White Collar Defense Update

Is a video ever worth a thousand words? More to the point for this post, can a court commit error by failing to view videos offered by the prosecution before allowing the jury to see them? In a decision issued on September 18, the Third Circuit says yes.

In United States v. Cunningham, a case that originated from the Western District of Pennsylvania, the Third Circuit vacated the defendant's conviction and granted him a new trial because the trial court had allowed the jury to see videos after accepting the prosecution's description of the videos rather than actually viewing them. This, the appeals court panel unanimously ruled, was an abuse of discretion.

What kind of videos are we talking about? Graphic depictions of adults molesting prepubescent children, including, in the court's words, "the kind of highly reprehensible and offensive content that might lead a jury to convict because it thinks that the defendant is a bad person and deserves punishment, regardless of whether the defendant committed the charged crime."

Continue reading after the jump.

Continue reading "Excluding Evidence Under Rule 403--Is a Video Worth a Thousand Words?" »

by Matthew M. Maher

Since the Small Business Jobs Act was passed in 2010, there has been a significant increase in both the number and the average size of Small Business Administration (SBA) loans. Yet while the SBA continues to encourage its national and regional lending partners to originate more SBA loans, two recent Advisory Memoranda issued by the SBA's Office of the Inspector General (OIG) make the invitation less palatable, as the SBA is about to apply much higher scrutiny to the underwriting practices of its lending partners. Indeed, the SBA loans is placing its lending partners on notice that, if these loans default, their underwriting decisions will be second-guessed and their ability to recover under the SBA's guarantee is not assured.

Historically, the SBA delegated underwriting decisions to its approved lenders and discouraged its loan specialists from second-guessing the lender's underwriters. In stark contrast, the proposed new policy will require the SBA to perform a "more extensive underwriting and eligibility review" that will factor heavily into whether the SBA will honor its guaranty on the defaulted loan.

The OIG's Advisory Memoranda, dated March 23, 2012 (Report No. 12-11R) and August 16, 2012 (Report No. 12-18), resulted from several audits of the SBA's National Guarantee Processing Center's (NGPC's) review of loan packages for early-defaulted loans of $500,000 or more. The first OIG memorandum concluded that the NGPC's limited, superficial review of lender underwriting was not consistent with statutory and regulatory authority, was contrary to SBA procedures, and had cost the SBA millions in guarantees that should not have been paid. The second OIG memorandum recommended, inter alia, that the NGPC strengthen its review process for high-dollar early-defaulted loans, in particular to verify compliance with SBA's repayment ability requirements.

The bottom line for banks that originate SBA loans is that from now on the SBA will look very closely at - and second guess - their underwriting decisions before honoring its guaranty.

by Robert Vaughan Cornish, Jr.

Entities and individuals subject to discipline or review by the SEC, CFTC or self-regulatory organizations such as FINRA or the NFA are sometimes faced with the classic Hobson's Choice of settling allegations of misconduct under what is called an "Acceptance Waiver & Consent" or AWC. Notwithstanding one's desire to settle such matters and the truth regarding such allegations, AWCs often recite the facts as they were originally pled or recited by the regulatory body in its original submission that commenced the proceedings. These AWCs tend to find their way into related civil litigation, whether in court, arbitration or before other administrative bodies, for a variety of purposes. AWCs have been submitted as evidence of prior conduct, knowledge of prior conduct or the proclivity to engage in similar conduct.

A recent decision by the United States Court of Appeals for the Ninth Circuit, United States v. Bailey, No. 11-50132 (9th Cir., August 27, 2012), addressed the admissibility of AWCs in criminal proceedings and determined that AWCs are not admissible to demonstrate intent and knowledge of wrongful conduct. In Bailey, the SEC sought to introduce an AWC concerning violations of federal securities laws as evidence of knowledge of the defendant's criminal conduct. The District Court below permitted the AWC to be admitted into evidence at the defendant's trial for criminal violations of federal securities laws. The defendant was convicted and subsequently appealed, arguing that the admission of the AWC was prejudicial. The Ninth Circuit agreed. Of particular importance was the Court's recitation as to why AWCs should generally not be admitted as evidence of knowledge of wrongful conduct:

A defendant may settle a case for a variety of reasons. He may have committed the conduct alleged in the complaint [upon which the AWC is based] or he may not have - but having settled the claim, there is no way to know. Admitting prior conduct charged but settled with no admission of liability is not probative of whether defendant committed the prior conduct, much less whether he committed the conduct in question. There is no logical relevancy to admitting this type of evidence.

