Managing Litigation Risk Through Effective Use of Interoffice . Simon Malko Partner, Litigation Department

Transcription

1 Managing Litigation Risk Through Effective Use of Interoffice Simon Malko Partner, Litigation Department

2 Simon R. Malko Partner Phone: Fax: Simon R. Malko is a partner in the firm s Litigation Practice. He has substantial experience in a broad range of commercial litigation matters, including securities, business torts, complex real estate transactions, distressed assets, bank failures, special investigations, professional liability, and litigation arising from investment banking and other corporate transactions. He has represented clients as both plaintiffs and defendants in federal and state courts, and has considerable appellate experience. Mr. Malko is the Firm s Deputy General Counsel and he advises the firm on matters involving ethics, privilege and the Rules of Professional Conduct. Mr. Malko also serves on the Firm s Management Committee. Prior to joining the firm in 2002, Mr. Malko began his legal career in New York City where he represented top Fortune 50 companies and large investment banks. PRACTICE AREAS: Corporate & Commercial Litigation BAR ADMISSIONS: New York State Bar, admitted 1998 State Bar of Georgia, admitted 2003 COURT ADMISSIONS: U.S. District Court, N.D.G.A., 2003 U.S. District Court, S.D.N.Y., 1998 U.S. District Court, E.D.N.Y., 1998 Representative Matters Securities litigation and claims arising under the Racketeer Influenced and Corrupt Organization ( RICO ) Act. Litigation arising from commercial real estate development projects, loans and partnerships. Representing manufacturers and suppliers in a wide variety of contract and supply agreement disputes. Representing corporations and investment banks in litigation arising from mergers, acquisition and other corporate transactions. Representing technology companies in trade secrets litigation. Representing companies in claims arising from stolen customer lists and other proprietary information. Representing commercial lenders in real estate workout transactions. Education Emory University, B.A., 1994 Fordham University School of Law, J.D., cum laude, 1997 Fordham Law Review, Member Honors and Affiliations Member, Atlanta Bar Association Selected as a Georgia Rising Star by Atlanta Magazine, 2007,

3 OUTLINE Part One Counseling Clients to Avoid Careless Part Two Privilege Issues

4 THE PROBLEM Clients tend to be careless in what they write in s; especially interoffice s.

5 THE CAUSE Many clients treat s with the informality of a conversation, not the formality of correspondence.

6 CONVERSATION -vs- CORRESPONDENCE

7 s Last Forever Cannot be erased Civil procedure rules regarding e-discovery and spoiliation

8 New Form of Communication Conversation via Correspondence Informality of a conversation Permanence of correspondence

9 Three Common Problems 1. What I Said vs. What I meant. 2. Deflecting Blame 3. Comments Taken Out of Context

10 Take Away Points 1. s Last Forever 2. s are Correspondence not Conversation 3. Face-to-Face Meeting are the Better Option for Some Topics

11 Privilege Issues Privilege may not apply (or may be waived) if: 1. Bankruptcy 2. Internal Investigations 3. Merger Transactions 4. Inadvertent Disclosure

12 Merger Transactions The attorney-client privilege is an intangible asset. Unless it is specifically excluded in the merger or asset sale agreement, the acquiring company will be successor-in-interest to the privilege.

13 Inadvertent Disclosure Georgia does not have a specific rule on inadvertent disclosure. Federal courts have held that failure to label documents as privileged constitutes a failure to protect privilege.

14 Inadvertent production of privileged documents: What every Georgia lawyer needs to know; IN PRACTICE The Daily Report (Fulton County GA) April 29, 2014 Tuesday SECTION: ON TOPIC; Pg. 5 Vol. 125 No. 83 LENGTH: 1235 words Copyright 2014 ALM Media Properties, LLC All Rights Reserved The Daily Report (Fulton County GA) April 29, 2014 Tuesday HEADLINE: Inadvertent production of privileged documents: What every Georgia lawyer needs to know; IN PRACTICE BYLINE: SIMON R. MALKO BODY: CONSIDER THE FOLLOWING scenario: in reviewing materials provided in discovery by your adversary in civil litigation, you discover that opposing counsel inadvertently produced privileged documents. Are you required to notify opposing counsel of this error? Are you allowed to read the documents? Do you have to return the documents or can you use them in the litigation? The answers to these questions are not as straightforward as you might think. Part of the confusion stems from the fact that Georgia has not adopted the provision of the Model Rules of Professional Conduct that specifically addresses this issue. Likewise, the Georgia Civil Practice Act and Georgia Evidence Code omit relevant provisions of the Federal Rules of Evidence and Civil Procedure that also address inadvertent disclosure. However, as discussed below, there is some guidance found in Georgia case law that can assist a Georgia lawyer in addressing the issues that arise from inadvertent disclosure. The Model Rules of Professional Conduct Under Rule 4.4(b) of the American Bar Association's Model Rules of Professional Conduct, "a lawyer who receives a document related to the representation of the lawyer's client, and knows or reasonably knows that the document was inadvertently sent, shall promptly notify the sender." This rule, which applies to both litigation and non-litigation matters, was enacted in The vast majority of states have adopted this rule or something substantially similar to it, but Georgia has not. Nevertheless, Georgia lawyers who appear pro hac vice in other jurisdictions should be aware that this rule exists because lawyers practicing in other states generally are required to comply with the forum state's ethics rules. Federal jurisprudence

