Jenner & Block

Spotlight Newsletter Resource Center

Jenner & Block is excited to introduce “The Spotlight,” an electronic monthly newsletter from the Litigation Department Co-Chairs, Craig C. Martin and David J. Bradford, designed to highlight recent cases and legislative developments from across the United States.  Additionally, The Spotlight recaps the high impact Litigation Department news, upcoming events and publications of interest.

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Federal Arbitration Act Preempts State Court Interpretation Of Contract.
The U.S. Supreme Court held that arbitration was required by the Federal Arbitration Act (FAA) despite a contrary state court rule. DIRECTV, Inc. v. Imburgia, 136 S. Ct. 463 (2015) (No. 14-462).  The contract at issue provided that “if the law of your state” would find an arbitration provision unenforceable, the entire arbitration agreement was invalid.  In this instance, California law prohibited a class action waiver in an arbitration clause at the time the contract was entered, but that law subsequently was overruled.  The California courts held that the waiver nonetheless was unenforceable because it was invalid at the time the contract was entered, but the Supreme Court rejected that view.  The Court found that “law of your state” refers to a valid state law, and the overruled California law was not valid.  Further, the Court found that state courts would have reached that conclusion in any context other than arbitration and, therefore, arbitration clauses were being treated impermissibly in a different fashion than other contracts, a distinction that the FAA does not permit.

Arbitration Award Did Not Bar Subsequent Court Claim.
By: Howard S. Suskin

The Ninth Circuit held that an arbitration award did not preclude a plaintiff’s subsequent lawsuit arising out of the same facts because the plaintiff could not have asserted a RICO claim in the arbitration and therefore could not have achieved full satisfaction of its claim there.  Uthe Tech. Corp. v. Aetrium, Inc., 808 F.3d 755 (9th Cir. 2015) (No. 13-16917).  The court held that an additional award of damages under RICO would not violate the “one satisfaction” rule, an equitable principle designed to prevent double recovery of damages arising from the same injury, because the arbitral award did not constitute full satisfaction of the plaintiff’s RICO claim.  The court noted that the original arbitration was brought under Singapore law, which could not provide for resolution of plaintiff’s RICO claim, and therefore plaintiff was not foreclosed from asserting that claim in a subsequent action.


Attorney-Client Privilege

Crime-Fraud Exception Applied To Corporate And Personal Attorney-Client Communications.
In United States v. Gorski, 807 F.3d 451 (1st Cir. 2015) (Nos. 14-1963, 14-1964, 14-2074), the government alleged that defendant, Gorski, obtained government contracts between 2005 and 2010 by falsely certifying that a company he controlled, Legion, qualified as a Service Disabled Veteran Owned Small Business Entity.  Effective February 2010, the self-certification procedure in effect for SDVOSBs was replaced by a formal verification process.  In late 2009, Legion hired a law firm to effect a corporate restructuring that resulted in a Veteran nominally owning 51% of the company, and Gorski owning 49%, but in fact exercising operational control.  The restructuring occurred in March 2010, but the documents were dated “as of February 1, 2010,” before the regulatory amendments became effective.  At some point before Legion engaged corporate counsel, Gorski retained a personal lawyer, Schwartz.  The government subpoenaed communications between Legion and its counsel, and Gorski and Schwartz.  The district court held that the crime-fraud exception applied to corporate counsel’s communications relating to the transaction, but not to the personal communications, because Schwartz had no role in the submission to the SBA.  Both Legion and Gorski appealed.  The appellate court dismissed Gorski’s direct appeal based on the U.S. Supreme Court’s ruling in Mohawk, which held that parties may not take a direct appeal from an adverse privilege ruling unless they are held in contempt and appeal that order.  The appellate court held that Legion, however, as a non-party to the indictment, could take a direct appeal based on the Perlman doctrine.  As to Legion’s appeal, the appellate court found that the indictment provided a reasonable basis to believe Gorski and/or Legion were engaged in criminal or fraudulent activity; and the documents, which both courts reviewed in camera, provided a reasonable basis to believe the communications were intended by the client to facilitate or conceal the criminal or fraudulent activity.  The appellate court reversed the trial court’s ruling regarding Schwartz.  The district found that Gorski’s intent was the same for both corporate and personal counsel, but held that the communications remained privileged because Schwartz was not directly involved in the transaction.  The appellate court concluded that the trial court’s finding regarding Gorski’s intent provided the necessary showing that the communications with Schwartz were intended by Gorski to facilitate or conceal criminal or fraudulent conduct.
Communications with Litigation Funders Protected by the Work Product Doctrine.
In Morley v. Square, Inc.,No. 14cv172 (E.D. Mo. Nov. 18, 2015), plaintiffs sought funding from more than ten third party litigation funders.  Plaintiffs withheld communications with the litigation funders on grounds of privilege or work product; and defendants moved to compel their production, arguing that, at the very least, any attorney-client privilege or work product protection was waived by plaintiffs’ disclosure to third parties.   The court denied the motion to compel, holding that the communications were protected as work product.  The work product protection is not waived unless the information is disclosed to a litigation adversary or to someone who “substantially increases” opportunities for potential adversaries to obtain the information.  Plaintiffs argued that litigation funders and banks have an inherent interest in maintaining the confidentiality of potential clients’ information.  They also provided evidence that they had either written or oral confidentiality agreements with each of the third parties.  The court held that, based on the evidence presented, plaintiffs had a reasonable basis to expect confidentiality, and the protection was not waived.
Qui TamRelator’s Disclosure Statement to the Government Is Protected Work Product.
By: David M. Greenwald

