lucky, but don’t United States v. Carrigan, 543 F.2d 1053, 1055count on it. (2nd Cir. 1976) (burden of proof shifts when

d. Ethical and Legal Problems With conflict); see also, United States v. Dolan, 570Representing All of the Defendants F.2d at 1181; United States v. Lawriw, 568 F.2d

You cannot represent the company and the 98, 105 (8th Cir. 1978).individual. The individual has a privilege against Additionally failure to confront the conflicttestifying, the corporation does not. Should you issue may be raised as a claim of ineffectivelearn evidence as corporate counsel, you must assistance of counsel. Holloway v. Arkansas,disclose it to the government because the 435 U.S. 475, 483, 98 S. Ct. 1173, 55 L.Ed.2dcorporation has no Fifth Amendment privilege. 426 (1978). See also, Annot., CircumstancesSee infra at p. 12. Giving Rise to Conflict of Interest Between or

In almost all cases, the different defendants Among Criminal Codefendants Precludingwill have conflicts. These conflicts are usually Representation By Same Counsel, 34 A.L.R. 3dthe result of differing involvement in the alleged 470 (1971).scheme. Federal courts take this conflict of The fact that all defendants invoke the 5thinterest problem seriously. See e.g., United Amendment is not a ground to disqualify an

(1) The Cross-Affidavit

too soon in the case when his fear of the

trial court fails to inquire into possibility of













attorney. Matter of Grand Jury Empaneled Furthermore, even if the defendant choosesJanuary 21, 1975, 536 F.2d 1009, 1012-1013 to seek protection under the Fifth Amendment,(3rd Cir. 1976); In re Investigation Before April discovery may otherwise proceed against any1975 Grand Jury, 531 F.2d 600 (D.C.Cir. other defendant. Counsel may take this1976); see also In re Taylor, 567 F.2d 1183 opportunity to learn about the criminal case(2nd Cir. 1977). The mere fact of multiple through, for example, the depositions of otherrepresentation will also not result in parties.disqualification. Washington v. Strickland, 673F.2d 879, 898 n. 15 (5th Cir. 1982); see alsoUnited States v. Carrigan, 543 F.2d 1053 (2ndCir. 1976); In re Grand Jury, 446 F.Supp. 1132 1. Partnership(N.D. Tex. 1978). A formal structured partnership does not

(3) A Practical Problem have a 5th Amendment privilege. See Bellis v.If you are representing all the defendants United States, 417 U.S. 85, 94 S. Ct. 2179, 40

you may not wish to interview them too closely. L. Ed. 2d 678 (1974) (the partnership must beThis practice may prevent an unintentional relatively well organized and structured and notwaiver of any privilege if the multiple merely a loose, informal association ofrepresentation is dissolved in the future. In individuals and must maintain a distinct set ofremaining ignorant of the facts, in a case in organizational records and recognize rights in itswhich you have accepted an engagement, you members of control and access to them). Thewill, of course, be betting that you can develop court has extended Bellis to hold that privatethe defense without your client’s help. Thus, personal papers of an individual are notthere is a very real risk that the clients’ interests privileged because their seizure does notmay not be served by an ignorant but safe “compel” testimony. United States v. Doe, 465attorney, and in such instances the attorney U.S. 605, 104 S. Ct. 1237, 79 L. Ed.2d 552,could become targeted for malpractice claims. (1984).

C. Who Has the 5th Amendment Privilege?The determination of whether your client A corporation has no 5th Amendment

should remain silent often need not be made at privilege. United States v. Rylander, 460 U.S.the outset of the case or investigation. The Fifth 752, 103 S. Ct. 1548, 75 L. Ed. 2d 521 (1983).Amendment question will often not arise until Even subchapter S and close corporations havecivil discovery is well underway. In such a no privilege. United States v. Richardson, 469scenario, defense counsel may gather F.2d 349 (10th Cir. 1972). Additionally, noinformation about the criminal case through the privilege can be claimed by the custodian ofcivil process. In a fraud case for example, the corporate records, regardless of how small thealleged victim plaintiff, who may also be the corporation may be. In re Grand Juryperson whose complaint triggered the criminal Proceedings, 814 F.2d 190, 192 (5th Cir. 1987).case, can be deposed and the factual basis for hisclaim explored including any contact he has had 3. Employeeswith the government. The information obtained If an employee asserts the Fifthduring the early stages of the civil litigation Amendment, the invocation of the privilege mayallows counsel to make a more informed or may not be admissible against the employer indecision about whether the client will invoke the the civil case. See United States v. Districtprivilege. It is also possible that the civil case Council of New York City & Vicinity, 832will outlast the criminal prosecution. If no F.Supp. 644, 651 (S.D.N.Y. 1993) (there existscharges are returned or an acquittal is obtained, no “bright-line rule allowing the admission of anthe difficult Fifth Amendment decision may have employee’s [F]ifth [A]mendment invocation”).resolved itself. However, a number of federal appellate courts