This post continues after the jump.

Continue reading "Recent Ninth Circuit Decision Further Muddles Treatment of AWCs" »

The Pennsylvania Supreme Court will determine the scope of the work product protection afforded to communications between a party's attorney and trial expert witnesses. By order dated August 31, 2012, the Court granted the petition of Sodexho Management, Inc., Sodexho Operations, LLC and Linda J. Lawrence to review the Superior Court's en banc decision in Barrick v. Holy Spirit Hospital of the Sisters of Christian Charity to determine the following specific issue: "Whether the Superior Court's interpretation of Pa. R.C.P. No. 4003.3 improperly provides absolute work product protection to all communications between a party's counsel and their trial expert?"

The Supreme Court's decision to grant review in Barrick follows on the heels of the decision by a nine-judge en banc panel of the Superior Court to reverse both the trial court and a Superior Court three-judge panel finding that such communications were discoverable. The Superior Court's en banc held, in part, that any mental impressions or legal analyses contained within correspondence between a hospital patient's counsel and the patient's expert witness physician fell within the attorney work-product doctrine and, accordingly, were not discoverable.

Interestingly, although the Superior Court's en banc decision held that the correspondence at issue was not discoverable under the Pennsylvania Rules of Civil Procedure pursuant to both Pa. R.C.P. 4003.3 and Pa. R.C.P. 4003.5, the Supreme Court limited the issue to be decided to the scope of work product protection under Pa. R.C.P. 4003.3. Pa R.C.P. 4003.3 provides work product protections to "the mental impressions of a party's attorney or his or her conclusions, opinions, memoranda, notes or summaries, legal research or legal theories." The rule also addresses the work product protections afforded to a party's representative who is not the party's attorney providing that "discovery shall not include disclosure of his or her mental impressions, conclusions or opinions respecting the value or merit of a claim or defense or respecting strategy or tactics."

As Judge Bowes correctly pointed out in his concurring and dissenting opinion in the Superior Court's en banc decision, Pa. R.C.P. 4003.3 does not provide a blanket prohibition against the disclosure of an attorney's correspondence generally, or communication with an expert specifically. Consequently, it seems likely that the Pennsylvania Supreme Court will find that there is no absolute work product protection to all such communications. It remains to be seen, however, whether the Court will carve out specifically defined categories of communications, thereby providing concrete guidance for attorneys and their experts.

Until the Pennsylvania Supreme Court issues its decision in Barrick and provides further guidance on the scope of the attorney work product, parties, their attorneys, and retained experts are well served by operating under the assumption that the work product does not protect all of their communications.

By analyzing syntax and linguistic patterns an expert can, on occasion, reach reasonable conclusions as to whether a particular individual authored a document. This can be a crucial matter in an internal investigation or in the defense of a crime. A lengthy recent article in The New Yorker Magazine (July 23, 2012, J. Hitt), entitled "Words on Trial", discusses the subject in an entertaining and informative way and would be helpful for the reader seeking more detail. Even if such analysis can't conclusively prove a specific person wrote a document or uttered a phrase it can be helpful in cutting down the number of suspects to a more easily investigated group.

The field of forensic linguistics received considerable attention in 1996 when it was partially responsible for solving the Unabomber case. Within a few days of publishing the Unabomber's Manifesto the FBI received tips from over a dozen people, including the Unabomber's brother, that the mode of expression, vocabulary and syntax of that document was similar to Ted Kaczynski's utterances. The Manifesto made repeated use of the terms "chimerical" "anomic" and "cool headed logicians" as well as the phrase "you can't eat your cake and have it too." People personally familiar with Ted Kaczynski immediately recognized these phrases as catchwords of his and the focus of the far ranging investigation was immediately and very effectively tightened to just him.