In U.S. ex rel. Spletzer v. Allied Wired and Cable, Inc.,No. 09-4744 (E.D. Pa. Nov. 12, 2015), a qui tam action alleging violations of the False Claims Act, defendant moved to compel the Plaintiff/Relator, Spletzer, to produce the Relator Statement, which Spletzer had submitted to the government as required by statute.  A Relator Statement is submitted for the purpose of providing the government with sufficient information to make a well-reasoned decision on whether to intervene and participate in the lawsuit or, alternatively, allow the relator to proceed alone.  Spletzer argued that the Relator Statement was protected by the work product doctrine and the common interest privilege; defendant argued that no privilege applied.  Defendant also argued that, even if the statement qualified as protected work product, defendant had a substantial need for the statement so that it would not have to wade through 40,000 pages of documents relating to 1,000 contracts.  The court held that the Relator Statement was protected work product, and that defendant had failed to prove that it had a substantial need for the statement and that a substantial equivalent of the evidence could not be obtained by other means.  Here, defendant had scheduled, but had not yet taken, Spletzer’s deposition.  The court explained that defendant could use the deposition to narrow the scope of its document review, and that the deposition “provides an additional avenue” for defendant “to glean what information was included in the Relator Statement.”
Litigation Counsel’s Communications with PR Consultants Would Not Be Privileged.
By: David M. Greenwald

In Waters v. Drake, No. 14-cv-1704 (S.D. Ohio Dec. 8, 2015), the district court indicated that communications between counsel and public relations consultants retained by the defendant would not be protected by the attorney-client privilege.  This case arose out of the termination of the Director of the Ohio State University Marching Band, Waters.  Waters sought discovery of communications between the University’s counsel and two public relations consultants; the University withheld many of the communications on grounds of attorney-client privilege.  The General Counsel for the University, Culley, submitted an affidavit stating that, after the University reasonably anticipated litigation, it retained consultants, including the two public relations firms, to assist counsel to provide legal advice to the University.   Although the court ultimately held that the communications were not discoverable because they were not relevant to the remaining claims and defenses in the case, the court expressed skepticism that public relations consultants could assist counsel to provide legal advice and thereby fall within the privilege.  “[Providing legal advice] is not the consultants’ area of expertise, and advising a client on matters like the timing of its announcement of a decision or the content of its press releases or speeches is not legal advice.”  The court cited with approval case law concluding that “a media campaign is not a litigation strategy.”

