UNITED STATES DISTRICT COURT FOR THE SOUTHERN …Case 1:07-cv-06767-JSR Document 155 Filed 07/08/10 Page 6 of 25 3 that the running of any statute of limitations on THL’s claims

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK

In re REFCO, INC. SECURITIES LITIGATION,

ELECTRONICALLY FILED No. 07-MDL-1902 (JSR)

THOMAS H. LEE EQUITY FUND V, L.P., THOMAS H. LEE PARALLEL FUND V, L.P., and THOMAS H. LEE EQUITY (CAYMAN) FUND V, L.P.,

Plaintiffs, vs. MAYER, BROWN, ROWE & MAW LLP, and JOSEPH P. COLLINS,

Defendants.

Case No. 07-cv-6767 (JSR)

MEMORANDUM OF MAYER BROWN LLP IN OPPOSITION TO PLAINTIFFS’ APPEAL

FROM THE JUNE 17, 2010 SPECIAL MASTER’S ORDER FINDING WAIVER OF WORK-PRODUCT PROTECTION

WILLIAMS & CONNOLLY LLP 725 Twelfth Street, NW Washington, DC 20005 (202) 434-5000 Attorneys for Mayer Brown LLP

Case 1:07-cv-06767-JSR Document 155 Filed 07/08/10 Page 1 of 25

i

Table of Contents INTRODUCTION .......................................................................................................................... 1

BACKGROUND ............................................................................................................................ 1

The Litigation ............................................................................................................................. 1

The Many Roles of Weil, Gotshal & Manges ............................................................................ 1

The Adversity between THL and WGM .................................................................................... 2

The Preparation Sessions ............................................................................................................ 3

The Depositions .......................................................................................................................... 4

Plaintiffs’ and WGM’s Record of Discovery Foot-Dragging .................................................... 5

Proceedings before the Special Master ....................................................................................... 6

ARGUMENT .................................................................................................................................. 6

I. SPECIAL MASTER HEDGES DID NOT ABUSE HIS DISCRETION IN FINDING A WAIVER OF WORK-PRODUCT PROTECTION. ...................................................................... 6

II. EVEN IN THE ABSENCE OF WAIVER, COMMUNICATIONS AT THE DEPOSITION PREPARATION SESSIONS ARE DISCOVERABLE. .............................................................. 14

III. MAYER BROWN WAS NOT REQUIRED TO SHOW SUBSTANTIAL NEED TO OBTAIN DISCOVERY OF COMMUNICATIONS AT THE DEPOSITION PREPARATION SESSIONS AND IN ANY EVENT HAS A SUBSTANTIAL NEED FOR THE COMMUNICATIONS. ................................................................................................................ 16

IV. PLAINTIFFS HAVE NO BASIS TO APPEAL THE SPECIAL MASTER’S RULING REGARDING ATTORNEY NOTES. .......................................................................................... 20

CONCLUSION ............................................................................................................................. 21


ii

Table of Authorities

CASES

Bodega Investments, LLC v. United States, 2009 WL 1456642 (S.D.N.Y. May 14, 2009) ..........14

Bowne v. AmBase Corp., 150 F.R.D. 465 (S.D.N.Y. 1993) ....................................................12, 13

Burger v. Kemp, 483 U.S. 776 (1987) .............................................................................................9

Caliber One Indemnity Co. v. Millard Chicago Window Cleaning, No. 04 C 2424, 2006 WL 573895 (N.D. Ill. Mar. 6, 2006)……………………………………………………………….16

Dean v. Superintendent, Clinton Correctional Facility, 93 F.3d 58 (2d Cir. 1996) ........................9

ESPN, Inc. v. Office of Com’r of Baseball, 76 F. Supp.2d 383 (S.D.N.Y. 1999) ..........................16

Gedders v. United States, 425 U.S. 80 (1976) ...............................................................................15

Gulf Islands Leasing, Inc. v. Bombardier Capital, Inc., 215 F.R.D. 466 (S.D.N.Y. 2003) (Gorenstein, M.J.)…………………………………………………………………………..…13

Hamdi & Ibrahim Mango, Co. v. Fire Ass’n, 20 F.R.D. 181 (S.D.N.Y. 1957) .............................15

Hickman v. Taylor, 329 U.S. 495 (1947) .......................................................................................20

In re Grand Jury Subpoena Dated July 6, 2005, 510 F.3d 180 (2d Cir. 2007) .............................14