15 Georgia lawyers who practice in federal court (in Georgia and elsewhere) should be aware of two provisions of the Federal Rules that apply to inadvertent disclosure. First, Fed. R. Civ. P. 26(b)(5)(B) provides that a party who inadvertently produces a privileged document can notify the receiving party of a claim of privilege. Thereafter, the party being so notified must return or sequester the document (and may not use it) until the claim of privilege is resolved. This rule is more protective than Model Rule 4.4(b) in some respects, but less protective in others. For example, unlike Rule 4.4(b), FRCP 26 does not require a party receiving potentially privileged information to notify the producing party of the inadvertent disclosure. Moreover, FRCP 26 only applies in civil litigation, while Model Rule 4.4(b) applies in any legal context-i.e., civil litigation, criminal litigation, corporate transactions, etc. On the other hand, once a receiving party has been notified of the claim of privilege, FRCP 26 requires the receiving party to sequester and not use the allegedly privileged document until the claim of privilege is resolved. Model Rule 4.4(b) imposes no such requirement. The second relevant federal provision is Federal Rule of Evidence 502(b)(2). That rule provides that the disclosure of information subject to the attorney-client privilege or work product doctrine shall not constitute a waiver if: the disclosure was inadvertent; the producing party took reasonable steps to prevent disclosure; and the producing party promptly notifies the receiving party upon discovery of the error. In applying that rule, federal courts generally place the burden on the party asserting the privilege to prove that production was inadvertent and that reasonable steps were taken to prevent disclosure. n1 Where the proponent of the privilege fails to demonstrate that it took adequate steps to insure that privileged materials were not produced in discovery, courts have found a waiver. For instance, one court found that the privilege was waived where the attorney mistakenly filed privileged documents under seal (with a copy sent to opposing counsel) instead of filing them for an in camera inspection by the court. n2 Another court held that reasonable steps were not taken to protect the privilege where the author of privileged documents failed to label the documents as privileged or identify the author of the documents as an attorney. n3 Georgia practice As noted above, the Georgia Rules of Professional Conduct do not include Model Rule 4.4(b). The Georgia Civil Practice Act and the recently amended Georgia Evidence Code do not include provisions analogous to FRCP 26(b)(5)(b) and FRE 502(b) (2) discussed above. Moreover, there are no Georgia ethics opinions on this topic. n4 Notwithstanding the lack of any controlling ethics rules, advisory opinions or statutes, Georgia courts have nevertheless protected privileged documents that have been inadvertently disclosed. In one recent instance, the Georgia Court of Appeals affirmed a trial court's decision ordering the return of inadvertently produced documents. n5 In so ruling, the Court of Appeals noted that the trial court had broad discretion in such discovery-related matters. The Court of Appeals also declined to apply the Federal Rules discussed above, relying instead on the general protection of privilege set forth under Georgia law. n6 The Court of Appeals also appeared to place the burden on the party seeking disclosure

16 to demonstrate that the privilege was waived. Thus, while the legal basis for the return of inadvertently produced materials is less settled under Georgia law than it is under federal law, Georgia courts do seem inclined to allow the clawback of privilege materials. Conclusions Georgia lawyers should be aware that, when practicing in other jurisdictions which have adopted Model Rule 4.4(b), they may have an ethical obligation to notify opposing counsel of inadvertently disclosed materials. Moreover, when litigating in federal courts, there are specific statutory guidelines addressing inadvertent disclosures. While there are no corollary provisions under Georgia ethical, procedural or evidence rules, Georgia courts have nevertheless been willing to protect the privilege in the event of an inadvertent disclosure. However, to avoid any doubt, lawyers should consider entering into a clawback agreement with opposing counsel prior to the commencement of discovery. This provides both parties with an added measure of protection. Footnotes [note 1] See e.g., Callan v. Christian Audiger Inc., 263 F.R.D. 564, 566 (C.D. Cal. 2009); Peterson v. Bernardi, 262 F.R.D. 424, (D.N.J. 2009). But see Woodard v. Victory Records, 2013 WL (N.D. Ill. 2013) (party that receives a notice of inadvertent disclosure under FRCP 26(b)(5)(B) has the burden to challenge the claim of privilege). [note 2] First American Corelogic Inc. v. Fiserv Inc., 2010 WL (E.D. Tex. 2010). [note 3] Carlson v. Carmichael, 2013 WL (E. D. Pa 2013) [note 4] Prior to the enactment of Model Rule 4.4(b), there was an ABA Formal Advisory Opinion regarding inadvertent disclosure (No ), but that opinion has been subsequently withdrawn. (See ABA Formal Opinion No ) Moreover, that prior opinion was criticized by other sources and several courts, including a federal district court in Georgia that expressly rejected it. See In re: Polypropylene Carpet Antitrust Lit., 181 F.R.D. 680, 697 (N.D. Ga. 1998). [note 5] Alston & Bird v. Mellon Ventures II L.P., 706 S.E.2d 652 (2011). [note 6] See former O.C.G.A (now O.C.G.A ).

