U.S. Supreme Court Court’s Decision In Criminal Case Has Implications For Directors And Officers

This post comes from Frances Goins of Ulmer & Berne in Cleveland.  Frances is the Chair of the ABA Business Law Section’s Subcommittee on Developments in D&O Liability.

On June 16, 2013, the U.S. Supreme Court handed down its decision in Salinas v. Texas HERE which resulted from a criminal prosecution in which the defendant, who had been voluntarily responding to a police officer’s questions about a murder, became suddenly silent when asked whether ballistics testing would match his shotgun to shell casings found at the scene of the crime.  The defendant was charged, and in closing statement at trial, the prosecutor commented on defendant’s sudden silence as an indication of guilt.  The defendant claimed that this use of his silence violated the Fifth Amendment, while the government relied on his failure to “invoke” his Fifth Amendment rights.  Justice Alito’s opinion stated that defendant’s challenge to his conviction on Fifth Amendment grounds failed because he did not expressly invoke the privilege.

While the context of Salinas may seem remote from garden-variety director and officer liability matters, the opinion’s arguable expansion of prosecutorial rights and its limitation of the Fifth Amendment privilege in situations where the subject of questioning is not in custody may have far-reaching implications for directors and officers responding to internal corporate investigations.

 In the words of one commentator, “Although no one wants to formally admit it, in the typical internal investigation the company lawyers are basically highly-paid deputy prosecutors with the badge hidden under their suits.”  See <http://www.corporatecomplianceinsights.com/how-to-handle-corporate-internal-investigations>.  The issue has arisen in recent years in cases where the Department of Justice has charged corporate executives with obstruction of justice based on lies told during corporate internal investigations being conducted by outside law firms.  The DOJ relies on the reasoning that the investigating lawyers frequently pass on the false information received from company employees in reports to federal agencies such as the U.S. Attorney’s Office.  See, e.g., U.S. v. Singleton, 2006 WL 1984467 (S.D. Tex. July 14, 2006).

The Salinas opinion notes that a witness’ failure to invoke the Fifth Amendment privilege is excused in certain circumstances including “where governmental coercion makes its forfeiture of the privilege involuntary,” and “where threats to withdraw a governmental benefit such as public employment sometimes make exercise of the privilege so costly that it need not be affirmatively asserted.”  These exceptions mirror the situation faced by a corporate executive or employee who refuses to be interviewed – such individual does so only at risk of losing his job since, as a practical matter, any individual who refuses to cooperate with a company’s internal investigation will likely be terminated.  Cf., Garrity v. New Jersey, 385 U.S. 493, 497 (1967) (no explicit assertion of the Fifth Amendment required during an investigation where such assertion would, by law, have cost police officers their jobs).

The implications for directors and officers are twofold.  First, officers and directors who are formally interviewed in an internal investigation should be cautious about participating in interviews, particularly after they receive an Upjohn Warning, without the advice of counsel.  Whether the corporation or an insurance company will pay such counsel may be problematic, particularly in jurisdictions where directors must waive their Fifth Amendment rights and assert innocence of breach of fiduciary duty as a condition to obtaining advancement.  Salinas moves the problem up earlier in time, before there is a formal investigation and before any Upjohn Warning, a circumstance made even more challenging because today virtually no advancement bylaw or insurance policy on the market covers the Salinas facts. At a minimum directors and their counsel should consider the implications of Salinas in determining whether to participate in internal investigations.  Second, from the perspective of an attorney conducting the investigation, Salinas may signal a need to consider more specific warnings to interviewees concerning their rights and risks.