In re Gulf Oil/Cities Serv. Tender Offer Litig., No. 82 Civ. 5253, 1990 WL 108532 (S.D.N.Y. July 20, 1990) .........................................................................................................10

In re Steinhardt Partners, L.P., 9 F.3d 230 (2d Cir. 1993)………………………………......passim

McCoy v. Feinman, 99 N.Y.2d 295, 301 (2002)…………………………………………………...7

Morales v. United States, No. 94 Civ. 4865, 1997 WL 223080 (S.D.N.Y. May 5, 1997) (Rakoff, J.) ...............................................................................................................................13

Plew v. Limited Brands, Inc., No. 08 Civ. 3741, 2009 U.S. Dist. LEXIS 39715 (S.D.N.Y. Apr. 23, 2009) ..........................................................................................................................12

Reliance Ins. Co. v. McNally, Inc., 1992 US Dist. LEXIS 22605 (D. Kan. Feb. 5, 1992)……13,14

SEC v. Roberts, 254 F.R.D. 371 (N.D. Cal. 2008)………………………………………………..16

Shamis v. Ambassador Factors Corp., 34 F. Supp. 2d 879 (S.D.N.Y. 1999)…………………….13

SR Int’l Bus. Ins. Co. Ltd. v. World Trade Center Properties LLC, No. 01 Civ. 9291, 2002 WL 13324821 (S.D.N.Y. June 19, 2002) .......................................................................15


iii

Tribune Co. v. Purcigliotti, No. 93 Civ. 7222, 1997 WL 540810 (S.D.N.Y. Sept. 3, 1997) ..........8

United States v. Stewart, 287 F. Supp. 2d 461 (S.D.N.Y. 2003) ...........................................7, 9, 14

Westinghouse Elec. Co. v. Philippines, 951 F.2d 1414 (3d Cir. 1991) ......................................9, 14

OTHER AUTHORITIES

ABA Section of Litigation, Business and Commercial Litigation in Federal Courts 2d § 19.43 (Robert L. Haig ed.) (2009) ...........................................................................................15

Federal Rule of Civil Procedure 26 ...............................................................................................16

Paul Lisnek & Michael Kaufman, Depositions: Procedure, Strategy & Technique § 10.7 (2009) .......................................................................................................................................15

New York Disciplinary Rule 5-101A ............................................................................................12

New York Rules of Professional Conduct 1.6 and 1.7 ...............................................................9,12


1

INTRODUCTION

Although communications at deposition-preparation sessions often are not discoverable,

this case presents a truly unusual set of circumstances that requires a different result. To prepare

for their depositions, Weil, Gotshal & Manges (“WGM”) witnesses met with lawyers who did

not represent them but rather represented parties (the Plaintiffs, hereinafter “THL”) that had a

claim against WGM and had no common-interest agreement with WGM. No attorney-client or

common-interest privilege is even claimed to apply to these sessions. The adversity between

THL and WGM was evidenced by a tolling agreement and was later confirmed by a $15 million

settlement. Accordingly, Special Master Hedges correctly held that any work-product protection

that might otherwise have applied to the preparation sessions was waived.

BACKGROUND

The Litigation

THL’s suit against Mayer Brown is one part of consolidated proceedings arising from the

collapse of Refco. THL purchased a majority stake in Refco in 2004. THL alleges that Mayer

Brown aided and abetted the fraud perpetrated by Refco’s insiders.1

The Many Roles of Weil, Gotshal & Manges

THL’s transactional counsel in connection with its purchase of a majority stake in Refco

was WGM. Lawyers from WGM played important roles in THL’s due-diligence investigation of

Refco prior to THL’s leveraged buyout (“LBO”) of Refco. WGM also represented THL and

Refco during Refco’s subsequent initial public offering. Immediately following the disclosure of

the fraud in October 2005, litigation attorneys from WGM also advised THL in handling and

disclosing the discovery of the fraud.

1 Plaintiffs’ RICO conspiracy claim against Mayer Brown is being dismissed, as stated by the Court at the oral argument on June 24, 2010.


2

In addition to WGM’s representation of THL and Refco during the time period of the

underlying facts in this case, WGM litigation attorneys also represent THL in this case and in

other cases within the consolidated proceedings. WGM also has represented members of

Refco’s audit committee in the MDL.2 Finally, WGM litigation attorneys represent current and

former WGM attorneys who are witnesses in the consolidated proceedings.

