America is the land of the free, the brave, and the busybody; at least that is the way Europeans see us. Indeed, much of the world is surprised by the lack of privacy in the U.S., especially in the workplace where few corporations grant any privacy rights to their employees. At least one U.S. billionaire, Henry Nicholas, the co-founder and ex-CEO of Broadcom, now agrees with the Europeans. His defense of a criminal case recently suffered a major setback as a result of IT workers reading a personal email to his wife and then blabbing to the world about it. U.S. v. Nicholas, __F.Supp.2d__, 2008 WL 5546721 (C.D.Cal., Dec. 29, 2008).
Aside from new converts like Henry T. Nicholas, Ph.D., many in America today do not seem to care much about privacy. They tend to look upon privacy advocates suspiciously, wondering what they have to hide. As another icon of corporate America once famously said, “You have zero privacy anyway. Get over it.” Scott McNealy, CEO of Sun Microsystems. Until now, corporate America has embraced this notion. Indeed, according to the NY Times:
More than a third of American companies with 1,000 or more workers say they employ people to read through other employees’ outbound e-mail… Nearly 45 percent of the companies said they used software to search through their employees’ messages for offensive words.
International Law Conflict
In Europe all of that would be against the law; in fact, it would be unconstitutional. Europeans cannot understand why America puts so little value on the freedom to be left alone. Since Europe and most of the free-world consider privacy to be a fundamental right, a basic human freedom that extends from the home to the cubicle, they see us as only part-free. For much the same reason, they view our litigious system as crude and harsh, and our disclose-all, privacy-be-damned discovery procedures as barbaric.
American courts see things much differently, as Adam Losey noted in Clicking Away Confidentiality: Workplace Waiver of Attorney-Client Privilege, 20 Fla. L. Rev. 5 (Dec. 2008):
Generally, American courts have held that employers are free to monitor employee computer use, and even government employers and supervisors can monitor employee computer usage without probable cause. Accordingly, employees who e-mail an attorney from the workplace, or from a workplace e-mail account, often lose the evidentiary protections of attorney-client privilege. This loss of privilege subsequently allows an employer to forensically recover a current or former employee’s otherwise privileged e-mails to use against the employee in litigation. This disclosure is particularly devastating to the employee, as these types of e-mails are often damning. (citations omitted)
But see: Quon v. Arch Wireless, 529 F.3d 892, 2008 WL 2440559 (9th Cir., June 18, 2008), which I wrote about in More “Must Read” 2008 Cases. In this unusual case the employee’s supervisor had implemented a different informal policy that trumped the “formal written policies” of no-privacy, thus rendering the employer’s review of the employee’s personal text messages a violation of the employee’s privacy rights, and that of his wife.
This generally huge gap in our privacy laws and culture is one of the main causes of friction in international dispute resolution. It also explains why electronic discovery from European countries and other nations can be extremely difficult. I have written about privacy as a core issue in international law before in Are We the Barbarians at the Gate? I am not going to rehash the international e-discovery issues here. Instead, I will explore the new decision against Dr. Nicholas and explain what it tells us about the future of corporate privacy law in America and thus, indirectly at least, the future of international e-discovery.
U.S. v. Nichols is a Portent of Things to Come
U.S. v. Nicholas is a highly sensationalized case where an obviously troubled Henry Nicholas was indicted for criminal stock option fraud and, believe it or not, for sex and drug crimes. Henry Nicholas, who spent most of last year in drug rehab centers, is having all of his dirty laundry aired and guilt predetermined by an international sensationalist press, which, among many other things, runs stories from disgruntled building contractors accusing him of building a secret sex-cave underneath his mansion in Laguna Hills. Even the Wall Street Journal, who frankly has been far more balanced than most on this story, has joined in the feeding frenzy. Its editorial, One Last Backdating Whipping Boy?, noted:
Mr. Nicholas in several ways has made himself a figure to excite a jury and the media. With his NBA-sized physique, he’s one of techdom’s most conspicuous billionaires, an eccentric genius and widely known (thanks to this newspaper) for having been accused in a disgruntled employee’s lawsuit of patronizing prostitutes and drug dealers.