Class Action

Rule 23(b)(2) Settlement with Injunctive Relief but No Cash Benefit Approved.
By: Michael T. Brody

In Berry v. Schulman, 807 F.3d 600 (4th Cir. 2015) (Nos. 14-2006, 14-2050, 14-2101), plaintiffs challenged LexisNexis’s sale of personal data to debt collectors.  Plaintiffs alleged Lexis failed to comply with the Fair Credit Reporting Act, which permits aggrieved parties to recover actual damages or statutory damages.  Lexis denied it violated the FCRA.  Ultimately, the parties reached a settlement under which Lexis would make changes to its product offerings and class members released their statutory damage claims, while retaining their actual damage claims.  The court certified a class under Fed. R. Civ. P. 23(b)(2), which permits a mandatory class (no right to opt out) for claims involving declaratory or injunctive relief, relying on Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011).  In Dukes, the Supreme Court explained that a mandatory class may be certified under Rule 23(b)(2) because a declaratory or injunctive claim is indivisible – the relief is common to all.  The Dukes Court also held that a 23(b)(2) class could recover damage claims “incidental” to the declaratory or injunctive claim.  Here, objectors complained that the class’s statutory damage claims were not “incidental,” and therefore a Rule 23(b)(2) class could not be certified.  The Fourth Circuit rejected this argument and upheld the settlement.  The settlement afforded indivisible injunctive relief benefitting all members of the class.  The released statutory damage claims flowed directly from liability to the class as a whole, and were based on the facts justifying injunctive relief.  As a result, the settlement complied with Rule 23(b)(2).  The Fourth Circuit rejected the argument that due process required class members to be given the right to opt out because any monetary claims incidental to the injunctive relief were recoverable.  The court also upheld the district court’s approval of a $5.33 million fee to class counsel.
Overtime Claim Rejected for Off-Duty Use of Blackberry to Access Emails & Messages.
By: Michael T. Brody

The Chicago Police Department requires police officers to use their Blackberry devices to access work-related emails, phone calls, and messages while they are off-duty.  In Allen v. City of Chicago,No. 10 C 3183 (N.D. Ill. Dec. 10, 2015), plaintiffs alleged that the department had an unwritten policy that police officers not be compensated for overtime involved in receiving and following up on these communications.  The district court permitted the case to proceed to trial on a class (pattern and practice) basis.  Post-trial, the court found for the department, finding plaintiffs had failed to prove the City maintained an unwritten policy to deny payment for compensable off-duty work.  Rather, the City had made arrangements for police officers to seek overtime compensation for their Blackberry use.  Some officers did so.  While plaintiffs proved they performed off-duty work using their Blackberrys for which they were entitled to compensation, they failed to prove, as a matter of fact, that the class members were not properly compensated for their work.  As a result, their class claim failed.
Third Circuit Rules Class Action Standing Depends on Named Representative Only.
By: Michael T. Brody

In Neale v. Volvo Cars of North America, LLC,794 F.3d 353 (3d Cir. 2015) (No. 14-1540), the Third Circuit held that unnamed, putative class members do not need to establish Article III standing.  Instead, the requirements of Article III are satisfied as long as the class representative has standing, either in the context of a settlement or litigation class.  The Third Circuit noted that its ruling potentially conflicted with the decisions of other circuits, but further held that requiring Article III standing of absent class members would be inconsistent with Rule 23.  The court reversed the certification of the class and remanded it to the trial court for consideration of whether plaintiff had satisfied the predominance requirements and for the district court to define the class and the claims certified.