The Adversity between THL and WGM

As soon as the Refco fraud was disclosed in October 2005 and THL’s investment in

Refco lost value, it was clear that THL had a potential claim against WGM for not detecting the

Refco fraud in its due-diligence investigation.

Discovery in this litigation confirmed the existence of that adversity, as it became clear

that WGM failed to review or provide material information to THL during the diligence

process.3 For example, as discussed in more detail below, WGM failed to review or provide

THL with information that may have uncovered the fraud, such as the existence of a major

discrepancy in the buyout agreement of a former Refco CEO.

On September 25, 2008, THL and WGM documented their adversity by entering into a

Standstill Agreement.4 That Agreement recited that “those persons and entities comprising THL

each desires to preserve his or its ability to bring claims, if any, relating to WGM’s

representation of THL involving THL’s investment in Refco to the extent such claims are based

at least in part upon material facts unknown to THL as of [September 25, 2008].” WGM agreed

2 E.g., Deposition of Nathan Gantcher at 9:2–3 (Greg Danilow identifying himself as representing the audit committee witness). Excerpts of the transcripts cited in this memorandum are attached to the Declaration of George A. Borden that accompanies this memorandum.

3 In addition to the discovery, WGM’s $19.5 million settlement with the Litigation Trustee on May 19, 2008 provides evidence of early general awareness of its role in Refco’s collapse.

4 A copy of the Standstill Agreement is attached as Exhibit D to the Declaration.


3

that the running of any statute of limitations on THL’s claims against it would be suspended

during the term of the agreement.

On March 29, 2010, THL and WGM reached a settlement under which WGM agreed to

pay THL $15 million.5 This settlement confirms the existence of adversity between THL and

WGM.

The Preparation Sessions

Based on their work on the Refco transaction, six current or former WGM transactional

lawyers were identified as witnesses in the consolidated proceedings. They were Barbra Broudy,

Daniel Gewirtz, Alexander Lynch, Adam Nelson, Jay Tabor, and James Westra. Each of these

witnesses was represented by WGM litigators for purposes of their depositions.6

To prepare for their depositions in the consolidated proceedings, the WGM witnesses met

with the WGM litigators who represented them at their depositions.7 These litigators include

Greg Danilow, Vernon Broderick, and Seth Goodchild. These same WGM litigators represent

THL in the consolidated proceedings.

5 A copy of the settlement agreement is attached as Exhibit E to the Declaration. The settlement agreement also provided that the Standstill Agreement was to be terminated upon THL’s receipt of the $15 million payment.

6 Westra Dep. 6:21–23; Lynch Dep. 7:23–25; Nelson Dep. 5:24–6:1; Tabor Dep. 7:3–6; Broudy Dep. 8:2–5; Gewirtz Dep. 7:21–24.

7 See, e.g., Nelson Dep. 25; Tabor Dep. 8–9.


4

Plaintiffs do not make clear in their Appeal (hereafter “App.”) whether it is their position

that the WGM litigators represented the WGM witnesses at the time of the preparation sessions

or only later at the depositions.8

In addition, the preparation sessions were also attended by attorneys from Paul, Weiss,

Rifkind, Wharton & Garrison LLP (“Paul, Weiss”) who represent THL.9 These attorneys

included at least Richard Rosen and James Brennan from Paul, Weiss.10 The record is clear that

there was no attorney-client relationship between the WGM witnesses and the Paul, Weiss

attorneys. See Lynch Dep. at 16:13–16 (witness stating that Paul, Weiss represents THL); Tabor

Dep. 10–11 (witness stating that it was his understanding that Paul, Weiss represents THL and

was not his counsel at the deposition).

The Depositions

At the depositions of the WGM witnesses, the witnesses’ counsel from WGM instructed

the witnesses not to answer questions concerning the content of the preparation sessions.11 The

witnesses were instructed broadly not to answer questions about what was said during the