The Nicholas drug, sex, and fraud case reminds me of the trial-by-publicity murder case now going on in Orlando against Casey Anthony. Here picketers carry signs in front of the house of the haggard parents of the accused, signs which, among other things, call their daughter a baby-killer. The protesters even have their own children carrying these signs. It reached a point earlier this year where the accused’ father, George Anthony, an ex-deputy sheriff, had a mental breakdown and had to be hospitalized. Again, no privacy was provided, even to the family members. You can, for instance, listen in to the 911 call for the father’s hospitalization and many other very personal records. Since we lack so little privacy in and around our own home, it is not surprising that we are also undisturbed by a total lack of privacy at work.
The lack of workplace privacy is likely to get a lot worse over the next few years before it gets better. That is because, in my opinion, and that of many others I know, a tidal wave of civil and criminal blame-game type law suits will be filed in the next twelve months. They will be like the Nicholas case and the Bernie Madoff case. But unlike Madoff, where guilt is clear and admitted, most of the thousands of lesser blame-game cases that will be filed will be borderline. Some will be falsely accused. In any event, they will take years to resolve. During these cases, the emails of all top executives will be fair game and likely will bring many of them down, regardless of the merits of the case. As John Grisham’s new book The Associate points out, everyone has a secret of some sort in their past that they would rather not see made public.
The upcoming “responsibility-imposing” litigation will, I predict, result in a gluttony of voyeurism into the personal emails of many guilty Madoff types, but also of many innocent bystanders and their families, their wives and children. In time, this will produce a backlash. Many will begin to realize the dangers and abuses inherent in a Big Brother society of Gladys Kravitz
busybodies and an unrestrained press. These dangers will be especially apparent to the top brass of corporate America because they will be the main targets of this voyeurism. This will be a hard lesson for many of them. They will bear the brunt of privacy abuses in U.S. litigation over the next few years. Many will learn the hard way, much like Henry Nicholas, of the need to provide a semblance of basic privacy rights to employees. Many innocent hard working honest employees, CEOs included, will be ruined and dragged through the dirt for the thrill of the Colosseum crowd.
Many of the top officers and directors of corporate America, not just Dr. Nicholas, are now likely going to pay the price of the no-privacy policies they allowed their HR and Records Departments to enact. The American public, egged on by the press, some politicians, and many lawyers, will seek to pin the blame on someone, anyone, for the economic mess we are in. The corporate officers and board members, especially of failing companies, are the ones with the big targets on their back. Right or wrong, many of them will be sued in the coming months by a whole host of disgruntled stockholders, business associates, unions, prosecutors, and government agencies.
Some like Madoff may deserve it, but many will simply be at the wrong place at the wrong time. They will be unfairly blamed by an angry society that seeks vengeance, that wants to blame someone, even where the evidence of wrong-doing is flimsy or non-existent. Most people cannot accept that an abstraction like “the economy” is to blame and will demand a pound of flesh. As a defense lawyer, I have seen this kind of thing before. Like many others, I predict that thousands of officer and director liability suits are on their way, along with an explosion of regulatory enforcement actions and white collar crime indictments. The Nicholas case is the beginning of a tidal wave of blame, and quite a colorful show-all beginning at that.
After this wave of litigation plays itself out, the tide will change. Things will start to get a lot better for employees privacy-wise in all levels of corporate America. We will start to see corporate change from the top down, and perhaps from Congress too. Corporate officers will never again forget that they are employees too. If corporate policy allows IT staff to read employees’ email, they might just read the bosses’ email too.
Corporate America promulgated no-privacy at work rules because they wanted to try to stop employee goof-offs and rip-offs. Also, to be honest, some were just control freaks and oppressive. Upper management lost track of the fact that these same rules applied to them too. In the next few years they will learn that lack of privacy has a dark side applicable to all employees, especially top officers. It can encourage witch-hunts against them as angry forces pursue a vendetta. A lot of innocents will get hurt in the rush to full discovery and media sensationalism. Once this lesson is learned, it will naturally lead to the development of privacy rights for all employees. This will in turn make international discovery much easier as the gap narrows between the U.S. and the rest of the world. There will be a silver lining to the mess we are about to go through.
