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.”