White-collar defense alert: Your interview notes may not be shielded

By Alison Frankel
November 21, 2013

The basic scenario described by U.S. District Judge Paul Gardephe of Manhattan in an opinion made public on Wednesday should sound familiar to every white-collar defense lawyer out there. A company, in this case, the hedge fund D.B. Zwirn, falls under scrutiny, here for allegedly diverting investors’ money into boondoggles like a corporate jet. The company hires lawyers (Schulte Roth & Zabel and, later, Gibson, Dunn & Crutcher) to investigate the allegations. The lawyers prowl through documents and question internal witnesses. Eager to appear cooperative, the company volunteers to present its lawyers’ findings to regulators. And after the presentation, the Securities and Exchange Commission places blame squarely in the lap of a particular corporate official, here former Zwirn CFO Perry Gruss.

Happens all the time, right? Which is why you should all read Gardephe’s opinion carefully. The judge ruled that Gibson Dunn must produce its own notes on witness interviews the firm conducted during the Zwirn internal investigation – notes that the firm never even showed its client – for in camera inspection, after which he’ll turn over all factual work product to Gruss, who is suing Zwirn for defaming him. Gardephe’s new ruling refers back to his opinion from last July, in which he held that Zwirn had waived privilege over its lawyers’ work product when the hedge fund relied on some of the material in Gibson Dunn’s PowerPoint presentation to the SEC. Gibson Dunn had argued in a request of clarification of Gardephe’s July ruling that its own notes, which contain opinions and impressions of Gibson lawyers, are subject to an exception under New York state precedent. But Gardephe said the law firm has no independent expectation of privacy for notes on witness interviews conducted in connection with a client assignment.

Those notes aren’t “internal (law) firm documents,” the judge said, but are work Gibson Dunn produced for Zwirn. So under his previous ruling that Zwirn had waived privilege, Gardephe held, Gruss is entitled to see the Gibson Dunn notes. (Tip of the hat to the indispensable S.D.N.Y. Blog, which reported the opinion Wednesday.)

For Gruss, who is in the midst of discovery in the SEC case against him in Manhattan federal court, the ruling is a double-barreled win. His lawyer in the defamation suit, Blaine Bortnick of Liddle & Robinson, will be able to test Gruss’s theory that Zwirn scapegoated him, selectively disclosing incriminating information about him to the SEC while shielding information that might have incriminated other hedge fund officials. And perhaps even more significantly, Gruss’s counsel in the SEC case, Nick Akerman of Dorsey & Whitney, can shape his client’s defense based on what Zwirn witnesses told Gibson Dunn. Especially if the SEC case goes to trial, those Gibson notes give Akerman a preview of what witnesses will say and a record to confront them with if they tell a different story at trial.

Gibson Dunn, which was represented by partner Reed Brodsky (best known as the assistant U.S. Attorney who prosecuted Raj Rajaratnam and Rajat Gupta) in the Zwirn privilege briefing, had put forth a public policy argument for protecting its internal notes. “Presenting the results of an investigation to the government – even if the client were to disclose its work product – did not and cannot waive Gibson Dunn’s own rights over its own internal, preliminary work product,” the firm said. “Forcing a law firm to disclose associates’ notes that have never before been disclosed – not even to the client – to facilitate a civil plaintiff’s fishing expedition in a lawsuit brought against the firm’s former client inflicts serious harm on the client’s and the lawyers’ ability to effectively investigate allegations of wrongdoing and the public’s compelling interest in promoting prompt and helpful cooperation with the government.”

Judge Gardephe didn’t even get into the public policy issues in the opinion issued Wednesday. Gibson Dunn’s legal argument for its own privacy interest, he said, was based on a 1997 New York state case called Sage Realty v. Proskauer, in which the Court of Appeals established a narrow exception to a client’s right to counsel’s files, shielding “firm documents intended for internal law office review and use.” The judge ruled that Gibson’s witness notes don’t fall under the Sage exception. (He also said that federal law, not state law, governs questions of work product protection.) Gardephe noted that Gruss won’t see Gibson’s opinion or impressions because he’s reviewing the Gibson notes before they’re turned over to Gruss.

So, should every law firm that makes a presentation to the SEC on behalf of a client worry that its notes will end up becoming public? Will lawyers stop taking notes of witness statements in internal investigations for fear they’ll be demanded by fired former employees of the client? Will companies stop disclosing the results of their investigations to regulators lest they be deemed to have waived attorney-client privilege?

Gruss counsel Bortnick told me those fears are way overblown. “This ruling is in keeping with the bedrock principles of work product privilege,” he said. When Zwirn voluntarily presented privileged information to the SEC with no promise that the SEC would treat the material as confidential, Bortnick said, it risked waiving the privilege. Gardephe might have ruled differently if Zwirn had produced information to the SEC under a subpoena, he said, but that question wasn’t before him. (Bortnick said he always asks the SEC to subpoena his clients in order to defend against potential claims that clients waived privilege.)

There’s a public interest at stake in Gardephe’s ruling, Bortnick told me, but it’s not Gibson Dunn’s doomsday prediction that defendants won’t cooperate with the government unless their lawyers’ notes are shielded. “The very important policy behind this that’s being upheld is to prevent companies from skewing presentations on their investigations to point the finger at someone else,” he said.

(Reporting by Alison Frankel)

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