Complex Commercial Litigation

U.S. Supreme Court Holds That Offer Of Judgment For Complete Relief Does Not Moot Claim.
By a 6-3 decision in Campbell-Ewald Co. v. Gomez, No. 14-857 (U.S. 2016), the U.S. Supreme Court held that a settlement offer for complete relief does not moot a plaintiff’s case.  In this case, the respondent (Gomez) filed a putative class action against the petitioner (Campbell) in California, alleging that Campbell violated the Telephone Consumer Protection Act, 47 U.S.C. § 227(b)(1)(A)(iii), in connection with contract work for the U.S. Navy.  Gomez claimed he received unsolicited text messages from Campbell, which had been sent to over 100,000 recipients via a subcontractor, for which he sought the treble statutory damages allowed for willful and knowing violations of the TCPA.  Prior to class certification, Campbell offered to settle with Gomez for the amount of his costs and to satisfy his own treble-damages claim, and filed an offer of judgment under Fed. R. Civ. P. 68.  After Gomez did not accept the offer during the 14-day window specified in Rule 68, Campbell moved to dismiss the case, arguing that the offer to provide complete relief to Gomez mooted the claim.  The district court denied the motion, but later granted summary judgment for Campbell on the basis of sovereign immunity derived from the Navy.  On appeal, the Ninth Circuit vacated the summary judgment based on sovereign immunity, and agreed that the offer did not render the claim moot.  At the Supreme Court, the majority opinion and Justice Thomas’s concurrence concluded that an offer of complete relief is insufficient to moot the claim.  The majority reasoned that the offer loses any efficacy once rejected; the concurrence, however, relied on the law of tender, reasoning that “a mere offer” is not enough to end the case.
TILA Notification Rule Does Not Apply Retroactively.
A 2009 amendment to the Truth in Lending Act requires a creditor who obtains a mortgage loan by sale or transfer to notify the borrower of the transfer in writing.  15 U.S.C. § 1641(g).  In Talaie v. Wells Fargo Bank, NA, 808 F.3d 410 (9th Cir. 2015) (No. 13-56314), the Ninth Circuit held, as a matter of first impression, that this requirement did not apply retroactively to creditors who had acquired mortgage loans before the amendment was enacted.  In so holding, the court acknowledged that there was a presumption against retroactive legislation that can only be overcome where Congress expresses a clear and unambiguous intent to do so.  The court concluded that neither the text nor legislative history of Section 1641(g) provided a clear indication that Congress intended for it to apply to loans that had been transferred before its enactment.  Moreover, while other provisions of TILA contain express effective dates, Section 1641(g) does not, which further indicates that Section 1641(g) applies prospectively and does not extend to loan transfers predating its enactment.
9th Cir. Refuses to Adopt Bright-Line “Manager Rule” Test For FLSA Claims.
By: Matthew J. Thomas

In Rosenfield v. GlobalTranz Enterprises, Inc., No. 13-15292 (9th Cir. Dec. 14, 2015), plaintiff, who had served as Manager/Director of Human Resources for the defendant company, was fired after she complained to her superiors in numerous periodic reports that the company was not in compliance with the Fair Labor Standards Act (FLSA).  Plaintiff brought an action under the FLSA’s anti-retaliation provision.  The district court granted summary judgment in favor of defendant, ruling that plaintiff failed to satisfy the so-called “Manager Rule,” adopted by the First, Fifth and Tenth Circuits, which requires a manager to show that she had stepped outside her managerial role of representing the company in order to state a FLSA retaliation claim.  The Ninth Circuit reversed, stating that it declined to adopt any bright-line rule to apply when considering whether a manager had made actionable complaints within the meaning of the FLSA.  Instead, the court held that the issue of whether a manager has engaged in protected conduct under the FLSA’s anti-retaliation provision must be resolved as a matter of factual analysis on a case-by-case basis.  The court reasoned that an employee’s status as a “manager” is but one consideration and is not entirely binary, stating that the result may be different for a first-level manager overseeing day-to-day operations versus a high-level manager responsible for ensuring the company’s FLSA compliance.  Here, because FLSA compliance was not part of plaintiff’s job responsibilities, a reasonable jury could find that her reports to her superiors were actionable complaints protected under the FLSA notwithstanding her position as a “manager” within the company.
EEOC Must Follow Pre-Suit Procedures For Pattern/Practice Claims.
By: Matthew J. Thomas