U.S. v. Nicholas
Nicholas provides a good example of the kind of abuses we can expect to see in the coming corporate witch-hunts. In April 2002, Henry Nicholas, then aged 43, composed a very personal email to his wife, Stacy. The contents of this email, which no one except Stacy and Henry should ever know, shows Henry in deep despair. Stacy, his wife of 15 years, had left him and was angry; but still Henry pleaded and confided in Stacy, in a way that only a spouse would do. He wrote to Stacy of sex, lies, and his deepest fears. He questioned out loud whether he had the strength and sanity to go on. He bared his soul to his wife. There is no way anyone could call this a business related email.
No, I am not going to reveal the sordid details. You can read the court opinion, which basically ruled there was no harm in revealing the contents of this very personal email because the newspapers had already done so. You see, a disgruntled Broadcom IT worker had leaked the email to the press. In his words, it seemed like the “Christian” thing to do, what with Henry Nicholas being the devil and all. That is not the Christianity I know. I seem to recall a story of casting the first stone, back in the good old days when we used to publicly stone people to death. No, you will have to look elsewhere to read this email. I for one still believe in the marital communications privilege and will not join in this death by email.
I feel dirty enough from having read excerpts of the email quoted in the opinion. This email is not something that anyone other than Stacy should have to read. To her credit, even though now divorced, Stacy has never revealed this email. Yet, she still gets dragged through the mud. No, the world knows of this email because of a $10 an hour IT worker’s vendetta against his $10,000 per hour boss, Dr. Nicholas, the man who co-founded Broadcom and was its sole President and Chief Executive officer from its inception in 1991 until January, 2003. Yes, thanks to idle curiosity by one IT tech and then desire for revenge by another who was laid off and then sued for wrongful discharge, the whole world now knows, or can know, the dark marital secrets of Henry and Stacy Nicholas.
The problem all started when an IT worker read the CEO’s personal email for no good reason, simply because he could. The Dec. 29, 2008 opinion of District Court Judge Cormac J. Carney, who pretty much went with the U.S. Attorneys on all points here, explains that an IT worker named Timothy “found the Email on Dr. Nicholas’ laptop while he was engaged in the authorized maintenance and back-up of Dr. Nicholas’ email account.” Excuse me! He found the email while “engaged” in “maintenance and backup.” That is preposterous. You never need to read anyone’s email to engage in maintenance and backup.
I certainly do not blame Judge Carney for this. Obviously he has never been involved in computer services or other IT work. He is only as smart on these issues as the U.S. Attorneys providing him with the story. But as I am sure all of my readers understand, you do not need to look at, much less read an individual email while backing up email to a server, or any other maintenance work short of trying to restore a corrupted email, which certainly was not the case here. The defense here had great law firms, Skadden Arps and Williams & Connolly, so I am not sure how or why the Judge went astray. But he surely did miss the point, if, as the opinion infers, he thought that the email was disclosed inadvertently or out of necessity. No, I am sorry, everyone in the business knows that Timothy had to have been snooping.
Still, the written so-called “privacy” and employee computer use policies of Broadcom, if they are like that of most every other company, probably did not prohibit such snooping of employee email, and the President and CEO of Broadcom, was after all, an employee just like Timothy, that is, plus or minus $2 Billion. As soon as Timothy read this hot email, he did what any red blooded American Gladys Kravitz would do, he copied it and secretly showed it to his buddies in IT and they showed it to legal, who showed it to HR, and pretty soon tons of people at Broadcom knew about it. It was, no doubt, the talk of the water cooler.
So what is worse here, a druggie CEO or gossiping Big Brother employees? Anyway you look at it, it was not a pretty picture and Broadcom’s stock soon dropped to an all time low. Sure, Dr. Nicholas knew his dirty laundry was out, but by then he had left the company and was instead a regular at Betty Ford. There was little he could do about it. He resigned as President and CEO of Broadcom on Jan. 23, 2003. At his resignation announcement, he said his top goal was to rebuild his family and reunite with his wife, Stacey, who had by then filed for divorce after 15 years of marriage.
“Even though there are no guarantees, I have the opportunity to get my wife back,” Nicholas said during a news conference. “Stacey doesn’t believe that I’ll be able to make family my No. 1 priority.”
This effort of family mending apparently worked at first, but then ultimately failed. Stacy went through with the divorce. According to the local paper:
Stacey Nicholas filed for divorce in October 2002 but withdrew the filing after her husband quit Broadcom. She reopened the divorce case in 2006. Court records of the proceedings were sealed after the Register wrote about their child custody dispute later that year.
