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CEO can’t muzzle in-house lawyer

An in-house lawyer’s warning that he represented the company, not its employees or CEO, meant the CEO could not use the attorney-client privilege to keep the lawyer from testifying before a federal grand jury.

In an unpublished decision June 11 in U.S. v. Investment Properties of America LLC, the 4th U.S. Circuit Court of Appeals upheld denial of a motion to quash by Richmond U.S. District Judge Robert Payne.

A federal grand jury issued the subpoena in August 2007 to Eric Perkins, the former chief legal officer for commercial real estate company Investment Properties of America LLC, as part of an investigation of the misuse of funds by the LLC and its CEO, Edward H. Okun. With support from outside counsel, IPA’s legal staff had begun its own investigation of alleged improper loans in October 2006, and Perkins prepared a series of memoranda for the corporation in which he repeatedly referred to himself as “in-house counsel” and recommended actions IPA should take going forward.

In a Nov. 21, 2006, memo, Perkins stated he was “obligated to advise the company that continuing this course of conduct will likely result in both civil and criminal liability,” and that, as in-house counsel, he “represent[ed] the company as opposed to its sole owner, officers, managers, or individual employees.”

Okun nevertheless asserted that Perkins represented him personally and could not talk to the grand jury. The district court didn’t buy Okun’s claim that he believed Perkins was his personal lawyer. Even if Okun had that subjective belief, Payne said, it was not reasonable.

Nor could Okun muzzle Perkins with assertion of a “common interest” privilege, the 4th Circuit panel said. The record showed that Okun likely refused to cooperate with Perkins’ internal investigation, and Okun could not show any ongoing legal enterprise or strategy.

By Deborah Elkins

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