8 Circumstances suggest that THL and WGM may be being self-servingly inconsistent concerning the existence of an attorney-client relationship between the WGM witnesses and the WGM litigators. For example, WGM witness Jay Tabor testified at the Collins trial that he was not represented by WGM attorneys when he met with the United States Attorney’s office. When asked about this at his deposition in this case, Tabor testified that in fact WGM lawyers did represent him in those meetings, but that he had not realized it at the time. Tabor Dep. at 260-61. He testified that at “some point after I gave that testimony but prior to today I had a conversation with someone . . . [and] was informed that in fact Weil, Gotshal was representing me at this proceeding today and my understanding based on that discussion was in fact they’d been representing me in connection with the visit to the US Attorney’s office.” Id. at 262-63. If Plaintiffs now contend that WGM litigators did not represent Tabor at his deposition-preparation session, that would mean they had represented him in his meetings with the U.S. Attorney, then had ceased representing him for the preparation sessions, then resumed representing him for the deposition—a scenario that would strain credulity. 9 Gewirtz Dep. 12:6–7 (indicating that “Jim” attended the preparation sessions, presumably James Brennan, Esq., of Paul Weiss who was present at other WGM preparation session); Nelson Dep. 26:20–27:20; Lynch Dep. 14:7–9; Broudy Dep. 10:13–16; Westra Dep. 18:15-17; Tabor Dep. 10:11–15.

10 E.g., Nelson Dep. 25–27; Tabor Dep. 96–98.

11 E.g., Nelson Dep. 408:6; Lynch Dep. 18:9–10; Tabor Dep. 11.


5

sessions, including both what the witnesses said and also what the preparing attorneys said.12

The WGM litigators asserted the attorney-client privilege and common-interest privilege, among

other things, as the basis for these instructions.13 Subsequently, however, Plaintiffs have

withdrawn their invocation of the attorney-client and common-interest privileges14 and now rely

solely on the attorney work-product doctrine as a justification for these instructions not to

answer.

Plaintiffs’ and WGM’s Record of Discovery Foot-Dragging

In deciding whether Special Master Hedges abused his discretion, the Court should know

that the instructions not to answer at depositions are not isolated incidents but instead must be

viewed as parts of a much larger pattern of discovery problems that THL and WGM have caused

and which are presenting serious problems for all parties. THL and WGM have produced over

200,000 pages of additional responsive documents in 2010, after the close of fact discovery, and

have agreed or been ordered to reopen the depositions of six THL witnesses and two WGM

witnesses who were deposed before the new documents were produced. Ongoing proceedings

before Special Master Hedges address whether THL will be required to do further searches of its

e-mail archive, an issue with which the parties and Special Master Hedges have been wrestling

12 E.g. Westra Dep. 22–23.

13 Lynch Dep. 18:17-18 (Vernon Broderick of WGM instructing witness not to answer on the basis of “common interest”); Nelson Dep. 408:6, 413:4-7 (Vernon Broderick of WGM instructing witness not to answer on the basis of “attorney/client work product, common interest”). Plaintiffs fault Mayer Brown for not calling Special Master Hedges during the depositions to challenge the invalid assertions of privilege, App. 6 n.1, but WGM refused to give a full explanation of the purported privilege it was asserting at the depositions. Lynch Dep. 18:18-22 (Vernon Broderick of WGM stating that “there is going to be probably motions filed, and we will give a further explanation of our basis for the privilege at that time”); Nelson Dep. 412:12-15 (Vernon Broderick of WGM stating “[w]ell I’m glad you’d like a full and complete answer but you’re not entitled to one here.”).

14 April 19, 2010 Hearing Tr. at 69, 92:21-24 (Rebecca Beynon, Esq. on behalf of THL stating that “[w]e are not asserting a common-interest privilege. We made that very clear in our response.”). When asked at his deposition whether WGM and THL have a common interest, WGM witness Jay Tabor declined to answer, further suggesting that no common interest exists. Tabor Tr. at 267-69.


6

for months. Further examples of THL’s discovery problems are summarized below in Section

III.

Proceedings before the Special Master

As with the other discovery failures by THL and WGM in this case, Mayer Brown was

forced to raise the issue of inappropriate instructions not to answer questions about the

deposition preparation sessions with the Special Master. Mayer Brown alerted the Special

Master of the issue at a hearing April 19, 2010. April 19, 2010 Tr. at 91–92. Mayer Brown and

Plaintiffs made submissions to Special Master Hedges on this issue on May 12, May 17th, May

20th, and May 24th, 2010. Special Master Hedges heard argument on the issue on April 19 and

May 13, 2010. On June 1, 2010, Special Master Hedges announced his conclusion that work-

product protection over the communications that occurred at the WGM witness preparation

sessions had been waived based on the adversity between WGM and THL at the time of the

sessions. He entered an order to that effect on June 17, 2010.