In EEOC v. CVS Pharmacy, Inc.,No. 14-3653 (7th Cir. Dec. 17, 2015), the Equal Employment Opportunity Commission claimed that CVS had engaged in a pattern or practice of resistance to the full enjoyment of their employees’ Title VII rights by conditioning severance pay on an employee signing a separation agreement that waived all claims under Title VII and limited the employee’s ability to cooperate with the EEOC.  The district court granted summary judgment in favor of defendant, holding that the EEOC had failed to engage in pre-suit conciliation procedures, and expressing skepticism that the EEOC could bring a “pattern or practice” claim without alleging that defendant had actually engaged in discriminatory employment practices.  The Seventh Circuit affirmed, rejecting the EEOC’s argument that it need not comply with pre-suit procedures set forth in Section 706 of Title VII when bringing a “pattern or practice of resistance” claim under Section 707 of Title VII.  The court held that the EEOC was required to engage in the same pre-suit conciliation procedures when bringing a “pattern or practice” claim under Section 707 as it was when bringing a discrimination claim under Section 706.  The court further concluded that because the EEOC did not allege that defendant had actually engaged in discrimination or retaliation by offering the severance agreements to terminated employees, the EEOC failed to state a claim on which relief can be granted.

Electronic Discovery

Motion to Compel Granted After Proportionality Assessment Under Revised Rule 26.
By: Daniel J. Weiss

In Siriano v. Goodman Manufacturing Co., No. 14-CV-1131 (S.D. Ohio Dec. 9, 2015), the district court granted a motion to compel the production of voluminous documentary discovery (including e-discovery) under the newly revised Fed. R. Civ. P. 26(b)(1).  The court held that “restoring proportionality is the touchstone of revised Rule 26(b)(1)’s scope of discovery provisions.”  The court then analyzed the document requests according to the factors set out in Rule 26(b)(1), including “the parties’ relative access to relevant information” and “whether the burden or expense of the proposed discovery out-weighs its likely benefit.”  The court held that the Rule 26(b)(1) factors favored permitting the discovery here because, for example, “the discovery sought by Plaintiffs is directly relevant to their claims,” “[i]t is highly unlikely that Plaintiffs could discover similar information from another source,” and the information sought was “easily accessible to Defendants but almost completely inaccessible to Plaintiffs.”  The court was “mindful that Defendants’ discovery costs could be significant,” but, the court held, “merely expensive or time consuming” discovery is not necessarily “unduly burdensome.”  The court further noted that “Defendants have not proposed alternative methods of discovery enabling some lesser degree of production, such as limiting the search to certain offices or files.”
Motion To Compel Granted In Part After Parties Fail To Analyze Proportionality.
By: Daniel J. Weiss

In Oracle America Inc. v. Google Inc., No. 10-cv-03561 (N.D. Cal. Dec. 3, 2015), the district court granted in part a motion by plaintiff to add 22 e-discovery custodians to the defendant’s document search.  The court took both parties to task for failing to “submit[] a proper analysis of the Rule 26 proportionality factors” in their briefing on the motion.  For example, the moving party did not address “the importance of the requested discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.”  The court therefore “ma[de] its best judgment based on the limited information before it” and ordered the defendant to add 10 e-discovery custodians selected by the plaintiff.
Court Finds that Personal Email Accounts Are Not Within Company’s Control.
By: Daniel J. Weiss

In Matthew Enterprise, Inc. v. Chrysler Group LLC, No. 13-cv-04236 (N.D. Cal. Dec. 10, 2015), the district court denied a motion to compel a corporate litigant to produce emails from its employees’ personal email accounts.  The court cited Ninth Circuit precedent, In re Citric Acid Litig., 191 F.3d 1090 (9th Cir. 1999), to the effect that “[d]ocuments are not discoverable under Rule 34 if the [non-party] that holds them ‘could legally – and without breaching any contract – continue to refuse to turn over such documents.’”  The court concluded that the requesting party in this case had not “identified any authority under which [the corporate party] could force employees to turn [the personal email accounts] over.”  The court therefore found that it would be “futile” to order the employer to produce the employees’ personal emails because the employer “does not have the legal right to obtain” them.