D. Who May Invoke the Fifth AmendmentPrivilege?

2. Corporation

have held that an employee’s assertion of the






















privilege may create an adverse inference against and calendar to record business meetings andhis employer. See Brinks, Inc. v. City of New transactions he conducted as an executive of theYork, 717 F.2d 700, 708-10 (2nd Cir. 1983); corporation and hence held that they wereF.D.I.C. v. Fidelity & Deposit Co. Of Maryland, corporate documents. See also United States v.45 F.3d 969, 977-79 (5th Cir. 1995); Cerro Lench, 806 F.2d 1443, 1446 (9th Cir. 1986).Gordo Charity v. Fireman’s Fund AmericanLife Ins., 819 F.2d 1471 (8th Cir. 1987); b. Who Is to Produce the Document or AnswerRosebud Sioux Tribe v. A & P Steel, Inc., 733 Discovery?F.2d 509, 521 (8th Cir. 1984). (1) The Custody Problem

In a parallel proceeding, the lawyer Most attempts to resist production haverepresenting a corporate defendant must centered on the theory that the mere production,consider the impact that an employee’s assertion the authentication of the documents asof the privilege will have in the civil case against “corporate”, would be testimonial and hencethe corporation. If the employee invokes the would trigger 5th Amendment protection.privilege, the corporation may suffer an adverse United States v. Doe, 465 U.S. 605, 104 S. Ct.inference in the civil litigation. However, there 1237, 79 L. Ed. 2d 552 (1984) (“[w]here themay be occasions where a corporation will preparation of business records is voluntary, nobenefit by one of its employees invoking his or compulsion is present [when they areher Fifth Amendment rights. If the witness produced]”); Fisher v. United States, 425 U.S.asserts his Fifth Amendment privilege, and he is 391, 96 S. Ct. 1569, 48 L. Ed. 2d 39 (1976);the only individual who has knowledge of the Annot., 48 L.Ed. 2d 852 (1977). But see In Realleged criminality, perhaps the corporation will Grand Jury Empaneled March 8, 1983, 722avoid liability in the criminal case. Moreover, in F.2d 294, 297 (6th Cir. 1984). The documentsthe related civil case, the adverse inference may themselves are, however, not protected and arebe less damaging than the actual testimony of the therefore subject to seizure, either through a writwitness. of attachment or a criminal search and seizure.

a. What is a Corporate Document? Ct. 2737, 49 L. Ed. 2d 627 (1976).The courts have broadly construed the term

“corporate document.” The Second Circuit in In (2) The “Kordel” ProblemRe Grand Jury Subpoena Duces Tecum Dated Targets of criminal prosecution haveApril 23, 1981 Witness v. United States, 657 attempted to avoid answering discovery soughtF.2d 5, 8 (2nd Cir. 1981), offered what it termed of the corporation on the grounds that answersa “nonexhaustive list” of criteria relevant to the to such discovery may incriminate the corporatedetermination of whether documents are officer executing the interrogatories orpersonal or corporate: (1) who prepared the responding to a document request. In Uniteddocument, (2) the nature of its contents, (3) its States v. Kordel, 397 U.S. 1, 8, 90 S. Ct. 763,purpose or use, (4) who maintained possession 25 L. Ed. 2d 1 (1970), the Supreme Court heldand who had access to it, (5) whether the that the corporation in such instances is requiredcorporation required its preparation, and (6) to appoint an agent who, without fear of self-whether its existence was necessary to the incrimination, shall furnish the requestedconduct of the corporation’s business. information. The Court responded:

The Ninth Circuit, in United States v. The corporation could not satisfy itsMacKey, 647 F.2d 898, 899 (9th Cir. 1981), obligation under Rule 33 simply by pointingrejected an attempt to characterize the diaries, to an agent about to invoke hiscalendars, and appointment books of the general constitutional privilege. “It would indeedmanager of a company under investigation for be incongruous to permit a corporation toantitrust violations as personal and hence select an individual to verify theprotected by the 5th Amendment. The court corporation’s answers, who because heheld that the general manager used the diaries fears self-incrimination may thus secure for

Andresen v. Maryland, 427 U.S. 463, 473, 96 S.






















the corporation the benefits of a c. Who Guides the Litigation?privilege it does not have.” Such a The Kordel problem raises a moreresult would effectively permit the fundamental difficulty in the defense of acorporation to assert on its own behalf company accused of trade secret theft: Whothe personal privilege of its individual guides the litigation if the attorney for theagents. corporation is unable to talk to the principal

Id. The danger to the attorney representing the officer under investigation? Who decides whentarget corporate defendant lies in the cases cited a counterclaim should be asserted and whoby Kordel which arguably require the attorney to proposes or responds to motions for summaryrespond to the interrogatories and requests for judgment? The corporate attorney in a parallelproduction if no suitable agent can be found. In civil and criminal prosecution may be blind andUnited States v. 42 Jars . . .“Bee Royale ignorant and must generally rely on hisCapsules”, 162 F.Supp. 944, 946 (D.N.J.), opponents and opposition testimony to defeataff’d, 264 F.2d 666 (3rd Cir. 1959), cited by summary judgments and to answer discovery onKordel at n. 8, p. 7: counterclaims.

