Legal Opinions - U.S. District Court, Maryland: August 4, 2008

Daily Record, The (Baltimore), Aug 4, 2008

Securities

Selective waiver

BOTTOM LINE: District court held that doctrine of selective waiver did not protect documents from discovery where they had previously been disclosed to other parties to the litigation, despite the entry of a confidentiality agreement with those parties.

CASE: In re Mutual Funds Investment Litigation; In re Excelsior, Federated, Scudder and AMCAP, USDMD Nos. 04-MD-15861, 04-cv-1288, 04- cv-1298 (filed July 7, 2008) (Judge Blake).

FACTS: In MDL litigation involving alleged market timing and late trading, the Scudder/Deutsche defendants produced to the SEC and the New York Attorney General's Office (NYAG) numerous documents originally generated by, or representing communication with, in- house legal counsel prior to the beginning of the regulatory investigations in July 2003.

Scudder/Deutsche also produced documents created by the National Economic Research Associates (NERA), which was retained by the defendants' outside counsel as an economic consultant in the market timing investigation. They did so subject to "non-waiver" and "confidentiality" agreements, executed September 1, 2004.

Both agreements stated that "Deutsche Bank does not intend to waive the protection of the attorney work product doctrine, attorney- client privilege, or any other privilege applicable to third parties." Further, the SEC and the NYAG agreed that they "will maintain the confidentiality of the Confidential Materials pursuant to this agreement and will not disclose them to any third party, except to the extent that the [SEG or NYAG] determines the exposure is otherwise required by law or would be in furtherance of the [SEC's or NYAG's] discharge of its duties and responsibilities."

The investigations ultimately resulted in settlements between Scudder/Deutsche and both regulatory agencies including payment of disgorgement, restitution, and civil penalties totaling over $100 million to be distributed for the benefit of shareholders of the affected funds.

Here, the class plaintiffs requested production of all documents provided to the SEC or other regulatory agencies with regard to market timing or late trading. In connection with that production, the defendants withheld approximately 36,000 of documents identified on a privilege log, including NERA's economic analysis, asserting attorney-client privilege and/or work product protection.

The documents were previously disclosed to regulators subject to a confidentiality agreement, and the defendants sought to avoid production to the plaintiffs by relying on the doctrine of selective waiver.

The district court rejected selective waiver, and ordered the defendants to produce the documents.

LAW: Scudder/Deutsche disclosed otherwise protected material, voluntarily, to an adversary, for their own benefit in negotiation of a settlement with the regulators. Absent a confidentiality agreement, under established 4th Circuit law, that disclosure likely would constitute a subject-matter waiver as to the attorney-client and non-opinion work product material, as well as a waiver of the opinion work-product protection limited to the documents actually disclosed. See In re Martin Marietta Corp., 856 F.2d 619, 623-26 (4th Cir. 1988).

The 4th Circuit has not directly addressed the extent to which a confidentiality agreement may protect against waiver, although in In re Doe, 662 F.2d 1073, 1081 (4th Cir. 1981), it explained that waiver of work product protection may occur in circumstances where the attorney "cannot reasonably expect to limit the future use of the otherwise protect material." See also U.S. v. Jones, 696 F.2d 1069, 1072 (4th Cir. 1982).

The 10th Circuit comprehensively reviewed the law on selective waiver in a 2006 opinion rejecting that concept, even in the context of a confidentiality agreement. See In re Qwest Commc'n Int'l Inc., 450 F.3d 1179, 1194 (10th Cir. 2006). The Qwest analysis was persuasive.

Like the circumstances in the instant case, the confidentiality agreements in Qwest permitted the SEC and the DOJ to use the documents "as required by law and in furtherance of the discharge of their agreements." Id. While the DOJ agreement in Qwest spelled out more extensively the agency's right to share the documents with other government agencies, id., at 1181-82, the SEC agreement appeared to have been identical to the agreement in the instant case.

Here, the confidentiality provision was sufficiently broad to have permitted extensive disclosure had the matters not settled, and had the SEC or the NYAG found such disclosures necessary to press investigations forward.

As in Qwest, applying selective waiver to the Scudder/Deutsche documents would essentially be adopting a rule that placed control of the defendant's attorney-client and work-product in the hands of the agencies. Id. at 1194. The scope of the waiver would depend on the fortuity of which and how many disclosures an agency found appropriate in furtherance of the discharge of its duties and responsibilities.

Other courts have also found a confidentiality agreement insufficient to prevent waiver. See In re Columbia/HCA Healthcare Corp., 293 F.3d 289, 306-07 (6th Cir. 2002). Thus, the weight of authority supported rejections of selective waiver here.