The Special Master declined to require production of notes taken by the attorneys

attending the sessions in question. He held that the notes were core work product and that Mayer

Brown had not shown a substantial need for the notes. He held, however, that if the WGM

witnesses to be questioned at their upcoming depositions fail to recall the sessions, the parties

may contact him to obtain a ruling on whether substantial need has been shown. He did not hold

that such answers would necessarily constitute substantial need.

ARGUMENT

I. SPECIAL MASTER HEDGES DID NOT ABUSE HIS DISCRETION IN FINDING A WAIVER OF WORK-PRODUCT PROTECTION.

To prepare for their depositions in this case, the WGM witnesses met with lawyers who

did not represent them but rather represented a party—THL—that had claims against the


7

witnesses and their firm. There was clear adversity between THL and WGM, as evidenced by

the Standstill Agreement and later confirmed by the $15 million settlement. Accordingly, the

Special Master acted well within his discretion15 to rule—against a backdrop of pervasive

discovery problems caused by THL and WGM—that any work-product protection that applied to

the preparation sessions was waived.

The work-product doctrine generally protects against questioning a witness about his or

her “attorney’s thought processes.” In re Steinhardt Partners, L.P., 9 F.3d 230, 234 (2d Cir.

1993). However, “once a party allows an adversary to share the otherwise privileged thought

processes of counsel, the need for the privilege disappears.” Id. at 235. Accordingly, when a

party voluntarily discloses work product to an adversary or potential adversary, the party waives

the privilege. Id.; United States v. Stewart, 287 F. Supp. 2d 461, 468 (S.D.N.Y. 2003).

Here, THL and WGM were undoubtedly in an “adversarial position,” Steinhardt, 9 F.3d

at 236, at the time of the communications in question. WGM had performed due diligence for

THL prior to its purchase of a controlling interest in Refco. WGM either failed to detect or

failed to inform THL of numerous red flags during the diligence process and, as a result, THL

had a claim against WGM for losses THL suffered from Refco’s subsequent implosion.16

One of WGM’s diligence failures—WGM failing to bring the buyout agreement of Refco

former CEO Tone Grant to THL’s attention—illustrates the adversity between THL and WGM.

Prior to THL’s investment in Refco, THL understood that Grant would receive $700-$800

million of the proceeds of the Refco transaction. Schoen Testimony in Grant Trial, p. 1386. The 15 Pursuant to Case Management Order #3, entered on November 2, 2009, this Court reviews the Special Master’s orders on non-substantive matters only for abuse of discretion.

16 Under New York law, a claim for legal malpractice accrues when all elements of the claim, including injury, are present. McCoy v. Feinman, 99 N.Y.2d 295, 301 (2002). THL suffered the alleged loss of its investment in Refco in 2005. Accordingly, at the time of the preparation sessions, THL had a claim against WGM, not merely a potential claim.


8

terms of the actual Grant Purchase Agreement, however, only provided for an immediate cash

payment to Grant of $4 million. The Grant Agreement was on the closing checklist, was in

WGM’s possession, and was in the LBO closing binders.17 After the fraud was revealed and

THL executive Scott Schoen saw the Grant Agreement for the first time, he testified that he was

“shocked and surprised” that he had not been provided with it earlier. Schoen Deposition p.

669–70. According to THL itself, the damage to THL may have been prevented if WGM had

reviewed or provided the Grant Agreement to THL.18

The Grant Agreement is but one example of a WGM shortcoming that gave rise to a

claim against it by THL.19 As a result, it was not by chance that THL and WGM entered into the

Standstill Agreement in September 2008, which documents the adversity between THL and

WGM at the time of the deposition preparation sessions. See Tribune Co. v. Purcigliotti, No. 93

Civ. 7222, 1997 WL 540810, at *3 (S.D.N.Y. Sept. 3, 1997) (“If anything the standstill

agreement relates to potential interests of [the parties] that are adverse, not common.”) (citations

omitted). THL argues that the Standstill Agreement does not demonstrate adversity because

Schoen testified that at the time of the tolling agreement THL did not believe it had any claims

against WGM but reached an agreement in case “something ever comes out in the future that

changes those circumstances.” App. at 15. If credited, this belief by THL merely highlights the

adversity between THL and WGM at the time of the deposition preparation sessions. The WGM

17 WGM-L 0050906-22 at 0050906, 0050918 (listing Grant Agreement on closing checklist); MB02382747 (WGM attorney Adam Nelson stating in a letter that he was attaching a copy of the Grant Agreement).