It will thus be the clear duty of the The strain on the corporate defense attorneycorporation to select an officer or agent for is intense and often places the corporate counselthe above purpose, who will not have in the position of making management decisionspersonally participated in anywise in such on the prosecution of the lawsuit, thus acting asquestionable transaction, and who thus both client and attorney. For example, if aftercannot be incriminated by such answers. investigating the claims asserted by one’sThis the corporation can easily do under its opposition, the lawyer for the corporationbroad corporate powers, using even its decides the government’s claims may have merit,attorney, for instance, whose duty it would to whom does he address a settlement proposal?then be to “furnish such information as is Who should make the decision whether to cross-available to the party” -- the sum total of claim against the individuals under investigation?the corporate information. The problem is more difficult if the corporationThe attorney representing the corporation has passive investors not involved in the dispute

may be placed in the untenable situation of or the corporation is in bankruptcy.responding to document requests and Compounding the difficulty for the corporation’sinterrogatories with very little or no knowledge lawyer is the possibility that the insuranceof the actual facts of the case. In such company paying for the defense of thecircumstances, the corporation’s attorney may corporation may have an interest different thanbe disclosing work product or, worse, swearing that of the trustee in bankruptcy or theto facts about which he has no knowledge. management of the corporation. Indeed, a

Both Kordel and its progeny indicate that probability exists that the insurance companythe attorney need not agree to his appointment would have a different interest. Most insuranceas agent for the corporation and that the policies exclude any recovery on the policy forappropriate procedure to defeat such discovery damages resulting from criminal behavior. Thus,is a motion for protective order. See Casson the insurance company’s interest could be servedConst. Co., Inc. v. Armco Steel Corp., 91 F.R.D. by evidence that the principals and the376 (D.Kan. 1980). At least one agency of the corporation did commit the crime charged whilefederal government maintains that the attorney the corporation is served only by a finding it didhas no option but to become the corporate agent not engage in the unlawful conduct.and answer discovery. See FTC v. Kane, CA- The principals of the corporation under84-5416 AWT (Px) (S.D.Cal.; L.A. Division) investigation may have an interest antagonistic(Motion to Compel and for Sanctions Lodged to the corporation in that the principals underJanuary 13, 1986) (unpublished). investigation may wish to defeat the criminal

charges at any cost even if that means thecorporation is to lose the civil case.




Thus, representing a corporation whose Court, Or to Obstruct the Due Administration ofofficers and directors are under investigation is Justice, 62 A.L.R. Fed. 303 (1983) for casespotentially rife with conflicts of interest which interpreting “corruptly influencing”. Defenseare probably impossible to harmonize. counsel who contacted indicted witness and his

d. Potential Traps For The Unwary to exercise 5th Amendment privilege did not(1) Obstruction of Justice violate 18 U.S.C. §1503 since such conduct was

Through amendment and decisions, the “legitimate action of defense counsel...contactingcrime of obstructing justice has gradually an important witness...and his counsel to discussexpanded. matter of mutual importance to them.” McNeal

(a) Destruction of Documents 1973).The destruction of documents is clearly an

obstruction of justice. See 18 U.S.C. §§ 1503, (2) Contempt1505, and 1510 (1985) (obstruction of criminal Courts may choose to hold the attorney andinvestigation); United States v. Walasek, 527 the client in contempt for obstructing justice orF.2d 676 (3rd Cir. 1975). In addition, the laws disobeying a discovery order of the court. Seeregarding obstruction of justice apply prior to 18 U.S.C. §401 (1966); Berkey Photo, Inc. v.the initiation of formal proceedings. United Eastman Kodak Co., 603 F.2d 263, 305-08 (2ndStates v. Mitchell, 372 F.Supp. 1239, 1250 Cir. 1979); United States v. Walasek, 527 F.2d(S.D.N.Y.), appeal dismissed, 485 F.2d 1290 676, 680 (3rd Cir. 1975).(2nd Cir. 1973).

(b) Corruptly Advising If Defendant is required to keep documents“Corruptly advising” a person, not your by a comprehensive government scheme of

client, to invoke the 5th Amendment also regulations then no privilege exists to retainclassifies as obstruction of justice. United States those documents as privileged. Thus,v. Fayer, 523 F.2d 661, 663 (2nd Cir. 1975); documents required in some governmentUnited States v. Cioffi, 493 F.2d 1111, 1119 contracts are arguably not covered by the 5th(2nd Cir. 1974); Cole v. United States, 329 F.2d Amendment privilege and documents must be437 (9th Cir. 1964); United States v. Baker, produced. See e.g., Shapiro v. United States,611 F.2d 964, 967-69 (4th Cir. 1979); see also 335 U.S. 1, 68 S. Ct. 1375, 92 L. Ed. 1787United States v. Arnold, 773 F.2d 823, 831 (7th (1948); United States v. Sullivan, 274 U.S. 259,Cir. 1985) (“Courts . . . have uniformly held that 47 S. Ct. 607, 71 L. Ed. 1037 (1927).the statute made it a crime to corruptly influencea witness to invoke his Fifth Amendment self-incrimination privilege before a federal grand Where neither substantive motion practice,jury rather than testify.”); United States v. efforts to quash, or stay applications or good oldMcComb, 744 F.2d 555, 563 (7th Cir. 1984). fashioned delay are successful, see infra at pp. 4-But see Maness v. Meyers, 419 U.S. 449, 95 S. 7, your client may face the decision of whetherCt. 584, 42 L. Ed. 2d 574 (1975) (attorney who to “take the Fifth.” As a general rule, any“in good faith” advises his client to assert his individual may invoke the Fifth Amendment in afifth amendment privilege does not violate 18 civil or criminal case, whether at trial or duringU.S.C. §1503.) I have not located a suitable the discovery process, when compelled by theclear definition of what “corruptly advising” government to give incriminating testimonialmeans. See Annot., Meaning of Term evidence. See Hoffman v. United States, 341“Corruptly” For Purposes of 18 USCS §1503 U.S. 479, 488 (1951). The privilege has beenMaking It a Federal Offense to Corruptly described as “a protection to the innocentEndeavor to Influence, Intimidate, Impede, or though a shelter to the guilty, and a safeguardInjure Witness, Juror, or Officer in Federal against heedless, unfounded or tyrannical

counsel and suggested that witness might want

v. Hollowell, 481 F.2d. 1145, 1152 (5th Cir.

