Using a Lawyer's Words Against a Client

Peter J. Henning follows issues related to white-collar crime for DealBook’s White Collar Watch, he writes about an incredibly important development in what lawyers should and should not say to the press.

Lawyers are used to serving as a mouthpiece for their clients, especially those involved in criminal prosecutions. A statement by a party to a case may be introduced against that person at trial, so it is better to have the lawyer make any public statements to shield the client from the risk of a misstatement that could come back to haunt the person later.

But in the retrial of the former chief executive of Brocade Communications, Gregory L. Reyes, federal prosecutors have proposed introducing press releases that quote his lawyer as evidence of Mr. Reyes’s knowledge of his own wrongdoing.
Peter J. Henning, writing for DealBook’s White Collar Watch, is a commentator on white-collar crime and litigation. A former lawyer at the Securities and Exchange Commission’s enforcement division and then a prosecutor at the Justice Department, he is a professor at the Wayne State University Law School. He is currently working on a book, “The Prosecution and Defense of Public Corruption: The Law & Legal Strategies,” to be published by Oxford University Press.

Mr. Reyes was convicted in 2007 on charges relating to options backdating at Brocade. The key issue at trial was proving his intent, which required the government to show he acted “willfully” — i.e., he knew his conduct was wrongful. At trial, Mr. Reyes’s lawyer, Richard Marmaro from Skadden Arps Slate Meagher & Flom, put on a defense that while his client did in fact backdate options, he relied on the company’s accountants to properly report them, so he was not aware of any wrongdoing at the time.

The United States Court of Appeals for the Ninth Circuit overturned the conviction in 2009 on the ground that the prosecutor misstated the evidence about whether members of Brocade’s finance department were unaware of the options backdating, which led the government to argue that Mr. Reyes could not have relied on them to properly account for the options grants. In fact, evidence gathered in the criminal investigation and by the Securities and Exchange Commission in its parallel civil case indicated that employees in the finance department were fully aware of the backdating, including one employee who resigned because of it.

The retrial is set to begin Monday and the government is now trying to introduce new evidence to show that Mr. Reyes was aware that his role in the backdating was wrongful. Like most white-collar crime prosecutions, the underlying facts are not in dispute, and the primary issue is whether there is proof of the defendant’s intent. The government needs to pull together different strands of evidence to give the jury a basis to infer that Mr. Reyes knew his role in the backdating was wrongful because there is no “smoking gun” memo or recording to show what was in his mind.

In addition to evidence it used in the first trial, the government wants to use two press releases issued in August 2006, shortly after the indictment, that quote Mr. Marmaro as denying that Mr. Reyes engaged in options backdating. The key quotes prosecutors want to use include one made on Aug. 2, 2006, that: “Mr. Reyes did not backdate options. He granted options appropriately, and had the authority to do so.” The second was on Aug. 31, 2006, in which Mr. Marmaro is quoted as stating: “After our appearance in court yesterday, to plead not guilty to all charges, some media outlets reported that Mr. Reyes and I in the past acknowledged that he participated in backdating. That is incorrect. We never said or implied that, because it did not happen.”

The government argued in a brief filed with Federal District Court that these statement are not hearsay because they were made by a representative of the defendant and one of his agents, so that they can be admitted as if Mr. Reyes spoke them himself. Federal Rule of Evidence 801(d)(2)(C) and (D) may well authorize admission of the statements against Mr. Reyes, although courts are hesitant about allowing a lawyer’s statement to be used against a client in a criminal case.

But that alone is not enough to get the statements admitted into evidence because they also have to be relevant to the case. To show relevance, prosecutors contend that the statements, made years after the options were issued, show Mr. Reyes’s consciousness of his guilt: “Where, as here, Reyes denied doing something that he did (and that his defense is expected to concede he did), his earlier denials demonstrate that he knew what he was doing was wrong.”

In effect, the government wants to use Mr. Marmaro’s statements — included in the press releases, so it is unlikely they were ever actually spoken out loud — to show that Mr. Reyes is a liar. Of course, liars know they are acting wrongfully — otherwise, why would they lie in the first place — so the statements could be used by the government to support an argument that Mr. Reyes was simply continuing to cover up his wrongdoing when his lawyer made assertions to the news media in the press releases.

Rather than call Mr. Marmaro to testify, the government has subpoenaed Michael Sitrick, whose firm, Sitrick & Company, served as the communications adviser to Mr. Reyes and his defense team in 2006. Prosecutors have even subpoenaed documents from the firm, to which the defense has raised claims of attorney-client privilege and work-product protection.

The lawyer’s statements are not the only items the government seeks to introduce in the retrial that were not submitted in the first proceeding. Prosecutors also want to offer evidence that Mr. Reyes received backdated options as proof that he had a personal interest in the transactions to show his knowledge of wrongfulness. This issue was not pursued in the first trial, but the government wants to use it now to counter what it calls the “selfless-C.E.O.” defense offered before.

Judge Charles R. Breyer has not yet ruled in Federal District Court in San Francisco on the admissibility of Mr. Marmaro’s statements, although at a hearing on Wednesday he indicated that he was leaning toward allowing them.

The government’s effort to use statements made by defense counsel raises interesting issues for lawyers representing high-profile defendants. Mr. Reyes was one of the first charged criminally for options backdating, and as a former chief executive of a publicly traded company, his case drew significant media attention.

Defense lawyers know how important it is to try to counter the initial wave of negative publicity about their clients, especially corporate chieftains who are often perceived by the public as guilty until proven innocent. Responding to a criminal indictment with a bland assertion that the defendant is not guilty does little in the public relations battle.

Mr. Marmaro’s strategy of asserting that options were not backdated turned out to be incorrect, and so the defense switched its theory at trial to the position that Mr. Reyes did not know they were not accounted for properly. In effect, the defense went from “it didn’t happen” to “the defendant didn’t intend for it to happen.”

Usually, that kind of change would not be important because the jury would only hear the theory introduced at trial, not what was spun to the press. But if the government can use the lawyer’s pretrial statements as evidence that the client misstated the truth through counsel, then defense lawyers may have to be more circumspect about what they say in the news media before trial begins, at least until they settle on a legal strategy. At a minimum, lawyers will have to weigh whether to respond immediately to the charges or wait until they have a better sense of what direction they want to go with the defense.

What is most interesting about the government’s argument for using Mr. Marmaro’s statements is that the lawyer is viewed not merely a spokesman for the client, but rather as the embodiment of the client. It is certainly a creative analysis of the evidence rules and could portend interesting uses of statements by a lawyer in other contexts. If the statements are admissible as those of Mr. Reyes, then defense lawyers have to be especially careful about what they say to the press because it may be viewed as the client speaking and not just the lawyer.