So their children apparently got pulled into the press feeding frenzy too.
In 2007 things got even worse for Dr. Nicholas. The U.S. Attorney in Los Angeles began to investigate him and his former CFO, William J. Ruehle, and others for stock price back dating. Even the Wall Street Journal thought it was a quite a stretch to go after Nicholas for stock back dating and suggested politics. As their editorial put it:
[T]he facts are these: Mr. Nicholas did not benefit from any backdated stock options. He was Broadcom’s largest shareholder, thus had no natural or unnatural interest in overpaying employees with backdated stock options. What’s more, Ernst & Young, the company’s outside auditor, appears to have blessed the accounting in full knowledge that option grant dates had been assigned retrospectively to make sure employee options had the intended value.
Yet an indictment may loom now that the U.S. attorney has reached a plea bargain with former Broadcom executive Nancy Tullos. Her account, as portrayed in a separate SEC complaint, suggests that management knew exactly what it was doing and why – exercising positive control over the price of options used to attract, keep and reward its employees. Mr. Nicholas had a business philosophy. He was stingy with cash salaries, imposing a top limit of $110,000, but used hefty option grants to keep workers toiling away at all hours in the highly competitive chip business.
Anyway, so what? This was not real cash. The vast majority of these options were canceled or expired unexercised, thus had no cost for shareholders. Had it been otherwise, even so the required charge would have been a poor and uninformative approximation of the true cost of option issuance to shareholders, and would likely have been ignored as such by the markets.
By the way, the Nancy Tullos mentioned here was the H.R. director of Broadcom, one of the lucky ones to get her own personal copy of the bosses love note to his wife. So what did she do to save her skin? She turned the April 2002 email over to prosecutors. They did not ask for it and, according to Judge Carney’s opinion, they did not even know it existed before Tullos gave it to them. It sure did get their attention though.
Still, a peeping Tom who reads another’s email, and then gossips it all about, does not thereby destroy the spousal privilege. When Dr. Nicholas’ learned that the prosecutors had his letter, his lawyers called them, explained that it was a privileged marital communication, and demanded it be returned and not be used in the investigation. The U.S. Attorneys disagreed and Dr. Nicholas’ filed a pre-indictment motion for protective order. It seems that Judge Carney did not think much of the spousal privilege either. He held that the Email was not a privileged marital communication “because (1) the Nicholas’ marriage had failed at the time of the communication; (2) Dr. Nicholas had no reasonable expectation of privacy in the email; and (3) Dr. Nicholas waived any privilege he may have asserted over the email by failing to take reasonable steps to secure its confidentiality.” In re Grand Jury Investigation, Order at 2 (C.D.Cal. Sept. 25, 2007).
Dr. Nicholas’ then appealed this order to the Ninth Circuit who promptly reversed Judge Carney and held that the email was a privileged communication. The Ninth Circuit ordered Judge Carney to enter a protective order “precluding the introduction of the privileged communication in judicial or grand jury proceedings.” In re Grand Jury Investigation, Slip Op. at 15 (9th Cir. Nov. 27, 2007). However, the Ninth Circuit declined to preclude the government from “using or retaining the email for any purpose.” Id.
The U.S. attorneys could not show the letter to the grand jury, but they were still able to get an indictment against Henry for sex crimes, drug distribution, and oh yeah, for alleged illegal stock backdating too. You can read the complaint for yourself, although originally filed under seal, it is now very public and found at many websites, including this one at the Wall Street Journal. There is a lot of stuff in there about drugs and sex, much like Henry’s once secret letter to his wife.
Even though the Ninth Circuit reversed Judge Carney’s first order and upheld the confidentiality of the husband/wife email, the whole world found out about it anyway because of the actions of another IT worker at Broadcom who had made his own copy. He turned the email over to a local newspaper, who, despite the Circuit Court of Appeal’s earlier ruling about the sanctity of spousal privilege, went ahead and published the letter. No doubt it was good for circulation, for a couple of days at least, and who cares about the husband’s and wife’s stupid privacy rights, much less the right to be presumed innonent and receive a fair trial.
