The Parallel Proceeding Problem: Coordinating Civil, Criminal, and Regulatory Defense

The most difficult cases I have defended in thirty-six years are not the ones with the largest exposure or the most sophisticated legal questions. They are the ones in which the same conduct triggers simultaneous proceedings in multiple forums. The SEC opens a formal investigation. The U.S. Attorney’s Office begins a parallel criminal inquiry. State regulators ask their own questions. Plaintiffs’ lawyers file securities class actions. Derivative suits follow. The company’s directors and officers face individual exposure that diverges from the company’s exposure. Each proceeding moves on its own timeline, applies its own procedural rules, and tests the same underlying facts from a different angle.

The strategic challenge in these matters is not legal in the conventional sense. The legal issues in any one of the proceedings are usually manageable. The challenge is coordinating defense positions across proceedings such that what is said in one forum does not destroy the defense in another. Companies and individuals who get this wrong typically do not lose because the underlying conduct was indefensible. They lose because the defense was internally inconsistent, the privileges were waived inadvertently, or the testimony in one proceeding was used against them in another. Coordination is the entire game.

The Fifth Amendment in a Corporate Context

The Fifth Amendment protects individuals, not corporations. A corporation cannot invoke the privilege against self-incrimination, and the documents and testimony of a corporation can be compelled in any proceeding regardless of the criminal exposure of its executives. This is a foundational asymmetry that drives the strategic posture of every multi-forum matter.

The asymmetry becomes acute when the corporation’s executives face individual criminal exposure. The executives’ Fifth Amendment privilege protects them, but it does not protect the corporation that depends on their testimony to defend itself. The corporation that must respond to civil discovery, SEC investigative requests, or regulatory inquiries cannot rely on testimony that its executives have refused to give. The result is an internal conflict that requires careful management from the beginning of the matter.

In serious matters, the corporation and the individual executives should typically be represented by separate counsel from the outset. The corporation’s counsel can coordinate with individual counsel under common interest agreements where appropriate, but the corporation’s defense strategy cannot be hostage to the individual privilege decisions of executives whose interests may diverge from the corporation’s. I have seen too many matters in which a single firm attempted to represent both the corporation and the individual targets, only to face conflicts that resulted in withdrawal at exactly the moment the coordinated defense was most needed.

Where the executive does invoke the Fifth Amendment, the corporation must be prepared to defend itself without the executive’s testimony. That defense requires building the factual record through other witnesses, through documents, and through experts. It requires recognizing that the absence of the executive’s testimony may permit adverse inferences in civil proceedings even if it does not permit them in the criminal proceeding, and the defense must account for those inferences in the civil case.

Common Interest Privilege and Its Limits

The common interest privilege — properly understood as a doctrine that prevents waiver of the underlying attorney-client privilege when communications are shared with parties having a common legal interest — is the principal tool for coordinating defense across multiple parties facing parallel proceedings. The corporation and its directors, the corporation and its officers, the company and its outside auditor, co-defendants in litigation, parties in adjacent regulatory matters: all of these relationships can be structured to preserve privilege through common interest arrangements.

But common interest privilege is not a magic wand. It requires that the parties have an actual common legal interest, not merely a common business or financial interest. It requires that the communications shared under the arrangement be directed toward the common legal interest, not toward unrelated matters. It requires documentation of the arrangement, typically in a written common interest agreement, that establishes the scope of the protection and the obligations of the parties.

The cases in which common interest privilege has been pierced are instructive. Parties who shared information without a written agreement found themselves unable to establish the privilege when it was challenged. Parties whose interests diverged during the course of the matter found that communications made before the divergence could be subject to disclosure once the divergence occurred. Parties whose common interest agreements were too broad — covering business matters as well as legal matters — found that their communications were treated as ordinary business communications subject to discovery.

The defense team coordinating across parallel proceedings must therefore treat common interest privilege as an active strategic discipline, not as a passive doctrine that protects whatever communications happen to occur. Written agreements should be put in place early. The scope of the shared communications should be defined and respected. The arrangement should be reviewed when interests appear to diverge. And the documentation of the arrangement should be sufficient to survive the rigorous scrutiny it will receive if it is later challenged.

Sequencing the Proceedings

Parallel proceedings rarely move at the same pace. The criminal proceeding is typically the slowest, because the government’s investigation precedes any formal charges and the discovery rules in criminal practice provide less to the defense than the rules in civil practice. The civil proceedings move on the timetables set by the courts in which they are filed. The regulatory proceedings move on the timetables set by the agencies pursuing them.

The sequencing of these proceedings — which moves first, which can be stayed pending the others, which can be coordinated with the others — is one of the most consequential strategic decisions in a multi-forum matter. The defendant who is being deposed in a civil case while a criminal investigation is ongoing faces an impossible choice: testify truthfully and create evidence that may be used against him criminally, or invoke the Fifth Amendment and face adverse inferences and reputational consequences in the civil case.