Historically, forensic linguistics has been used in a common sense way. In the Old Testament, at Judges12:6 an early use is made of forensic linguistics. In that passage it is recounted that after a melee between a tribe of Israel (the Gileadites) and their enemies (the Ephramites) a number of Ephramites attempted to pass as victorious Gileadites and make their escape from the battlefield. The Gileadites were able to unmask the posing Ephramites by forcing them to pronounce the Hebrew word "shibboleth". Ephramites apparently pronounced the first syllable "sib" unlike the proper Hebrew pronunciation of "shib". To quote the text, "If he say 'shibboleth' then they seized him and slaughtered him at the fords of the Jordan". Also historically in the Lindbergh Kidnapping case the prosecution made much of misspellings in the ransom note which matched errors made by the defendant Bruno Hauptmann in other contexts. The text of the kidnapping note to Colonel Lindbergh included, "We warn you for making anything public or for notify the Polise the child is in gut care." Hauptmann had misspelled "police" and used the German "gut" for good in other contexts.

This post continues after the jump.

Continue reading "Forensic Linguistics: An Area to Keep In Mind In Investigations and Litigation" »

The Department of Justice has decided not to appeal the Ninth Circuit's decision in U.S. v. Nosal, where the Court held that the CFAA only applies to hackers, as opposed to employees who misuse their corporate computer access. Thus, in the Ninth Circuit, the CFAA would not apply to an employee who steals corporate information and provides it to a competitor or an employee who intentionally deletes information from his or her employer's computer systems. Our prior summary of the Ninth's Circuit's opinion in U.S. v. Nosal can be found here.

The refusal of the DOJ to appeal to the Supreme Court results in a circuit split where the Fourth and Ninth Circuit explicitly forbid CFAA claims against employees, whereas the Fifth, Seventh, and Eleventh Circuits explicitly permit such claims against employees. Although there are other state claims an employer could pursue against employees who misuse their computer access, these state claims deal more with employee disloyalty, breach of contract, or trade secret theft as opposed to the misuse of the computer. For this reason, CFAA claims are preferred as computer access can be easily traced and the information an employee is authorized to access should be known. A further benefit of suing under the CFAA is that employers have the option to bring actions in federal, as opposed to state, court.

When faced with a situation where a company wishes to pursue an action against an employee for stealing, altering or destroying company data, it is important to check not only if your circuit allows for a CFAA claim against employees, but also the requirements for a CFAA claim in your circuit. For instance, even within the Third Circuit, there is a no definitive answer as to whether the employee must actually damage the computer systems or if the costs associated with the responding to the misuse of a company's computer systems is enough to meet the damage or loss element to the CFAA. For those employers who live in a jurisdiction where the CFAA can be brought against employees, it is a valuable tool that should be used against former employees who misuse corporate computer data.

The Dodd-Frank Act authorized the SEC to make awards to whistleblowers who provide information that leads to an enforcement action resulting in $1 million or more in sanctions. The SEC whistleblower program began operating in August 2011. The SEC, through its Chairwoman Mary L. Schapiro, was a staunch advocate for the creation of the program.

The SEC has recently announced its first whistleblower award. And by awarding a maximum 30% share of its recovery, the SEC has certainly "put its money where its mouth is." According to the SEC's press release, the whistleblower (whose identity is protected by law) "provided documents and other significant information that allowed the SEC's investigation to move at an accelerated pace and prevented the fraud from ensnaring additional victims." In the enforcement action resulting form the whistleblower's information (which is not identified) a court has ordered more than $1 million in sanctions and may enter future awards against additional parties. The whistleblower will receive 30% of the sanctions paid to the SEC. To date, the SEC has been paid $150,000 and the whistleblower will therefore initially receive $50,000. The SEC denied recovery to a second whistleblower in the enforcement action because the information that person provided "did not lead to or significantly contribute to the SEC's enforcement action."

The relatively small $50,000 award to this first whistleblower should not obscure the fact that the whistleblower program will lead to many future enforcement actions. The SEC is currently receiving eight whistleblower tips a day. That the first whistleblower award was made within a year of the program's start suggests that the SEC is aggressively following up on these whistleblower tips. We should expect to see many more whistleblower awards in the near future.

The Penn State scandal was, in many ways, the perfect storm that any organization dreads. What could organization counsel have done differently as the scandal unfolded? In this installment we focus on avoiding conflicts early, knowing who your client is, and making sure others in the organization know too.

The Freeh report alleged that the University's general counsel, Cynthia Baldwin, advised the Board of Trustees against conducting an internal investigation and accompanied the two University administrators who were indicted for failing to report what they knew about Jerry Sandusky's conduct, Vice President Gary Schultz and Athletic Director Tim Curley, to the grand jury. The report also alleges that both Schultz and Curley believed that Baldwin represented them personally during their grand jury testimony, and that Baldwin failed to clarify that she represented only the University.