17 Correspondence Is Not As Privileged As You Might Assume; Attorneys should practice the same caution they advise for their clients; In Practice The Daily Report (Fulton County GA) (Online) August 6, 2013 Tuesday LENGTH: 889 words Copyright 2013 ALM Media Properties, LLC All Rights Reserved Further duplication without permission is prohibited The Daily Report (Fulton County GA) (Online) August 6, 2013 Tuesday HEADLINE: Correspondence Is Not As Privileged As You Might Assume; Attorneys should practice the same caution they advise for their clients; In Practice BYLINE: Simon Malko BODY: is an innovative tool that has changed business by creating unprecedented productivity and efficiency. As with most innovations, however, also has a downside. There is no shortage of examples of a poorly written creating embarrassment or liability for companies. Part of the problem stems from the fact that, while is technically a form of correspondence, most users treat with the informality of a conversation. Users routinely write things in an that they would never write on official company letterhead. This is ironic because the record created by mailing a dozen letters is far less permanent than the record created by sending only one . While attorneys regularly counsel their clients to approach with caution, attorneys often ignore that advice in their own correspondence. Frequently, this is because attorneys operate under the assumption that their s are privileged and will never be subject to disclosure. As discussed below, however, that assumption is not always correct. There are numerous scenarios under which any attorney's (even those rendering legal advice) will not be protected from subsequent disclosure. Therefore, when sending , attorneys should exercise the same caution that they urge from their clients. When the client waives privilege It is well-settled that the privilege belongs to the client, not the attorney. As a result, the client has the power to waive the privilege, even if doing so is inconvenient, embarrassing or harmful to the attorney. This often comes into play in a fee dispute between the attorney and client. In such a dispute, the attorney will likely be required to produce to the client all of the attorney's internal communications regarding the engagement. To the extent the attorney has made critical and embarrassing comments in those internal s, they may undermine the attorney's fees claim. Waiver of the privilege also can occur in connection with an internal investigation. In the context of such investigations, companies often decide to cooperate with regulatory or law enforcement agencies by voluntarily disclosing privileged s. Some courts have held that, where a company voluntarily shares its privileged communications with such

18 agencies, the privilege is deemed waived for the purposes of future civil litigation asserted by third-parties. Bankruptcy or receiverships Bankruptcy is another context where otherwise privileged attorney-client s might be disclosed. In Commodity Futures Trading Comm's v. Weintraub, regulators sought to subpoena privileged information from a bankrupt company. The bankruptcy trustee for the company agreed to waive the privilege, but the officers and directors of the company objected. The Supreme Court explained that "the right to assert the attorney-client privilege is an incident of control of the corporation and remains with the corporation." Thus, the Court concluded that the bankruptcy trustee's authority to act for the bankrupt company includes the authority to waive the company's attorney-client privilege, even as to matters that occurred prior to the bankruptcy. This power to waive the privilege similarly has been applied to receivers. In S.E.C. v. Elfindepan, the Securities and Exchange Commission brought securities fraud claims against a company and its principals. When the receiver who was appointed for the company demanded production of certain privileged materials from the company's former attorney, the attorney objected on the basis of privilege. The court overruled that objection on the grounds that the receiver was entitled to assert (and waive) the privilege for the company. Thus, the attorney was required to provide that information to the receiver. M&A transactions Applying the rationale from Weintraub, numerous courts have held that the acquirer of most or all of a corporation's assets also acquires the right to assert the corporation's attorney-client privilege. Thus, where a corporation acquires all or substantially all of the assets of another corporation, the acquirer succeeds to the privilege as it relates to preclosing legal matters. Some courts even have held that this includes legal advice regarding the acquisition. For example, in Medcom Holding Co. v. Baxter Travenol Labs, Inc., the acquiring company sued the selling company for fraud in connection with the sale of a subsidiary. The acquiring company claimed it was entitled to documents containing privileged communications between the subsidiary and in-house attorneys at the selling company regarding the transaction at issue. The court ordered production of those materials on the grounds that the privilege was transferred to the acquiring company as part of the transaction. The court explained that "parties who negotiate a corporate acquisition should expect that the privileges of the acquired corporation would be incident of the sale." Conclusion The foregoing examples are not intended to be exclusive. Rather, they are meant to illustrate that there are a myriad of scenarios under which any attorney's (even those dispensing legal advice) might not be protected from production in the future. Attorneys should bear this in mind and exercise the same caution they urge from their clients when it comes to sending .