Insurance and Reinsurance Litigation

Illinois Appellate Court Rejects Insurer Contention That “Broad and General” Pollution Exclusion Barred Mold-Related Claims.
By: Alexander J. Bandza

Certain jurisdictions interpret the pollution exclusion more expansively than others, but a recent Illinois decision interpreting Texas law suggests that this expansiveness has its limits.  In re Liquidation of Legion Indemnity Company, 2015 IL App (1st) 140452 (Ill. App. Ct. Nov. 10, 2015).  Legion concerned a commercial general liability policy issued by Legion Indemnity Co. (“Legion”) and whether a pollution exclusion in that policy applied to mold-related claims.  The policy included specific exclusions for asbestos and lead contamination as well as a generic “Pollution and Health Hazard” exclusion that excluded, among other things, “contamination of the environment by any pollutant that is introduced at anytime, anywhere, or in any way.”  The trial court held that mold fell within this broad definition and, therefore, the “Pollution and Health Hazard” exclusion barred coverage for mold-related claims.  The First District reversed, stressing that courts must interpret exclusions narrowly and in favor of coverage.  The appellate court noted that the policy did not specifically exclude mold- or fungi-related claims.  The court then rejected that the policy exclusion applied, reasoning that the exclusion and its definitions used such “broad and general language” that “anything—solid, liquid, gas or substance—that would potentially cause injury to a person would be excluded from coverage.”  In the First District’s view, such a reading would render the policy “illusory.”  In reaching its conclusion, the court acknowledged that Legion had later issued several other insurance policies that “unambiguously” excluded mold or fungi from coverage, but it stressed that the existence of such revised policies was not determinative.
Additional Insured’s Own Negligence Falls Within The Scope of Named Insured’s Duty To Defend.   
By: Jan A. Larson

Interpreting an additional insured endorsement, the Court of Special Appeals of Maryland recently held that the use of the phrase “caused, in whole or in part, by” triggered the insurer’s duty to defend claims alleging negligence by its named insured, its additional insured, or both.  James G. Davis Constr. Corp. v. Erie Ins. Exch., 126 A.3d 753 (Md. Ct. Spec. App. 2015) (No. 802).  As part of the underlying action, James G. Davis Construction Corp. (“Davis”) served as the general contractor on a home construction project in Washington, DC, and entered into a subcontractor agreement with Tricon Construction, Inc. (“Tricon”) for certain discrete service work.  Pursuant to the subcontractor agreement, Davis was included as an additional insured on a commercial general liability policy issued by Erie Insurance Exchange (“Erie”) to Tricon as the named insured.  The additional insured endorsement in that policy provided coverage for injuries “caused, in whole or in part, by” (i) Tricon’s acts or omissions or (ii) the acts of omissions of those acting on Tricon’s behalf.  Both Tricon and Davis were later sued in a personal injury action, alleging that each had been negligent in connection with faulty worksite scaffolding erected by Tricon and approved by Davis.  Using its additional insured status, Davis sought coverage from Erie under the policy issued to Tricon.  Erie denied any duty to defend or indemnify, arguing that Davis was not entitled to additional insured coverage for its own negligence.  Reversing the lower court’s decision in favor of the insurer, the Court of Special Appeals held that the use of the phrase “caused, in whole or in part, by” in the policy’s additional insured endorsement broadened the coverage available to Davis, as compared, for example, to the use of a phrase like “arising out of.”  The former phrase could include liability proximately caused, while the latter phrase could be limited to liability vicariously caused.  As a result, the insurer’s duty to defend Davis was not limited to claims of vicarious liability dependent upon Tricon’s acts or omissions, and instead, was triggered by the acts or omissions of either its named insured (Tricon), or its additional insured (Davis), or both.  Since the complaint alleged negligence by both Tricon and Davis contributed to the underlying accident and injuries, Erie was obligated to defend, and potentially indemnify, both of them in response to the underlying action.   