Counsel for any organization has a legal and ethical duty to make clear to "constituents" of the organization--directors, officers, employees, members, shareholders--that he or she represents only the organization, and not the constituent, when the lawyer knows or reasonably should know that the organization's interests are adverse to those of the constituent. In Pennsylvania, this duty is set forth at Rule 1.13 of the Rules of Professional Conduct. Organization counsel needs to make this distinction clear to all constituents early in the investigation.

If you think about it, most people in the situation that Schultz and Curley found themselves in would assume that the organization's counsel represented both the organization and them--unlike lawyers, most are not familiar with how conflicts of interest in such situations may arise, and don't think these things through. It is incumbent upon organization counsel to explain this distinction.

This post continues after the jump.

Continue reading "Lessons Learned from Penn State--Part II: Avoid Potential Conflicts Early, Know Who Your Client Is, and Make Sure Others Know It Too" »

The former General Counsel of Penn State University, Cynthia Baldwin, has recently become the subject of intense criticism based upon the now public findings of the 267-page report prepared by former FBI Director Louis Freeh. In his report, Mr. Freeh described Ms. Baldwin's representation of the University as "seriously deficient." Mr. Freeh and other critics have cited the following examples of Ms. Baldwin's allegedly deficient performance:

(1) Two members of Penn State's Board of Trustees believed that Ms. Baldwin personally represented each of them when she accompanied them to testify before the criminal grand jury and failed to clarify that she only represented the University. (The grand jury ultimately returned an indictment of both of those Board members.)

(2) Ms. Baldwin failed to retain experienced criminal counsel to represent the University in the criminal investigation and advised the Board of Trustees against conducting an internal investigation.

(3) Ms. Baldwin failed to adequately communicate to the Board the nature and extent of the Attorney General's criminal investigation and the potential civil liability that could result from the criminal allegations.

The headline grabbing Penn State scandal provides an excellent opportunity to remind organizations and their in-house counsel of the importance of recognizing the tremendous risks associated with criminal investigations and how to best mitigate those risks. In-house counsel can avoid catastrophic damage to their organizations by remaining cognizant of a few basic principles when handling such criminal investigations.

This post is the first installment of a three-part series that will outline best practices for in-house counsel faced with criminal investigations that relate in any way to the organization's officers, directors or the organization as a whole. Check the blog next week for the second installment in the series, which will address the potential conflicts of interest that can arise between organizations and board members in criminal investigations and how in-house counsel can avoid such conflicts.

A New York court recently held that insurance companies cannot claim that an insured violated a D&O insurance policy and unilaterally disclaim coverage without a final adjudication that the insured actually violated the D&O policy. Absent that final adjudication, the policy remains in effect and the insurance company must advance the attorneys' fees and defense costs, subject to recoupment in the event that it is ultimately determined that the exclusions apply. In an interesting twist, the New York court made this determination after the insured had already been convicted by a jury and ordered to pay $18 million in forfeiture, thus ensuring that the insurance company would never again see the money it would advance (estimated at $5 million).

On August 24, 2010, the insured company provided notice to its insurance company that its officers were being charged with bank, wire and mail fraud. On October 4, 2010, the insurance company refused to advance legal fees under the D&O policy because it claimed that: 1) the false financial statements that the officers were being charged with filing had also been submitted to the insurance company; 2) the insured failed to disclose that the insured company had acquired another company; and 3) the insured knowingly made misrepresentations and omissions on its insurance application. The insurance policy specifically excluded coverage when: 1) misrepresentations on the insurance application were made with the intent to deceive or materially affecting the risk assumed by the insurer and the claim relates to the misrepresentations; and 2) failure to disclose any wrongful acts the insured had prior knowledge prior to a specific date.

Fourteen months later, on December 9, 2011, the president of the insured company filed the lawsuit of Dupree v. Scottsdale Insurance Co., Index No. 653412-2011, seeking a preliminary and permanent injunction requiring the insurance company to pay for his legal fees, challenging the insurance company's unilateral disclaimer of his coverage. The insurance company unsuccessfully attempted to have the matter removed to federal court and thus delayed the preliminary injunction hearing.