18 Schoen testified that had Weil attorney James Westra reviewed the Grant Agreement it would have led “at a minimum to the unraveling of the deal, but it might well have led to the unraveling of the fraud.” Schoen Deposition, p. 671-75. 19As another example, THL alleges that Mayer Brown “refused to reveal” the existence of a proceeds participation agreement (“PPA”) prior to the LBO, Second Amended Compl. ¶ 60. Internal WGM documents reveal that WGM was aware of the PPA; one memo authored by WGM associate Tesler identifies the PPA as a “minor point[ ] to keep track of.” WGM-L S 00000253.


9

witnesses knew that the next statement they made could provide the basis for THL to assert a

claim against them or their firm. And whether or not they were “hostile” to WGM, App. at 11,

the lawyers from Paul, Weiss, who represented THL but not WGM, had a duty to provide to

THL any information they learned that would have supported a claim by THL against WGM.

See Burger v. Kemp, 483 U.S. 776, 784 (1987) (a lawyer has an “overarching duty of complete

loyalty to his or her client”); Dean v. Superintendent, Clinton Correctional Facility, 93 F.3d 58,

62 (2d Cir. 1996) (a lawyer has a “duty to represent a client zealously”).20

To any extent that confirmation of the adversity was required, the $15 million settlement

between THL and WGM provides it. It is simply impossible to deny adversity in the face of that

agreement.21

THL wrongly assumes that only disclosures that would make it more likely that Mayer

Brown would obtain the information can constitute a waiver. App. 10-12. In fact, it is black-

letter law that waiver as to one adversary waives work-product protection as to all adversaries

and potential adversaries. In re Steinhardt Partners, 9 F.3d at 235; United States v. Stewart, 287

F. Supp. 2d at 468; Westinghouse Elec. Corp. v. Philippines, 951 F.2d 1414, 1429 (3d Cir. 1991).

The doctrine of waiver prevents a party from “pick[ing] and choos[ing] among his opponents”

when asserting the privilege, which, if allowed, would render the work-product privilege “merely

20 Plaintiffs emphasize that all the lawyers who attended the preparation sessions had a duty to maintain the confidentiality of the sessions, App. at 12, by which they presumably mean confidentiality as to parties other than THL and WGM. That, however, is irrelevant. THL and WGM themselves were in an adversarial posture. That adversity waived any work-product protection as to all other adversaries as well. See infra. Moreover, under Rule 1.6 of the New York Rules of Professional Conduct, a lawyer may disclose a client’s confidential information if it is necessary to defend the lawyer against an accusation of wrongful conduct. See Rule 1.6(b)(5)(i). Given the circumstances, including the existence of the Standstill Agreement, both THL and WGM must have understood that there was a significant chance that the communications would not remain confidential.

21 Plaintiffs argue that the settlement is irrelevant because the issue of adversity must be gauged as of the time of the communications App. at 13 n.5. But facts that occur later can confirm that adversity existed earlier. Moreover, Plaintiffs’ argument is inconsistent with their own assertion that WGM’s continuing representation of THL is relevant to whether adversity existed at the time of the preparation sessions.


10

another brush on an attorney’s palette, utilized and manipulated to gain tactical or strategical

advantage.” In re Steinhardt Partners, 9 F.3d at 235.

It is immaterial that THL had not instituted litigation against WGM at the time of the

sessions. “[T]he presence of an adversarial relationship does not depend on the existence of

litigation . . . .” In re Steinhardt Partners, 9 F.3d at 234 (2d Cir. 1993). Nor does the fact that

WGM and Paul Weiss “cooperated” at the deposition preparation sessions “transform the

relationship from adversarial to friendly.” Id. Indeed, a party can waive work-product

protection despite the fact that its disclosure is the result of cooperation, and despite the fact that

the disclosure occurred to a party that is not currently litigating against the disclosing party. Id.

And, although an adversarial relationship existed between THL and WGM at the time of the

deposition preparation sessions, under the law cited by THL the disclosure of work-product to a

party who is merely “conduit to a potential adversary” is enough to constitute waiver. App. at 11

(citing In re Gulf Oil/Cities Serv. Tender Offer Litig., No. 82 Civ. 5253, 1990 WL 108532, at *4

(S.D.N.Y. July 20, 1990)). A fortiori, disclosure directly to a potential adversary is enough to

waive work-product protection.