The Order of December 29, 2008
Now Dr. Nicholas stands indicted, facing outrageous claims of sex/drug crimes, and oh yeah, a claim of stock back dating too. Pretty sketchy theory, yet the allegations of drugs and sex caves makes it all so sellable to a judge and jury. To make matters worse, in the latest ruling of Judge Carney dated December 29, 2008, he held that the email could, after all, be shown to a jury, and he might just let that happen, depending on how the testimony at trial goes. Strong incentive to plea bargain I should think.
Yes, even though the Ninth Circuit said the email could not be shown to the Grand Jury, Judge Carney’s new opinion holds that the email can still be shown to the jury for the purpose of contradicting testimony contradictory to any statements made in Henry’s email to his wife. This assumes, of course, that they can actually find a jury that has not already heard all about this email.
Here is Judge Carney’s final word on the issue. I do not know whether there will be another appeal to the Ninth Circuit.
*7  The marital communications privilege, like all evidentiary privileges, is not absolute and is construed narrowly because “[p]rivileges obstruct the search for the truth.” United States v. Roberson, 859 F.2d 1376, 1378 (9th Cir.1988). Even the most sacrosanct privileges must give way to the jury’s obligation to find the truth in some circumstances. In this case, the Email may be admissible to impeach Dr. Nicholas if he gives exculpatory testimony at trial that contradicts the incriminating statements in the Email. The Email may also be admissible against Mr. Ruehle as an admission of a coconspirator. …
Relevant precedent confirms that precluding the use of the Email for any purpose would exceed the “appropriate scope of protection” to which the Email is entitled. Evidentiary privileges are not absolute, and the jury’s obligation to consider relevant, probative evidence may outweigh any interest in keeping privileged information from it. …
*9 The Court will not speculate at this time as to whether the Email will be admissible at trial. … Should Dr. Nicholas waive the privilege, the jury’s interest in finding the truth may outweigh Dr. Nicholas’ interest in protecting the confidentiality of his troubled marriage. …
*12  Neither the assertion of the privilege nor the fact that information is confidential alone is sufficiently compelling to justify sealing a court proceeding or record. A defendant’s stated interest in “ ‘[c]onfidentiality’ is not some talismanic utterance that can justify a refusal to disclose the contents” of a court document. Schlette, 842 F.2d at 1583.FN10 The assertion of the privilege, in the abstract, does not “trump” the First Amendment. United States v. Hawkins, No. 04-106, 2005 WL 3234509, at *3 (N.D.Cal. Jan.10, 2005).
The country is in a severe economic depression. The public assumes that someone must be to blame for all this. Someone must be held accountable. Many in the media, sometimes also known as the press, scream that point daily; so too do many lawyers. The public will have its pound of flesh. The Bernie Madoff’s of the world deserve it. As for the Henry Nicholas’ types, well, I am not so sure. Are we punishing them for deviant lifestyle and being arrogant-rich and doing so under the pretense of business crimes? Is that just? Then there is a third class; the smaller business executives, the suits that we have not seen much of yet, but likely will. I refer to the mere millionaires, not billionaires, who have done no wrong, but happened to be running a company at the start of a depression. They will be sued too, no matter what they do or don’t do. Someone must pay.
In the process, everyone’s email will be read; including the private emails of husband to wife, of client to lawyer, or to a therapist, or a minister. Nothing is sacred. All possibly relevant facts must be unearthed, no matter what the source, what the expense, no matter who gets hurt. Then, of course, let it all be broadcast for the amusement of the world; after all, the First Amendment trumps all. The Europeans will respond with a run to arbitration and stay as far away from our legal system as possible.
The pendulum will swing too far. It always does; only this time it will burn some of the countries best and brightest. When the CEOs of the world see what can happen in a Big Brother world where “you have zero-privacy anyway, so just get over it,” they will begin to yearn for the European life style. They may even start putting their email servers in France. They will finally recognize the value of privacy for all, at home and at work. Then the corporate policies will change and with it the law. Then America’s employees, secretaries and CEOs alike, will be able to write an occasional email to their spouse or attorney without fear that it will be read by IT or used against them in court some day.
Yes, I am hopeful that some day great good will come out of the feast of excess openness and mud that we are embarking upon. But in the meantime, hold on. There will be a media-circus. Dirt digging attack dogs will pry into everyone’s email and seek to blame all of the world’s woes on anyone they can, and, by the way, turn a tidy profit for themselves in the process.