Free Brief in Opposition to Motion - District Court of Colorado - Colorado

Case 1:04-cv-01006-RPM

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Filed 12/06/2006

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Not Reported in F.Supp. Not Reported in F.Supp., 1996 WL 306576 (S.D.N.Y.) (Cite as: Not Reported in F.Supp.)

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Briefs and Other Related Documents In re WoolWorth Corp. Securities Class Action LitigationS.D.N.Y.,1996.Only the Westlaw citation is currently available. United States District Court, S.D. New York. In re WOOLWORTH CORPORATION SECURITIES CLASS ACTION LITIGATION. No. 94 CIV. 2217 (RO). June 7, 1996. MEMORANDUM AND ORDER OWEN, District Judge. *1 Plaintiffs in this class action are Woolworth shareholders who purchased Woolworth common stock during the period between May 12, 1993 and March 29, 1994. Plaintiffs are suing Woolworth and certain of its former officers and directors for violations of § § 10(b) and 20(a) of the Securities and Exchange Act. In March of 1994, after Woolworth's Treasurer made allegations of serious, deliberate, accounting irregularities, the Audit Committee of Woolworth's Board of Directors and later, the Special Committee of independent directors, retained the law firm of Paul, Weiss, Rifkind, Wharton & Garrison ("Paul, Weiss") as special legal counsel to investigate the allegations. Because the matter raised complex accounting questions, Paul, Weiss, in turn, retained the accounting firm of KPMG Peat Marwick ("KPMG") to serve as expert accountants. Paul, Weiss and KPMG organized the investigation into the allegations of accounting irregularities; provided continuing legal advice to the Special Committee; met with the SEC on the Special Committee's behalf; identified, gathered, and analyzed relevant information and documents; interviewed forty-five Woolworth employees; and ultimately prepared the Special Committee's May 18, 1994 lengthy public report (the Report) that plaintiffs have used as a roadmap for their litigation.FN1 The Report criticized Woolworth's senior management and Woolworth's financial reporting practices. As a result of the Special Committee investigation and Report, Woolworth took remedial measures relating to its accounting policies, financial reporting practices, and corporate governance. Before me now is plaintiffs' motion to compel Paul, Weiss and

KPMG to produce their internal notes and memoranda created in the process of investigating Woolworth's alleged accounting irregularities, overstatements, and understatements. FN1. I note that plaintiffs make no claims against any members of either the Audit Committee or the Special Committee, nor do they take issue with the adequacy of the Special Committee's investigation or the actions taken by the members of the Special Committee in connection with that investigation. Plaintiffs first contend that the internal Paul, Weiss notes and memoranda made in conjunction with the interviews that Paul, Weiss and KPMG conducted are discoverable because they are not protected by the attorney-client privilege. Specifically, plaintiffs contend that Paul, Weiss was not retained to render legal advice and that the persons interviewed did not consider Paul, Weiss to be their attorney, nor did they expect that Paul, Weiss would hold their statements in confidence. These claims have no merit. Plaintiffs attempt to artificially characterize Paul, Weiss' involvement as furthering a "business" purpose, rather than providing legal advice. However, on March 30, 1994, the day after it had been retained by the Special Committee, Paul, Weiss began discussions with the SEC on the Special Committee's behalf. On that day as well, based in part on the advice of Paul, Weiss, Woolworth issued a press release stating that it intended to restate its interim financial results for the prior year. Also on March 30, class actions began to be filed against Woolworth. It is indisputable that the Paul, Weiss investigation was connected to the provision of legal advice to Paul Weiss' client, the Special Committee. See In Re Grand Jury Subpoena, 599 F.2d 504 (2d Cir.1979) (where outside counsel was retained to investigate whether certain filings needed to be amended and what the extent of the corporation's liability might be with respect to improper payments by subsidiaries, such an investigation involved the rendering of legal advice and triggered the attorneyclient privilege). *2 The facts here are similar to those in Upjohn Co. v. United States, 449 U.S. 383 (1980). There, the

© 2006 Thomson/West. No Claim to Orig. U.S. Govt. Works.

Case 1:04-cv-01006-RPM

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Filed 12/06/2006

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Not Reported in F.Supp. Not Reported in F.Supp., 1996 WL 306576 (S.D.N.Y.) (Cite as: Not Reported in F.Supp.) Supreme Court established that where counsel had been engaged by upper management to conduct an internal corporate investigation into allegations that a subsidiary had made "questionable payments" to foreign officials, notes and memoranda reflecting communications between a corporation's employees and counsel were protected by the attorney-client privilege. In Upjohn, as here, counsel conducted numerous fact-finding interviews of employees, and consequently drafted reports summarizing the results of its internal investigation. After the Upjohn reports were voluntarily turned over to the IRS and the SEC, the IRS commenced its own investigation and demanded production of the memoranda and interview notes underlying the report. Recognizing that the attorney-client privilege "exists to protect not only the giving of professional advice to those who can act on it but also the giving of information to the lawyer to enable him to give sound and informed advice," Id. at 390, the Supreme Court found that the attorney-client privilege attached to the notes and memoranda which reflected communications made by Upjohn employees to counsel. There is nothing before me warranting a departure from Upjohn. Accordingly, I deem the attorney-client privilege applicable to the materials at issue. Plaintiffs next contend that even if the attorney-client privilege does attach to the notes and memoranda, this privilege was waived when Woolworth published the Special Committee's Report. Plaintiffs argue that Paul, Weiss is using the privilege as both a sword and a shield, to disclose some communications and conceal others. This argument misconstrues the nature of the attorney-client privilege, its applicability to publication of corporate investigative reports, and the facts of this case. The privilege protects communications between attorney and client, not the underlying relevant facts upon which those communications are based. Id. at 396. It is the communication, and notes and memoranda memorializing or detailing the communication, that is protected by the privilege. Id. at 395-96. The Report lays out the facts that plaintiffs have used as the basis for over half of the allegations in their Amended Complaint. Plaintiffs are free to depose all of the employees Paul, Weiss interviewed (and plaintiffs have, to a large extent, done so) in order to glean any facts not sufficiently set forth in the Report. The mere fact that plaintiffs have so heavily relied on the Special Report undercuts the contention that Paul, Weiss is using the privilege as a sword and a shield. Strong public policy considerations also militate