Professional Responsibility and Ethical Developments

Company’s Request For Interlocutory Appeal Is Denied In GC’s Whistleblower Lawsuit.
A California federal district court denied Bio-Rad’s Motion for Certification of Interlocutory Appeal addressing whether the Sarbanes-Oxley and Dodd-Frank anti-retaliation provisions provide for liability against non-officer directors taken in their capacity as such.  Wadler v. Bio-Rad Lab, Inc.,No. 15-cv-02356 (N.D. Cal. Dec. 15, 2015).  In October, the court denied Bio-Rad’s motion to dismiss its former Bio-Rad Laboratories general counsel’s whistleblower action, holding that a whistleblower may maintain an action pursuant to the Sarbanes-Oxley Act against individual directors involved in retaliatory conduct, reasoning that Congress intended to impose individual liability on those who are functionally able to retaliate against whistleblowers.  The court this month denied the certification motion because an immediate appeal would have delayed resolution of the case.  Even if Bio-Rad were to succeed on its appeal, the retaliation claims against the company would still need to be litigated and would require the parties to engage in similar discovery.
Ninth Circuit Affirms Dismissal Of Whistleblower Case To Protect Classified Information.
By: Gregory M. Boyle and John R. Storino

The Ninth Circuit has affirmed the dismissal of a former Raytheon employee’s False Claims Act suit, in which the ex-employee alleged that Raytheon consistently failed to meet the government’s requirements on an electronic device contractU.S. ex rel. Mateski v. Mateski,No. 14-56798 (9th Cir. Dec. 18, 2015).  The government demonstrated a rational relationship between avoiding disclosure of classified information and dismissal of the lawsuit: dismissal would prevent the inadvertent disclosure of classified information by the parties during the conduct of the litigation, including any need for Raytheon to present classified information in connection with its defense.  The relator contended that the information at issue is already in the public domain, but the court determined that the government’s classification decisions are entitled to deference.  Further, the relator could not demonstrate that the dismissal would be fraudulent, arbitrary, capricious, or illegal.

White Collar Defense & Investigations

Liquidator Had Right To Assert Privilege Over Audit Committee Investigation.
By: Robert R. Stauffer

In In re China Medical Technologies, Inc.,539 B.R. 643 (S.D.N.Y. 2015) (No. 12-BR-13736), the liquidator of a company subject to insolvency proceedings sought access to materials relating to a pre-bankruptcy internal investigation conducted by outside counsel for the company’s audit committee.  The Bankruptcy Court ordered outside counsel to produce non-privileged materials but not materials withheld under the attorney-client privilege or the work product doctrine; the liquidator appealed as to the withheld documents.  The parties recognized the key precedent as to the attorney-client privilege to be CFTC v. Weintraub, 471 U.S. 343 (1985), in which the Supreme Court found that a corporation’s privilege as to pre-bankruptcy communications is controlled, and waivable, by the trustee in bankruptcy.  The issue was whether that reasoning should extend to privileged communications that the audit committee, as opposed to management, had with counsel.  The Bankruptcy Court noted that Weintraub suggested that its holding might differ in the case of an individual, and it found that the Audit Committee, given its independence, is more akin to an individual.  The District Court rejected that argument, finding that the Audit Committee’s status is not analogous to an individual; rather, it is a committee of the board of directors and thus a critical component of the corporation’s infrastructure.  The court also rejected arguments that the attorney-client communications might never have been made if not for an assurance that the privilege would be maintained, noting that similar reasoning had been rejected in Weintraub.  The court thus found that the liquidator now owned the privilege and could waive it.  The court found, however, that the same reasoning did not extend to the work product doctrine.  That issue had only been peripherally addressed by the Bankruptcy Court, and thus the court did not fully explore the contours of outside counsel’s ability to withhold work product materials, but it noted that the work product protection belongs to counsel and cannot be waived by the client.  It thus found that the liquidator could not unilaterally waive the work product protection.

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