(3) The Required Documents Exception

E. What Are the Civil Consequences ofInvoking the 5th Amendment?


























prosecutions. See Quinn v. United States, 349 conspiring with the government to deprive theU.S. 155, 162 (1955). Although a civil defendant of his civil rights.defendant may be unable to invoke theprotections of the Fifth Amendment where the 2. Difficulty in Asserting Counterclaimthreat of a criminal prosecution is “fanciful at If the target defendant asserts the 5thmost” (See In re Corrugated Container Amendment, its potential for effectivelyAntitrust Litigation, 662 F.2d 875, 883 asserting a counterclaim will be severely(D.C.Cir. 1981); FTC v. Kitco of Nevada, Inc., reduced. The court will not usually dismiss a612 F.Supp. 1282, 1291 (D.C.Minn. 1985), counterclaim in the face of the assertion of thewhen the possibility of incrimination is “real”, 5th Amendment. Wehling v. ColumbiaFifth Amendment protections may attach Broadcasting System, 608 F.2d 1084, 1087 (5thwhether or not a criminal investigation actually Cir. 1979) (“When plaintiff’s silence ishas been commenced. See Hoffman, 341 U.S. at constitutionally guaranteed, dismissal is486; United States v. Argomaniz, 925 F.2d 1349 appropriate only where other, less burdensome,(11th Cir. 1991); see also Estate of Fisher v. remedies would be an ineffective means ofC.I.R.., 905 F.2d 645, 648 (2nd Cir. 1990). preventing unfairness to defendant.”) See Robert

1. Inference and Instruction in Civil Case Amendment Privilege in Civil Cases, 91 YALE

The trade secret defendant has a right to L.J. 1062, 1107 (1982).invoke the 5th Amendment. See McIntyre’s The Texas Supreme Court has taken anMini Computer Sales Group, Inc. v. Creative approach similar to the Fifth Circuit’s. In TexasSynergy Corporation, 115 F.R.D. 528 (D.Mass. Dep’t of Public Safety Officers Ass’n. v.1987). But the 5th Amendment privilege against Denton, 897 S.W.2d 757 (Tex. 1995), the Texasself incrimination does not forbid adverse Supreme Court approved in principle theinferences against parties to civil actions when dismissal of a claimant’s lawsuit after thethey refuse to testify in response to probative claimant invoked his Fifth Amendment privilege.evidence offered against them. See Baxter v. Under the facts before it, however, the courtPalmigiano, 425 U.S. 308, 96 S. Ct. 1551, 47 L. remanded to the trial court for a determinationEd. 2d 810 (1976); Farace v. Independent Fire of whether a less draconian sanction wasIns. Co., 699 F.2d 204, 210 (5th Cir. 1983) appropriate. Factors identified by the Texas(dicta which could be read as suggesting that Supreme Court as relevant to this determinationtrial court may prevent inquiry into 5th include: the nature of the questions posed,Amendment response under Rule 403 FED. R. unfairness to the party seeking discovery, andEVID.). the possibility of delaying the civil proceeding

Once the target Defendant invokes the 5th pending resolution of the criminal case. Id. atAmendment, the judge and jury will usually find 762-63.in favor of the Plaintiff. The decision to invoke The failure to specifically admit or denythe 5th Amendment, while generally a reflexive assertions in a federal answer, as required byaction on the part of attorneys, should be Rule 8 FED. R. CIV. P. is not a legitimate reasonweighed carefully in the context of the civil to default a defendant asserting the 5thinvestigation. If the defendant has a good Amendment in answer to allegations in a federaldefense or the Plaintiff cannot make a case on complaint. National Acceptance Co. of Americathe issue of whether the item allegedly taken is v. Bathalter, 705 F.2d 924, 929 (7th Cir. 1983).indeed a trade secret, the wisest decision may be Dismissal of claims asserted by a partynot to invoke the 5th Amendment and to testify. invoking the 5th Amendment could be construedIndeed, if the decision to testify is made, it frees as an automatic penalty and therefore may bethe target defendant to assert more persuasively prohibited by the Constitution. See Blackclaims that the purported victim company has Panther Party v. Smith, 661 F.2d 1243, 1272violated the antitrust laws, slander and/or libel (D.C.Cir.), vacated sub nom. Moore v. Blacklaws, and perhaps a claim that the Plaintiff is Panther Party, 458 U.S. 1118, 102 S. Ct. 3505,

Heidt, The Conjurer’s Circle -- The Fifth



















73 L. Ed. 2d 1381 (1982). Courts have held 696 S.W.2d 142 (Tex. App.--Dallas 1985, writthat the continued assertion of a counterclaim ref’d n.r.e.)may waive a litigant’s right to invoke the 5th Your opponent will ask leading questionsAmendment. Independent Productions Corp. v. such as: “You knew the materials you wereLoew’s Inc., 22 F.R.D. 266 (S.D.N.Y. 1958) taking were confidential, isn’t that correct?”(litigant waives 5th Amendment Privilege by “You intentionally took confidential documentsasserting claim). But see Afro-Lecon Inc. v. when you left the poor victim company?” “YouUnited States, 820 F.2d 1198, 1202 (Fed. Cir. knew that the “big deep pocket bank was1987). involved in an agreement to injure poor victim

