April 2008 - Volume 8, Number 4

Confidentiality | Corporate Counsel | Misconduct |  Impartiality
 

• CONFIDENTIALITY - no selective waiver of privilege allowed when corporation voluntarily releases internal legal memos
  
  In re Initial Public Offering Securities Litigation, S.D.N.Y., No. 21 MC 92 (SAS), 2/14/08) the court found that the waiver was complete where a corporation waived work product protection in voluntarily releasing internal legal memorandums to the U.S. Attorney's Office and the Securities and Exchange Commission under a confidentiality agreement. Rejected was the company's request to use the selective waiver doctrine to shield the documents from disclosure to the plaintiffs in a class action suit notwithstanding the release of the materials to the government. Such a principle should apply only in unusual circumstances, notes the opinion, such as when the disclosing party and the government share "common interests". The GC for Credit Suisse Securities (USA) conducted an internal investigation into alleged wrongdoing during an initial public stock offering (IPO). Outside counsel was hired to help interview employees and write summaries of the investigation. The company turned over the documents to the U.S. Attorney's Office and the SEC under letter agreements in which the recipients promised confidentiality. Later, Credit Suisse was named as a defendant in a class action alleging that investors overpaid for shares as the company had manipulated IPO stock prices. Plaintiffs demanded that Credit Suisse turn over the memos it had shared with the government. The company resisted, claiming work product protection. The court confirmed that the documents qualified as work product, rejecting the plaintiffs' contention that Credit Suisse had not created the materials in response to a threat of litigation. It pointed out that the company undertook the investigation only after being subpoenaed by the U.S. attorney, that the company asked the prosecutor's office if it would consider withdrawing the subpoena if the company conducted its own investigations, and that it then turned the documents over under a confidentiality agreement. The memos would not have been created absent the threat of legal liability. However, the court held that Credit Suisse waived any privilege when it shared these papers with the prosecutor's office and the SEC. Any confidentiality that may have existed was abandoned, the court said, once the company turned the reports over to an adversary. Drawing a distinction between serving the company's tactical purposes and advancing the social interest in promoting frank communications between lawyers and their clients, the court embraced the latter. In refusing to apply the doctrine of selective waiver, the court cast doubts on the efficacy of such an exception to the waiver rule, concluding that the doctrine was inapplicable in this instance. The court further pointed out that the principle of selective waiver, first recognized in Diversified Industries Inc. v. Meredith, 572 F.2d 596 (8th Cir. 1978), has been rejected by most jurisdictions, including the Second Circuit. In fact, in In re Steinhardt Partners, 9 F.3d 230, 235 (2d Cir. 1993), the reasoning was that when a company opts to participate in a voluntary disclosure program, it clearly has decided that the benefits of participation outweigh the benefits of confidentiality. Judge Scheindlin wrote, "I conclude that selective waiver is not in the long-term best interest of the government, the adversarial system, or litigants." The court noted that the company's claim that it shared "common interests" with the government was "baseless," as the government entities were investigating potential wrongdoing, whereas the company turned over the memos hoping to escape liability.               [back to top]

• CORPORATE COUNSEL - indicted corporate directors entitled to view legal memos prepared for company while they served on board 

  Two former corporate directors under indictment for fraud are entitled to inspect privileged legal memos that were prepared for the company during the directors' tenure (People v. Greenberg, N.Y. App. Div. 1st Dep't, No. 764N, 2/19/08). That the two men are no longer directors does not in itself defeat their discovery request given that their conduct as directors has been called into question and that they had shown a need to see the materials in preparing their defense. The chief executive of American International Group (AIG), Maurice Greenberg, and the company's chief financial officer, Howard Smith, were charged with facilitating sham insurance transactions in violation of New York securities law. Their plan was to assert an "advice of counsel" defense and serve document requests on AIG for memorandums prepared by AIG's in-house lawyers and outside counsel relevant to the alleged transactions. AIG refused to comply, citing attorney-client privilege and work product protection, insisting that under New York law, the privilege belongs to the company alone and could be asserted even against a former officer or director. The motion court denied Greenberg's and Smith's motion to compel production, ruling that the attorney-client privilege was held by AIG, not its former officers. The appellate court reversed and granted the motion to compel. Finding that New York law controlled here, the court acknowledged that, under that state's law, a director's unqualified right to inspect corporate books and records disappears once he is removed. However, a former director still has a "qualified" right to inspect books and records generated during his tenure if the trial court is satisfied that such inspection is necessary to protect the ex-director's "personal responsibility interest." The defendants were found to have met that burden in demonstrating a relationship between the requested documents and their defense and by showing that they were "within the circle" of persons entitled to inspect privileged materials. "Under both New York and Delaware laws, the fact that Greenberg and Smith are no longer directors is not fatal to their motion to compel, since their conduct while directors has been called into question and the inspection is needed to prepare their defenses," ruled the court. Nor did the court resolve the question of whether AIG may have already waived the privilege by releasing most of the materials at issue to the government. The court observed that the company produced virtually all of the documents to the Securities and Exchange Commission when the SEC asked AIG to waive its privilege as part of an SEC investigation. Finally, the court concluded that it need not reach the question of whether federal law preempts the state securities law, in light of its ruling that under the circumstances Greenberg and Smith have a clear right to review the relevant documents generated by or for AIG counsel while the defendants served as the company's officers.           [back to top]