In the meantime, on December 30, 2011, a jury found that the president of the insured company was guilty, and a forfeiture order was entered against him was in the amount of $18 million. Five days later, the application for a preliminary injunction for his legal fees was heard. Normally, legal fees are paid by the insurance company as they come due. However, here, the insurance company had not yet paid any of the legal fees. The court granted the preliminary injunction and the insurance company appealed. On appeal, the insurance company argued that: 1) because of the strong evidence pointing to the policy exclusion's being in effect, the insured officer could not show a likelihood of success on the merits; 2) there is no irreparable harm as the trial had already finished and the only issue concerned monetary damages - who would pay for the defense costs; and 3) given the $18 million forfeiture order, the insurance company would not be able to recoup any of the defense costs it would have to advance.

On July 11, 2012, the court upheld the preliminary injunction. The court determined that without a final adjudication as to whether the insured's actions actually violated the exclusions in the insurance policy, the insurance company would be required to advance legal fees. Although there was no irreparable harm to the insured as he had already been convicted, the "direct, immediate and irreparable injury" justifying the injunction was the deprivation of the benefit bargained by the insured through payments of the insurance premium.

Although the circumstances of this case are rather unique, in that an insurance company knew of the insured's conviction before having to advance legal costs, the sanctity of the insurance contract ultimately prevailed. From an insurance company's perspective, the lesson learned is that unilaterally disclaiming D&O insurance coverage will not avoid advancing defense costs, no matter how strong the evidence that the insured's conduct falls under the contract's exclusion (or how strong the evidence is of the insured's guilt). Insurance companies must be proactive in seeking declaratory judgments as to whether the conduct of the insured falls within the insurance policy's exclusions. Only after a final adjudication can the insurance company truly know whether it is on the hook for advancing the legal fees.

The headlines regarding the recent settlement between GlaxoSmithKline and the U.S. government focused on the record-breaking dollar amount of the deal, namely, $3 billion. That dollar amount bought Glaxo temporary peace in the form of resolving its criminal and civil liability arising from the company's allegedly unlawful promotion of certain prescription drugs, its failure to report certain safety data, and its civil liability for alleged false price reporting practices. As is often the case in any high-dollar settlement with the federal government involving a pharmaceutical company, Glaxo entered into a 5-year corporate integrity agreement with the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS).

This corporate integrity agreement, however, breaks new ground because it includes restrictions on how Glaxo compensates its sales force and provides for the company to recoup annual bonuses and long-term incentives from covered executives if they, or their subordinates, engage in "significant misconduct," a term that the agreement attempts to define but fails to do so clearly.

In a July 2 DOJ press release hailing the settlement, the government stated that the corporate integrity agreement "is designed to increase accountability and transparency and prevent future fraud and abuse." After reading the relevant new provisions in the agreement, it is hard to see how the agreement accomplishes those ends?

With respect to the restrictions on compensation for sales representatives, the agreement provides that Glaxo will not reward (through compensation) or punish ("through tangible employment action") sales representatives or their managers based upon their volume of sales of Glaxo products. Instead, sales representatives will be evaluated on "business acumen, customer engagement, and scientific knowledge about [Glaxo's] products." But isn't at least one component of an employee's "business acumen" an evaluation of how well the employee is performing based on his or her sales volume? Is Glaxo now restricted in firing or demoting employees who consistently fail to meet sales goals?

With respect to the "Executive Financial Recoupment Program," Glaxo agreed to establish a program under which any executive who is discovered to have been involved in any significant misconduct agrees to forfeit up to 3 years of annual bonuses plus long terms incentives, such as stock options. Ironically, although an entire appendix to the corporate integrity agreement is dedicated to explaining Glaxo's Executive Financial Recoupment Program, two words are used to define the triggering event for the claw back provision, namely, "significant misconduct." The agreement provide just one example of what is meant by the term "significant misconduct" by way of the following example: "violation of a significant [Glaxo] policy, or regulation, or law." This is hardly the model of clarity.

Only time will tell whether these groundbreaking provisions are truly effective as a means to increase accountability and transparency and prevent future fraud and abuse. One thing is certain. They will keep a lot of lawyers busy for the next five years.

Lawyers are taught that tightly controlled cross examination is best. "Never ask a question you don't know the answer to" is the only lesson many law students recall from their advocacy class. Irving Younger, the patron saint of litigators, made "Use only leading questions" the third of his ten commandments of cross examination. Recently however there have been several instances in high visibility trials where excellent counsel have violated these old maxims to great success.