F. What Are the Tactical ConsiderationsYou Will Face Immediately?1. How to Invoke the 5th Amendment [”So you invoking the 5th Amendment, see W. Raleigh,want to flip ‘em da nickel”] Confronting the Fifth Amendment Privilege in

Invoking the 5th Amendment with dignity is Depositions, Barrister, Summer of ‘85, pp. 42-difficult and requires a patient and understanding 45.explanation to the accused. The witness will betempted to testify. You, as counsel for the b. Use of the Protective Orderaccused, made the decision to instruct the You should consider attempting to obtain awitness to invoke the 5th Amendment and you protective order sealing the documents andshould go on record stating your position. evidence to prevent disclosure of the documents

You should not provide the witness with a or the 5th Amendment testimony to the world.card to read. If you are against anyone worth Such an order may be helpful in interfering withtheir salt they will introduce the card and it will the cooperation between the government and thebecome a very large exhibit in the case. victim company. See P. Donnici, The Privilege

You should not state and you should not Against Self-Incriminating in Civil Pre-Trialhave your witness state that they are invoking Discovery: The Use of Protective Orders tothe 5th Amendment because their testimony Avoid Constitutional Issues, 3 U.S.F.L. Rev. 12“will”, “may”, or “might” incriminate the (1968).witness. After all, if the testimony is to comeinto evidence it is best that the witness and his c. The Victim Company’s Motion to Precludelawyer not express an opinion on the The victim company will usually follow aincriminating nature of the evidence. One deposition, in which the witness invokes 5thacceptable method of invoking the 5th Amendment, with an application to be givenAmendment is to claim the protection of the reasonable notice prior to trial if the witnessConstitution of the United States under the 5th suddenly has a change of heart and wishes toAmendment and the applicable provisions of the testify. Without notice the court may precludeTexas Constitution without further comment. the witness from testifying differently from the

2. What to Expect from a Skilled Opponent 810, 815 (D.Minn. 1968); Backos v. Uniteda. Detailed and Precise Questions Compelling States, 82 F.R.D. 743, 745 (E.D.Mich. 1979);5th Amendment Response. Robert Heidt, The Conjurer’s Circle -- The

The skilled opponent will attempt to create Fifth Amendment Privilege in Civil Cases, 91as many specific inferences as possible Yale L.J. 1062, 1130 (1982).concerning the weakest portion of his case.Because of this, you will be faced with a long 3. More Traps: Collateral Estoppeltedious and emotionally exhausting day as a. The Rule & Its Permutationsspecific questions are addressed to which the The specific collateral estoppel effect of awitness invokes his 5th Amendment Privilege. prior criminal or civil proceeding depends uponSinclair v. Savings & Loan Comm’r. of Texas, the result in the prior proceeding and upon the

company?”; “You are a guilty son of a gun whoenjoys lollipops.”; etc. For a useful review ofhow to ask questions when the defendant is

prior testimony. Duffy v. Currier, 291 F.Supp.




burden of proof in the prior and subsequent If, in the prior civil action, the court or juryproceedings. If the criminal prosecution takes determines that the defendant is not liable, theplace before the institution of the civil civil judgment should be “conclusive in his favorproceeding and the defendant is acquitted, the in a subsequent criminal prosecution as to theacquittal has no effect on the subsequent civil issues adjudicated in the civil suit.” 1B J.proceeding. The government may then proceed Moore, J. Lucas & T. Currier, supra at 552; Seewith and prevail in the civil case. See Helvering also Note, Res Judicata, 64 Harv. L. Rev. 1376,v. Mitchell, 303 U.S. 391, 397, 58 S. Ct. 630, 1378 (1951).82 L. Ed. 917, 920-21 (1938). The rationale for The scope of collateral estoppel effect thatthis rule was stated by the Supreme Court in a criminal conviction has on a subsequent civilOne Lot Emerald Cut Stones & One Ring v. action is determined by whether “the issue forUnited States, 409 U.S. 232, 93 S. Ct. 489, 34 which estoppel is sought was ‘distinctly put inL. Ed. 2d 438 (1972): “[T]he difference in the issue and directly determined’ in the criminalburden of proof in criminal and civil cases action.” Wolfson v. Baker, 623 F.2d 1074, 1078precludes application of the doctrine of collateral (5th Cir. 1980) (quoting Emich Motors Corp. v.estoppel. The acquittal of the criminal charges General Motors Corp., 340 U.S. 558, 569, 71 S.may have only represented ‘an adjudication that Ct. 408, 414, 95 L. Ed. 534 (1951)). Moreover,the proof was not sufficient to overcome all “[w]hen the criminal conviction was based on areasonable doubt of the guilt of the accused.’” jury verdict of guilty, ‘issues which wereId. at 235; see also United States v. One essential to the verdict must be regarded asAssortment of 89 Firearms, 465 U.S. 354, 104 having been determined by the judgment.’” Id.S. Ct. 1099, 1104-05, 79 L. Ed. 2d 361 (1984); Thus, when multiple transactions constitute the18 C. Wright, A. Miller & E. Cooper, Federal basis for both the criminal and civil proceedings,Practice and Procedure, §4422, at 209 (1981). a prior conviction that involves only some of the

