Opinion
02 Civ. 8855 (LAK).
September 14, 2004
ORDER
The Securities and Exchange Commission ("SEC") appeals from aspects of Magistrate Judge Henry B. Pitman's opinion and order with respect to the SEC's motion to compel the production of documents.
On October 8, 2002, defendant Beacon Hill Asset Management LLC ("BH") announced a 25 percent loss in the net asset value of its hedge funds. Nine days later, it issued a second announcement of a loss — this time of 54 percent. Not surprisingly, the SEC began an investigation. In the course of that investigation, counsel for BH told the Commission that the repricing of BH's portfolio had been reviewed by an outside expert, A.M. Davidson Company ("Davidson") and that Davidson had concluded that "the numbers did not look unreasonable." Insofar as remains relevant, the SEC seeks production, over Beacon Hill's claims of work product and attorney-client privilege protection, of e-mail communications with Davidson employees and internal BH e-mails reflecting communications with Davidson.
Judge Pitman rejected the SEC's claim, noting that the SEC did not draw any connection between the specific e-mails that it seeks and the veracity of BH's representations to it but instead advocated the position that "any voluntary disclosure to or communication with [the SEC] operates as a total waiver of the attorney-client privilege with respect to all documents, regardless of whether they are directly related to the communications with the SEC." Opinion 20. The SEC contends that he erred in this respect not because the materials in question are unprotected by either or both of the work product doctrine and the attorney-client privilege, but on the theory that BH waived any protection by counsel's statements to the SEC's staff.
The SEC places principal reliance on In re Kidder Peabody Sec. Litig., 168 F.R.D. 459 (S.D.N.Y. 1996) (Dolinger, M.J.), which held that the public disclosure of an independent counsel's report of an internal corporate investigation waived protection that otherwise would have attached to the counsel's interview documents in light of the defendant's "repeated injection of the substance of the report into this and other litigations and into related litigation contexts." Id. at 470. But it is unnecessary to express any opinion as to the correctness of Kidder Peabody on its own facts to conclude that the SEC here seeks to extend it farther than is warranted on the facts of this case.
Kidder Peabody rests on the well established principle that one who places the substance of privileged information in issue as, for example, by asserting an advice of counsel defense in a lawsuit is deemed thereby to have waived the privilege where its application would deny the opposing party a fair opportunity to contest the point in question. Id. (citing, inter alia, United States v. Bilzerian, 926 F.2d 1285, 1292 (2d Cir. 1982), cert. denied, 460 U.S. 1051 (1983)); Granite Partners, L.P. v. Bear, Stearns Co., 184 F.R.D. 49 (S.D.N.Y. 1999). But that is not the situation here.
To begin with, the SEC points to no public disclosure comparable to that found in Kidder Peabody. Nor is abrogation of the otherwise conceded protection of these documents appropriate to avoid unfairness to the SEC in this case. Cf. In re Grand Jury Proceedings, 219 F.3d 175, 182-83 (2d Cir. 2000). The Commission here has had ample opportunity to conduct discovery, including discovery of Davidson and of the BH principals. It has had ample opportunity to engage its own experts to address the valuation issues. Thus, preserving the protection otherwise afforded to BH's consultations with Davidson would not deprive the Commission of a fair opportunity to litigate the issue of the net asset value of the funds, which is the vital question. Moreover, should the Commission develop evidence suggesting that BH misled the staff concerning the advice it had received from Davidson, and should that issue be relevant, the Commission would be at liberty to seek production not on a waiver theory, but on the basis of the crime or fraud exception. Perhaps other circumstances might justify a renewed application. But the Commission has failed to show that the Magistrate Judge erred.
To the extent that the latter have invoked their privileges against self-incrimination, it will be entitled to put that fact in evidence and seek appropriate adverse inferences against them.
The Court imputes no prejudgment of this issue.
Accordingly, the order appealed from is affirmed.
SO ORDERED.