against finding a waiver of the privilege. A finding that publication of an internal investigative report constitutes waiver might well discourage corporations from taking the responsible step of employing outside counsel to conduct an investigation when wrongdoing is suspected. The failure to obtain the advice of outside counsel in the face of potential violations of law could only be detrimental to shareholders and potential shareholders, whose best interests are entrusted to the corporate directors and officers. For shareholders to obtain the benefits of investigative reports of the type at issue here, these corporate decisionmakers must know that the integrity of communications made to independent counsel will be preserved. *3 Plaintiffs' third argument is that notes and memoranda which do not deal with communications with interviewees (and that therefore may not be covered by the attorney-client privilege) are not subject to protection under the work product doctrine. This doctrine, embodied in Fed.R.Civ.P. 26(b)(3), FN2 protects against the disclosure of mental impressions, conclusions, opinions, or legal theories of an attorney. In reliance solely upon In Re Leslie Fay Securities Litigation, 161 F.R.D. 274 (S.D.N.Y.1995), plaintiffs assert that this doctrine protects only materials "prepared in anticipation of litigation," as distinguished from material "prepared to advance a company's business purposes," and that the Paul, Weiss materials were prepared to advance Woolworth's business purposes. The weight of the authority, however, is more liberal in its interpretation of materials "prepared in anticipation of litigation," and in the application of the work product doctrine. See, e.g., Upjohn, 449 U.S. 383, 397-402; Martin v. Office of Special Counsel, Merit Sys. Protection Bd., 819 F.2d 1181, 1187 (D.C.Cir.1987); In Re Grand Jury Investigation, 599 F.2d 1224, 1229 (3d Cir.1979). In the instant case, the reality of impending litigation is clear. All participants knew when Paul, Weiss became involved that litigation-civil, and possibly criminal-as well as regulatory action were virtually certainties. Applying a distinction between "anticipation of litigation" and "business purposes" is in this case artificial, unrealistic, and the line between is here essentially blurred to oblivion. FN2. Rule 26(b)(3) provides in relevant part: Subject to the provisions of subdivision (b)(4) of this rule, a party may obtain discovery of documents and tangible things

© 2006 Thomson/West. No Claim to Orig. U.S. Govt. Works.

Case 1:04-cv-01006-RPM

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Filed 12/06/2006

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Not Reported in F.Supp. Not Reported in F.Supp., 1996 WL 306576 (S.D.N.Y.) (Cite as: Not Reported in F.Supp.) otherwise discoverable under subdivision (b)(1) of this rule and prepared in anticipation of litigation or for trial by or for another party or by or for that other party's representative ... only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of the party's case and that the party is unable without undue hardship to obtain the substantial equivalent of the materials by other means. In ordering discovery of such materials when the required showing has been made, the court shall protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation. Finally,FN3 plaintiffs have failed to make a sufficient showing of need, as required by Fed.R.Civ.P. 26(b)(3), to overcome work product immunity. Plaintiffs attempt to demonstrate their alleged need by citing excerpts of the depositions of Woolworth employees in which the employees were unable to recall the exact words they used when speaking to the Paul, Weiss and KPMG interviewers. This argument fails for several reasons. First, the deposition excerpts do not establish that the interviewees failed to recall the salient facts or key events at issue in the litigation; they merely could not swear under oath as to the precise words they used at the interviews. Second, when unable to recall a specific detail, the interviewees deferred to the Special Report, already within plaintiffs' possession, as the most accurate source of information. Finally, plaintiffs cannot demonstrate that the information they seek is unavailable from any other source; they have the employees' depositions, the Special Report, and the transcripts of testimony given by many of these witnesses before the SEC. FN3. In the briefs, the parties also dispute whether it was proper for Paul, Weiss to have destroyed at least some of its internal notes and memoranda. As this issue, however, is irrelevant to the question of plaintiffs' entitlement to the relief they seek, I decline to address it. Accordingly, the motion is denied. S.D.N.Y.,1996. In re Woolworth Corp. Securities Class Action Litigation © 2006 Thomson/West. No Claim to Orig. U.S. Govt. Works.

Not Reported in F.Supp., 1996 WL 306576 (S.D.N.Y.) Briefs and Other Related Documents (Back to top) · 1:94cv02217 (Docket) (Mar. 30, 1994) END OF DOCUMENT