Conversely, “because a defendant is transactions precludes in the later civilsurrounded by greater safeguards in criminal proceeding only those claims of the defendantthan civil litigation, and the standard of proof to that are based upon the actual transactionswhich the complainant is held is higher, a involved in the criminal action. See e.g., Brownjudgment of conviction is conclusive in civil v. United States, 524 F.2d 693, (Ct. Cl. 1975)litigation between the same parties as to the (contractor convicted of bid rigging onissues that were litigated and adjudicated [sic] to government contracts, in his later suit againstthe criminal prosecution.” 1B J. Moore, J. government for breach of contract, wasLucas & T. Currier, Moore’s Federal Practice, estopped only from denying his fraudulent¶0.418 [1], at 552-53 (2nd Ed. 1984) (footnote activities as to those contracts forming the basisomitted); see also Allen v. McCurry, 449 U.S. of his conviction).90, 104, 101 S. Ct. 411, 420, 66 L. Ed. 2d 308(1980) (state court conviction for conspiracy in b. Related Doctrines of Judicial Admissionrestraint of trade precludes defendants’ A plea of guilty is conclusive in arelitigation of conspiracy issue in government’s subsequent civil suit between the same parties ofsubsequent suit to enjoin conspiracy). all issues that would have been determined by a

If the civil action occurs prior to the conviction. See e.g., Brazzell v. Adams, 493criminal action and the defendant is liable for F.2d 489, 490 (5th Cir. 1974); Metros v. Unitedcivil damages, the judgment of civil liability is States District Court, 441 F.2d 313, 316-17not conclusive in the subsequent criminal trial (10th Cir. 1970).and admission of the judgment is prejudicial A plea of nolo contendere, however, is anerror. See United States v. Rylander, 714 F.2d admission only for the purpose of the suit in996, 1002 (9th Cir. 1983); United States v. which it is made, and a conviction based on suchBeery, 678 F.2d 856, 868 n. 10 (10th Cir. 1982); a plea does not have collateral estoppel effect insee also RESTATEMENT (SECOND) OF a subsequent civil suit. See e.g., Doherty v.JUDGMENTS, § 28(4) (1982).





















American Motors Corp., 728 F.2d 334, 337 (6th schedules in most federal district courts, theCir. 1984). mere assertion of privilege effectively forecloses

IV. DYNAMICS OF A PARALLEL CIVIL-- CRIMINAL PROCEEDINGA. An Example of Trial Strategy from theTarget Defendant’s Perspective1. Search & Seizure attorney and the facts he has developed area. Implications--The Search for the Informant privileged depends upon the facts of each case.

If the court issues a civil or criminal search You may wish to consider an accelerated hearingand seizure you must assume that someone on the issue or, alternatively, seek a protectivewithin the target organization has supplied the order until the hearing can be scheduled and agovernment or the victim company with decision rendered.information on the alleged wrongful conduct.Your first task as the target company’s lawyer is b. Implications--The FBI Interview If theto locate the informant(s) within the company authorities conduct the search and seizure asand learn what has been disclosed to the part of a criminal investigation, the investigativegovernment or victim company. agency probably began interviewing clerks,

(1) Civil Attachment or Garnishment If secretaries, and middle management whilethe underlying procedure used to conduct the seizing the documents. It is critical to controlsearch is a civil attachment or garnishment this process and, if possible, restore confidenceproceeding, then the affidavits filed to support in the target company’s employees. The processthe procedure may provide a clue to the is tedious at best and may require group andinformant’s identity. Skilled opponents almost individual meetings at which you, the attorney,never place the name of the informant in such will be asked in essence the same questions theaffidavits. But the dates, description of events FBI is asking. Often you will do more harm thanand allegedly wrongful conduct may identify a good by answering such questions.group within the target company on which youmay begin your investigation. You should c. Implications--Damage Control Within theconsider requesting a hearing on the attachment, Target Company You should assume that thetemporary injunction, or other extraordinary victim company is calling and taking witnessorder. At this hearing, compel the plaintiff to statements from the employees of the targetproduce the underlying factual basis for the company. By the end of the week, you will beaffidavit, including all written or oral statements fortunate if you have control of the facts andof target company employees which were have restored confidence in the target company’sprovided knowingly or unknowingly. personnel.

(2) Criminal Search and Seizure If the (1) Two Critical Mistakessearch and seizure is pursuant to a criminal I have observed two critical mistakes in thewarrant, it is likely that the affidavit(s) forming target lawyer’s response to a search and seizure.the basis of the search are sealed, but it is worth First, I have observed the target company’s firma try to request the affidavits from the clerk of and his staff, in a good faith effort to gainthe Court. On at least one occasion, I found that control of the situation, frighten loyal employeesthe prosecutor simply did not request the sealing and, in effect, threaten everyone to silence theof the affidavit and it provided an abundant informant. Such over zealous advocacy may besource of information. unlawful and is not productive. Once the target