• MISCONDUCT - in a surprise move Richard "Dickie" Scruggs pleads guilty to judicial bribery charge in Mississippi

  Mississippi plaintiffs' attorney Richard "Dickie" Scruggs pled guilty on March 14 to a charge of conspiring to bribe a state court judge. His surprise plea came during a pretrial hearing in Oxford, Miss. His trial was set to begin at the end of March. Scruggs and co-defendant Sidney Backstrom both pleaded guilty to conspiring to bribe a judge. A third co-defendant, Scruggs' son and law partner, Zachary Scruggs, was the final defendant to plead guilty to possessing knowledge of the bribery attempt, and concealing rather than reporting it. Prosecutors have said they would recommend five years in prison for Scruggs and 2 1/2 for Backstrom, penalties significantly lower than what they could have faced had they been convicted at trial. The three were accused of conspiring to bribe a Lafayette County circuit judge to render a favorable ruling in a dispute over $26.5 million in legal fees from a mass settlement of Hurricane Katrina cases. Two other co-defendants had already pled guilty and were cooperating with the government. According to court filings, Lafayette County Judge Henry Lackey had notified federal authorities of the attempted bribe and had cooperated with the FBI from the outset. What is unclear is how pleas in this case will affect another attempted bribery case against Scruggs. In that case, Hinds County Judge Bobby DeLaughter reportedly was asked to rule favorably for Scruggs in a separate fee dispute case in exchange for Scruggs asking his brother-in-law, then-U.S. Senator Trent Lott, to recommend DeLaughter for a federal judgeship. Lott did announce that he spoke to DeLaughter as a "courtesy," but eventually nominated someone else for the judgeship in question. Lott resigned in December 2007 from the Senate after only one year into his term. He has established a Washington lobbying firm, known as Breaux Lott, with former Democratic senator John Breaux.      [back to top]

• IMPARTIALITY AND DECORUM OF TRIBUNAL RULE VIOLATION - lawyer suspended for two years over contemptuous and contentious entanglements with judges
  
  In Columbus Bar Ass'n v. Vogel, Ohio, No. 2007-1592, 2/14/08, the Ohio Supreme Court suspended for two years (with one year conditionally stayed) a lawyer who in one matter accused a judge of conspiring with prosecutors to railroad an innocent man and in another case made false statements and immoderate comments to a judge The court concluded that the lawyer acted with a dishonest motive when he lied to one court and that he acted with a selfish purpose in promoting himself in media interviews as a fearless and aggressive criminal defense advocate who would not back down against a wretched judicial system. In 2005, John W. Vogel clashed with a judge who refused to appoint Vogel to represent a man charged with armed robbery. Even so, Vogel showed up at the armed robbery hearing and tried to speak, whereupon the judge reiterated that Vogel was not the defendant's lawyer and warned him that he would be jailed if he refused to desist. Vogel extended his wrists so that he could be handcuffed, and stated: "If that's what you've got to do, Ma'am." Vogel was taken into custody. He subsequently gave a jailhouse interview to a newspaper in which he stated, "Courtrooms get a little rough-and-tumble sometimes. A judge has to be able to accept that or pass the robe on to another judge." When the judge gave Vogel a chance to purge his contempt by assuring the court that he would no longer interfere, Vogel characterized the proceeding as an attempt to force an innocent man to plead guilty. "And forgive me," Vogel told the judge, "but this is a result of collusion between yourself and the prosecutor's office." The judge held Vogel in contempt and sentenced him to 40 days in jail. Vogel was found to have violated rules relating to conduct prejudicial to administration of justice, conduct reflecting adversely on fitness to practice, undignified or discourteous conduct that is degrading to a tribunal, and knowingly making false accusations against a judge or other adjudicatory officer. The court also ruled that Vogel had brought contempt charges on himself in a second matter in early 2007 after the trial judge discovered that Vogel had lied about whether certain subpoenas had been destroyed. Vogel "repeatedly engaged in demonstrative and melodramatic reactions to adverse rulings and certain witnesses' testimony," and continued to do so throughout the trial despite admonitions from the trial judge, the court noted. The board recommended a two-year suspension from practice, with the second year stayed on condition that Vogel submit to the appointment of a monitor. Among aggravating factors, the board found a pattern of misconduct and multiple offenses, concluding that Vogel had acted with a dishonest motive when he lied and that he acted with a selfish motive in promoting himself to the media as a fearless and aggressive criminal defense advocate. In mitigation, the board found no prior disciplinary record and noted Vogel's genuine remorse. The court adopted the board's recommendations. Most bothersome to the court were issues of impugning the integrity of the judicial process, accusing a judge of conspiring with a prosecutor to railroad an innocent man, and lying to the court, all serious breaches, observed the court, far exceeding acceptably zealous advocacy. The court warned, "Lying to a tribunal and making false accusations against judges and fellow attorneys can never be condoned."    [back to top]

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