The principal tool for managing this sequencing problem is the stay. Courts will stay civil proceedings pending resolution of parallel criminal proceedings in certain circumstances, particularly where the stay is requested by the defendant facing criminal exposure and the civil plaintiff is not prejudiced by the delay. The stay motion is a routine but technically demanding piece of advocacy that requires careful presentation of the criminal exposure, the overlap between the proceedings, and the prejudice to the defendant of proceeding in parallel.

Even where a stay is not available, the sequencing can often be managed through scheduling. Discovery in the civil case can be structured to defer the depositions of witnesses facing criminal exposure. Document productions can be coordinated such that documents produced in one proceeding do not surface in another in ways that prejudice the defendant. Settlements in less consequential proceedings can be timed to occur before more consequential proceedings reach decision points where the settlement might be admissible.

The Cooperation Question

Cooperation with the government is a strategic decision that takes on particular complexity in multi-forum matters. Cooperation with the U.S. Attorney’s Office may reduce criminal exposure but may also create civil exposure that would not otherwise exist. Cooperation with the SEC may produce reduced sanctions in the regulatory matter but may create admissions that are used against the company in the civil class action.

I have advised clients on cooperation decisions in matters where the cooperation framework offered substantial benefits in one proceeding and substantial costs in another. The analysis is rarely straightforward. The Yates Memorandum era — when the Department of Justice required corporations to identify individual wrongdoers as a condition of cooperation credit — created cooperation dynamics that pitted corporations against their own executives. The subsequent revisions have softened the requirements somewhat, but the underlying tension remains. The corporation that cooperates by identifying individual wrongdoers is the corporation whose executives may face individual prosecution, and those executives’ defenses will often involve attacking the corporation’s characterizations.

The cooperation decision must therefore be evaluated holistically, with attention to the implications in every proceeding and the interests of every constituency. The cooperation that makes sense for the company may not make sense for the directors. The cooperation that resolves the criminal matter favorably may create civil exposure that the company would not have faced absent the cooperation. The decision is not merely about the matter being directly addressed; it is about the entire ecosystem of proceedings the company and its individuals face.

The Settlement Architecture

Settlements in multi-forum matters require architectural thinking. A settlement in one proceeding can have consequences in others — through admissions, through preclusive effect, through the way the settlement is described in public filings or releases. The defense team that settles the SEC matter on Wednesday without coordinating the settlement language with the civil class action lawyers may find on Thursday that the SEC’s findings have been incorporated into a securities complaint in ways that make the civil case substantially harder to defend.

The principal technique for managing this risk is coordination of settlement timing and language across proceedings. The civil class action and the SEC matter, if both are heading toward resolution, should be coordinated such that the settlements are negotiated in parallel and the language in each settlement is compatible with the positions taken in the other. The criminal matter, if it is being resolved by deferred prosecution agreement or non-prosecution agreement, should be timed such that the factual statements in those agreements do not undercut defenses in the civil cases.

This coordination is more easily described than accomplished. The various counsel involved must work together, the various counterparties — government and plaintiff — must be willing to participate in coordinated timing, and the underlying facts must be capable of being characterized consistently across the settlement documents. Even where all of these conditions are met, the negotiations are demanding and the timing is fragile. The defense team that has thought about settlement architecture from the beginning of the matter is the defense team that produces coordinated outcomes. The team that addresses settlement only when one proceeding reaches resolution is the team that watches the careful coordination fall apart at the moment it is most needed.

The Long Arc

Multi-forum matters last for years. The investigations that begin today produce indictments two years from now, civil judgments three years from now, and appellate decisions five years from now. The defense team that approaches the matter with a short-term tactical mindset will produce short-term tactical successes that may be undone by long-term strategic failures. The team that approaches the matter with the long arc in view will accept short-term tactical losses that produce long-term strategic positioning.

I tell clients facing serious multi-forum exposure that the matter will be defining for the company and for the individuals involved. The defense must be commensurate with the stakes. That means experienced counsel in each forum, coordination across forums that respects the unique demands of each, and a strategic framework that holds together over the years the matter will take to resolve. The companies and individuals that emerge from these matters with their reputations and operations intact are not the ones who fought the hardest in any single proceeding. They are the ones who fought the coordinated fight across all of them, with the discipline to play the long game rather than the short one.

That is the parallel proceeding problem, and it is the work that defines this category of practice. There is no shortcut. There is only the careful, patient, strategically coordinated defense of multiple matters by a defense team that understands the connections between them and manages those connections with the seriousness the stakes require.

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Otto K. Hilbert, II is a Trial Attorney with AEGIS Law. He brings over 36 years of first-chair trial and appellate experience to representing clients in complex commercial litigation, securities defense, and regulatory enforcement matters. He has tried cases in 23 states and is admitted before the United States Supreme Court and multiple United States Courts of Appeals.

This article is provided for general informational purposes and does not constitute legal advice. Readers facing specific legal matters should consult qualified counsel.