Early in the civil case, you will be company loses the confidence of the mid-levelconfronted by objections that the undercover employees, it is doubtful that it can be regained.investigator and the fruits of his investigation are Second, the attorney and his staff, in an effort toprivileged. Because of the lengthy briefing be accommodating to the government and victim

discovery of the investigator until after thedepositions of your client and therefore makes itdifficult to prepare an adequate defense.Whether an investigator working as anundercover operator is a consultant to the



company and to demonstrate that nothing a. TRO Generally, you will be faced with aunlawful has occurred, allow an open door TRO or attachment hearing if the matter is civil.policy in which no one monitors what If it is a criminal investigation, you may face ainformation is leaving the target company. It is probable cause hearing or grand jury subpoena.not wise to trust the target company to describe You should attempt to delay these hearings.the complete truth to a new lawyer under theexigencies of a search. b. To Stay or Not To Stay One’s initial

d. Some Suggestions and criminal prosecution is to delay and regroup.(1) Take Action Quickly The target While each case is different in some respects,

company’s management must come to a that reaction may play into the hands of theconclusion quickly on what information it is government and victim company’s lawyers. Aswilling to provide to employees and what sort of the target company’s attorney, you may wish toindemnity provisions it will enter into to protect consider a more aggressive strategy.key employees from the high cost of legal fees. For example, take the TRO hearing to theDrafting indemnity agreements under such victim company. Compel the production of thecircumstances is in itself an art and the author “trade secret” evidence as well as the evidenceshould be careful not to imply in the agreement of misappropriation. In my experience, neitherany wrongdoing. the government nor the victim company’s

(2) Representatives Always maintain a If the matter is criminal, schedule a probablerepresentative or two in the office. At least one cause hearing and demand strict proof of theof the attorney’s representatives should circulate misappropriation and a production of the tradethroughout the company and key employees secret.should be interviewed and witness statements Demand all statements of your witnessestaken. The witness statements are particularly who are to be deposed on accelerated discovery.effective against informants who will usually This should include all secret tape recordings ofswear to one story when in the presence of the the target company’s employees.government and swear to another story in the Consider a deposition of a corporatepresence of the target company’s lawyers. representative of the victim company and force

It is, of course, a matter of style, but I the victim company or government to define theprefer to invite management to my office for trade secret.discussions on the case. I have found that it Consider requesting a confidentiality ordercalms the employees if they don’t see preventing any further discussion of the casemanagement confused and without answers to with persons outside the victim company. Thisquestions. order may prevent or impede further discussion

2. Early Discovery, Hearings, and TRO Consider counterclaiming for, among otherHearings things:

In addition to calming the minds of C Misappropriation of trade secrets of themanagement, ascertaining who your clients is, target company. [Certainly the undercoverfinding other lawyers to assist in representing operator could be accused of takingkey employees, and managing the flow of material which, it would seem, both partiesinformation to the victim company and the may agree is a trade secret;]government, you must also decide whether to C Defamation: The victim company may beconfront the victim company or government using the litigation as a deterrent andlawyer in several key hearings at the beginning marketing tool. A pending defamationof the investigation. action will focus attention on the issue of

reaction to the crush of events of a parallel civil

lawyers are usually prepared at this point.

with the government attorneys.

publication to the target company’s


suppliers and customers and perhaps slow understanding of the case through the sacrificethe dissemination of negative publicity; of your principal witnesses.

C Civil Rights Violations and Invasion of If you do decide that it is in your bestPrivacy: Such claims against the victim interest to invoke the 5th Amendment, then youcompany impede cooperation between the should state the objection with as much dignitygovernment and the victim company; and as possible and as previously addressed in this

C Antitrust. article, you should not assert that the witness’Under the strenuous circumstances of a testimony “will” or “may” incriminate the

parallel criminal and civil proceeding, it is often witness.difficult to consider the formulation of a civil suitas your best defense against the criminal suit. 3. Trial Schedule -- A SuggestionYet, such a course may be your best alternative Another critical question is whether to tryunder the circumstances. the civil case prior to the criminal trial. This

Also, consider not invoking the 5th question is a difficult one which depends uponAmendment. The target company’s best chance the facts of each case, including counsel’sof surviving may be to fight its way out of the counterclaims, as well as the court’s schedule.allegations of unlawful conduct and counter If the target defendant advances the civil trial, heattach against the victim company and the will be giving away his defenses to the criminalgovernment. charge, including his expert testimony. On the

c. Accelerated Discovery to divulge a good deal of its case if the civil caseCivil allegations are generally followed by a is tried first. Moreover, should the target

request for accelerated discovery. The events defendant win, there is some chance, dependingtranspire so quickly that you may wish to delay on the actual jury verdict and the matters inthe discovery for two to three weeks to obtain dispute, that the government will be dissuadedwhat limited discovery you can from early by the target company’s defense and may settlepretrial hearings. As always, your judgment to the dispute for a nominal charge.delay the proceeding may not always be thecorrect decision. It is doubtful that the victim a. One Scenario One scenario you may wishcompany’s lawyer is as prepared as he should be to consider is:for the depositions. Additionally, the documents C Try the preliminary injunction.have presumably just been produced and the C Then try the civil trial.victim company’s lawyer may not have been C Then try the criminal trial.permitted to review the documents seized by the In this order, you will be given what is threegovernment. In any case, depositions, should chances to win. If you reverse the order, youtell you something about the government’s case. are only given one chance to win.The target company may also wish to take therisk of proceeding to develop the facts for acounterclaim.