Abby Lowell, the defense lawyer for former presidential contender John Edwards in his illegal campaign contribution trial, deliberately led with his chin in asking the main prosecution witness the question "You really hate him don't you?" about the witness's feelings for Edwards. In doing so Lowell was potentially opening the door to a recitation of otherwise irrelevant hate worthy conduct committed by Edwards. Lowell wouldn't even have been able to interrupt the witness as he spewed forth dozens of potentially compelling reasons for his hatred of Edwards. Lowell had gauged the situation correctly however. His question elicited a lengthy pause from the witness followed by an almost whispered response of "I have mixed feelings." Courtroom observers said you could feel the spirit go out of the prosecution case with such a wishy washy response. Lowell deliberately took a risk which worked. Lowell sized the witness and the situation up and instinctively knew the witness would collapse at that point. As is true in so many fields of endeavor sometimes the mark of an expert is that he ignores the established rules and goes with what the economist John Maynard Keynes called "the animal spirits."

Similarly Rusty Hardin, the Houston attorney who recently obtained an acquittal for Roger Clemens in the baseball/steroid criminal case, asked a broad question on cross examination which violated the traditional precepts about tight control of the witness through the use of leading questions. Hardin repeatedly asked open ended questions of the trainer who claimed to have injected steroids into Clemens. As one courtroom observer stated, Hardin sensed that, given enough latitude, the witness either change his story or make up an entirely new story. He was right.

For example, while being questioned by the prosecution, the trainer stated that Clemens had told him that once he retired from baseball he intended to "get big, really big" by ingesting lots of steroids and lifting weights religiously. This anecdote had not been included in any of the pre-trial discovery. Textbook cross examination technique would have been for Hardin to box the witness in by laboriously presenting each prior statement to the witness and leading him to acknowledge that the statement was not included therein. Instead Hardin asked the broad question " Can you explain why you never told anyone about this conversation before?" In posing such a broad question Hardin took the risk that the witness might have some plausible reason for his new story. The witness might also give a lengthy speech prejudicial to Clemens which would be tough for Hardin to limit.

The witness paused, lowered his gaze and sheepishly replied " No, I can't explain it." His credibility was harmed much more than it would have been if Hardin had bickered with him over what was or was not included in assorted statements.

In conclusion, lawyers should follow the "rules" of advocacy. The judgment, knowledge and experience to know when to ignore the rules however, can make all the difference at trial.

Most of us in the criminal defense bar have been pleased that recent federal decisions have expanded the role of a judge's discretion in federal sentencing. After all, the thinking went, most judges think the Sentencing Guidelines are too harsh, and, once freed from those constraints, will lower sentences in most cases. But more discretion is a two-edged sword, as was demonstrated in a recent decision from the Eighth Circuit in a case from South Dakota.

Boyd William White Twin, a Native American, was admittedly not the most sympathetic defendant. He pled guilty in federal court to assault with a dangerous weapon. The assault was on his companion at home in front of their children, all of whom were under the age of nine. When the children intervened to help their mother, he assaulted them.

The district court granted four upward departures--for inadequacy of criminal history, extreme psychological injury, extreme conduct (the defendant had asked the victim, in front of their children, to choose which child he should kill first), and the use at sentencing of dismissed and uncharged conduct. The court pronounced a sentence of 78 months imprisonment. But then things got worse for the defendant.

After pronouncing the sentence, the district court noticed a smile on the defendant's face. The court stated "You think that's humorous, sir? Let the record show that the Defendant is smiling." To which the defendant immediately responded "I am not smiling." Unconvinced, the court added another six months to the sentence, stating that the 84-month sentence was based upon the upward departures and the "[p]sychological injury, unusual cruelty, torture, and other reasons listed by the probation officer in the presentence report."

On appeal the defendant argued that the district court had abused its discretion by considering an improper factor--his smile. But the Eighth Circuit found no abuse of discretion, stating "[a] district court may consider a defendant's attitude and demeanor when exercising its sentencing discretion. ...The district court did not abuse its discretion in considering White Twin's smile."

Is it possible the defendant was not in fact smiling and the judge misread his demeanor? Was the defendant indeed making light of a very serious crime, or was he so outraged by the case he was looking for another opportunity to increase the sentence? The decision provides no clue, since the defendant did not challenge the judge's impression on appeal. If it was a smile, it probably did not last long. In any event, the next time a client asks you why you are telling him that he must be contrite and respectful at sentencing, tell him this story.

Remember how new telecommunication technologies were supposed to make life better? A recent Florida federal court decision reminds us that these new technologies can also come back to haunt you if you're not careful. In United States v. Stirling, the United States District Court for the Southern District of Florida granted John Philip Stirling - charged with two counts of drug smuggling - a new trial because the government failed to disclose to the defense that incriminating Skype chats could be extracted from a disk provided to the defense before trial. (Skype is a voice-over-Internet Protocol that allows users to communicate with others by voice, video, and instant messaging over the Internet.) Significantly, the court found that the prosecution technically complied with the Federal Rules of Criminal Procedure by turning over to the defense a disk containing an exact replica of the defendant's laptop computer.

Notwithstanding the prosecution's technical compliance with criminal discovery rules, the court ruled that the "interest of justice" required that Mr. Stirling be granted a new trial because the prosecution never disclosed to the defense that incriminating Skype chats could be extracted from the disk produced. Mr. Stirling took the stand in his defense and the prosecution was able to significantly discredit his testimony with the use of the Skype chats. Unaware of the Skype chats, defense counsel was unable to properly prepare Mr. Stirling and competently advise him regarding testifying in his defense. Mr. Stirling was convicted on both counts.

The disk contained visible folders and a non-visible "file" consisting of the Skpe chats. In fact, the prosecution was only able to retrieve the Skype chats by hiring a computer forensics expert who had to download a program to recover the chats. Mr. Stirling argued in his motion for a new trial that "[p]roduction of something in a manner which is unintelligible is really not production." The court agreed. The court reasoned that the governing standard found in the Federal Rules of Civil Procedure should apply in the case, which required the prosecution to produce electronically stored information or ESI in a reasonably usable form. The court's reasoning appeared to be based, in part, upon the defendant's financial situation as indigent and unable to hire a computer forensics expert. In other words, the prosecution's failure to disclose the Skype chats was unfair.

This case is another reminder that careful consideration needs to be paid to ESI turned over by the government following a seizure of computer files. Ideally, a defendant will be able to hire a computer forensics expert who can decipher files such as Skype that contain communications in a format that is sometimes not easily retrieved or even identifiable. In any event, in this brave new world dominated by new technologies, defense counsel would be wise to discuss with any client all potential communications that could be recorded and included in ESI seized by the government.

The Ninth Circuit recently joined every circuit - save the Eighth - in finding that the attorney-client privilege is waived by voluntarily disclosing privileged documents to the federal government. In In re: Pacific Pictures Corp., 2012 U.S. App. Lexis 9691 (9th Cir. May 10, 2012), the heirs of Superman's creator's estate and D.C. comics were in a dispute concerning Superman's royalties. An attorney from the law firm representing the heirs copied several documents from his employer's files and unsuccessfully attempted to solicit business from the heirs. He then proceeded to send the documents to D.C. Comics. Rather than exploit the stolen documents, D.C. Comics sent the documents to an outside attorney and sought to obtain the documents through discovery.

The heir's law firm notified the U.S. Attorney's Office of the theft. After being notified of the theft, the U.S. Attorney's Office subpoenaed the law firm for a copy of the documents stolen from the law firm. In order to assuage any concerns from disclosing the documents, the U.S. Attorney's Office sent a letter to the law firm promising that it would not provide the documents to non-governmental third parties unless required by law or ordered by a court. After receiving this letter, the law firm disclosed all the requested documents, making no attempt to redact anything from the documents. D.C. Comics then requested all the documents disclosed to the U.S. Attorney, claiming that by sending the documents to a third-party, in this case, the federal government, the law firm waived all privilege as to these documents. The Ninth Circuit agreed.

Only the Eighth Circuit allows a party to disclose documents to the government and still maintain privilege to the world at large (also known as "selective waiver"). The Ninth Circuit found that because the purpose of the attorney-client privilege is to encourage full disclosure of documents between the attorney and client, as opposed to the client and the government, allowing the privilege to apply to documents disclosed to the government would impermissibly extend the attorney-client privilege. Instead the Ninth Circuit recommended redacting any privileged information when responding to a government subpoena.

This case is a good reminder to be careful when disclosing documents in response to a government subpoena. Unless you are in the Eighth Circuit, disclosing documents to the government waives any privilege you may otherwise be able to assert with respect to those documents. Therefore, it is important to make sure that any privileged documents in your production to the government are properly redacted.