If my experience is any guidance, 1. Accelerated Discoveryaccelerated depositions are video taped and the a. Why Accelerated Discovery?defendant, as well as the target company’s Without accelerated discovery, it is difficultlawyer appear exhausted. Thus, there is a real to prove a trade secret case. Even with the mostpotential that the video tape will not present the efficient and thorough investigation, the victimrested confident person you would like to company’s lawyer will have difficulty making aportray at trial. Careful attention to demeanor case of trade secret theft. After all, the theft, ifand dress of the target company’s witnesses is successful, was subtle and the trade secret iscritical to success at trial. In such cases, delay usually difficult to define precisely. The moremay be better than pressing for a quick time that passes before discovery, the further the

other hand, the government will also be forced

B. An Example of Trial Strategy from theVictim Company’s Perspective

theft is buried.


b. Interviews The victim company’s lawyer Court. In such circumstances, however, yourshould interview target company employees as opponent will request all statements.quickly as possible. Usually, the honestemployees who have talked to you before the b. Confidentiality Orders The confidentialityseizure are concerned about anonymity. Their order which prevents you from discussingconcerns are real. They realize that sooner or matters with the prosecutor is dangerous andlater their names may be disclosed and they may should be resisted. One method of defeatinglose their jobs. It is of little consequence to a such orders is to draw a grand jury subpoenaman with a family and children that he is doing and thus frame the issue as the right of the grandthe right and honest thing if he can’t find a job. jury to hear the materials as part of its

c. Informant’s Apprehension In my experience, contains language allowing for divulgence of thethe employee will not talk to you in the information in the event of a court order. Thebeginning of the investigation. Therefore, you grand jury subpoena carries with it the force ofmust earn his respect by continuing to call and a court order. In the final analysis, the grandeven visit his home and family. Generally, it is a jury’s substantial interest to the informationgood rule of thumb that if enough employees are protected by the confidentiality order will prevailcontacted, you will eventually obtain evidence of over the confidentiality order. U.S. v. (underthe wrongful conduct. Almost without seal), 836 F.2d 1468 (4th Cir. 1988).exception, you should drop all other preparationto take the employee’s witness statement. I have c. Bond Hearing The over zealous lawyer fortaken statements in the middle of parking lots, in the target defendant may seek an increase in therestrooms, in the kitchens of fancy and, to be bond amount on the TRO. In such a hearing,charitable, somewhat plainer hotels, and on the target company carries the burden and mustairplanes. Once I flew all night with my court show how seizure of the documents requiresreporter and waited for the employee outside his such a high bond. It is a short step from valuinghouse so that we could interview him before he the information on the documents seized to thechanged his mind about value of the trade secret information. Hence,discussing the case with us. such hearings are almost always fruitful avenues

d. Preparation Accelerated discovery means of the elements of a trade secret.that you must prepare two sets of depositionquestions for all depositions. If the target 3. Trial Schedule -- A Suggestiondefendant does not “take the 5th,” then the As the victim company’s counsel, you mayinterrogation follows the customary deposition wish to consider the following schedule of trialoutline you use in such cases. If the witness events:decides to invoke the 5th Amendment, then youmust ask accusatory and leading questions. a. Try the Preliminary InjunctionFrom these questions you will hopefully obtain If the victim company wins, the case, for allan instruction from the Court regarding the practical purposes, is over. The wrongfulnegative inference which may be drawn from conduct is enjoined and the argument theninvoking the 5th Amendment. becomes whether the victim company has

2. The Pretrial Hearingsa. TRO If your opponent is aggressive, you b. Try the Criminal Casemay be able to commit the defendant to a story If the government is successful at thebefore he has seen exactly the evidence you have criminal trial, the case is over. The victimdeveloped. To accomplish this you may wish to company can use the criminal judgment in theconsider calling the defendants as adverse civil case as evidence of wrongdoing and, inwitnesses before placing your case before the

investigation. The confidentiality order normally

for developing statements to assist in the proof

suffered any damages.



certain cases, may collaterally estop the target for the company. The issues and competingcompany from denying the wrongdoing. demands on the lawyer in such cases are

c. Try the Civil Case decisions must be made and because of the nearUnder the theory that you rarely lose three permanent effect each decision may have.

cases in a row, you may wish to try the civil case Throughout such litigation, the lawyer willlast. This gives you the benefit of a dress be exposed to difficult questions calling forrehearsal of the civil case in the criminal intuitive response. There are no right answers.proceeding and an adverse criminal judgment But as one of my former senior partners used towill not collaterally estop you from trying the remind me, there are many wrong ones.civil case.

4. The 5th Amendmenta. Response to the Fifth Amendment

As soon as is reasonably practicable, afterthe defendant witnesses invoke the 5thAmendment, you should attempt to file a motionprecluding any testimony not given at thedeposition unless the victim company is providednotice within a reasonable period of time beforeany evidentiary hearing at which the defendant isscheduled to testify.

b. A Defendant Can Forego the Fifth If thedefendant chooses not to invoke the 5thAmendment, then he is fair game for anydeposition testimony which may assist theprosecutor in developing the case.

V. SUMMARY AND CONCLUSIONThis outline identifies some, but certainly

not all, the issues presented in a parallel civil andcriminal proceeding. The area is changing as thecourts weigh the competing considerations andattempt to reach a reasoned solution to thepuzzles posed by this variety of multi-forumlitigation.

In the trade secret and industrial espionagearea, the emotions of the moment often seizecontrol of the persons charged with makinglitigation decisions. The stakes in such cases arehigh. The lawyer presented with the privilege ofrepresenting a person caught in the grip of suchan investigation must move quickly to preventdamage to the client’s reputation and in somecases to prevent the client from losing his or herliberty.

The lawyer called to represent the victimcompany may also be dealing with what isperceived by management as a life or death issue

challenging because of the speed with which the