Plaintiffs argue that if the WGM witnesses’ preparation sessions are open to discovery,

then so, too, would be meetings involving Mayer Brown’s counsel with then-Mayer Brown

partner Joseph Collins and his counsel. App. at 14-15. That analogy is a false one. For the

situation to be truly analogous, Mayer Brown’s counsel would have had to invite counsel for

Refco—the client that had the potential claim against the lawyer and law firm—into the room.

Mayer Brown is not arguing that the mere hypothetical possibility of a claim by WGM against

the WGM witnesses effected a waiver of work-product protection; and the mere hypothetical


11

possibility of a claim by Mayer Brown against Mr. Collins did not do so. Rather, it was the

mature and concrete adversity between THL and WGM that effected the waiver.

Another important distinction between the situation before the Court and Williams &

Connolly’s participation in meetings with Mr. Collins is that Mayer Brown and Mr. Collins had

entered into a common-interest agreement, so that all communications at such meetings were

protected by the attorney-client privilege to the extent that the communications furthered the

common interest. THL and WGM, on the other hand, have no common-interest agreement and

do not argue that the attorney-client privilege applies to the preparation sessions at issue here.

This distinction also refutes Plaintiffs’ argument that the implications of the Special

Master’s ruling would prevent parties who have common interests from sharing information or

cooperating to prepare witnesses. App. at 13-15. As long as parties in such circumstances have a

common-interest understanding or agreement, the attorney-client privilege will protect their

communications that further the common interests. Here, however, THL and WGM have no

such agreement, and Plaintiffs have withdrawn their initial contention that the attorney-client

privilege applies. The fact that THL and WGM did not create a common-interest agreement

confirms that they recognized the adversity between them and therefore had no expectation that

any work product would remain confidential.

Any fear of far-reaching implications from the Special Master’s Order is further allayed

by the highly unusual posture of WGM in this case. Rare will be the case when a single law firm

represents a client (THL) in a corporate transaction, giving rise to a claim that it settles for $15

million; represents another client (Refco) acquired by the first client, giving rise to another

multimillion-dollar settlement; is a witness in ongoing litigation; represents its own lawyer-

witnesses in that litigation; prepares those witnesses to testify but includes other counsel for the


12

first client with a claim against the firm, despite the absence of a common-interest agreement;

and does not assert any attorney-client or common-interest privilege for those sessions.

Plaintiffs also are incorrect in asserting that THL and WGM could not be truly adverse

because THL has “entrusted WGM with representing its interests in these significant litigations”

App. at 15. A party may engage counsel that has conflicting interests, as long as certain

requirements are met, including informed consent. See New York Rule of Professional Conduct

1.7 and Disciplinary Rule 5-101A. Thus, the adversity between WGM and THL is not

inconsistent with THL engaging WGM to represent it (alongside other firms).

In arguing that the work-product protection was not waived in this case, THL

mischaracterizes the case law. THL cites Plew v. Limited Brands, Inc., No. 08 Civ. 3741, 2009

U.S. Dist. LEXIS 39715, at *1 (S.D.N.Y. Apr. 23, 2009), and states that no waiver was found in

that case despite the defendant sharing information with a third party and the “potential adversity

in defendant suing third party supplier for sale of infringing product.” App. at 12-13. Nowhere

in Plew, however, did the court indicate that such potential adversity existed between the

defendant and the third party; instead, the court stated that “there is no suggestion that

defendants’ communications to [the third party] were likely to be revealed by that company to

plaintiff or to anyone else who might be considered an adversary of the defendants.” 2009 U.S.

Dist. LEXIS 39715 at *9 (emphasis added). Even the party seeking the disclosure of the

materials argued that the non-party had “no interest in the litigation.” Id. at *3. In fact, in

another case, Magistrate Judge Dolinger, who authored the Plew opinion, held that work-product

protection is waived as to all adversaries when information is disclosed in such a manner that it

is likely to be revealed to an adversary. Bowne of New York City, Inc., v. AmBase Corp., 150

F.R.D. 465, 478–80 (S.D.N.Y. 1993).


13

Indeed, the Bowne decision is particularly relevant here. In that case, a party (AmBase)

had failed to file a proxy statement in time to realize certain tax benefits, and it was both

defending shareholder allegations based on that failure and also blaming others, including both

Bowne (the printer) and some of AmBase’s own employees. AmBase made certain disclosures

to the employees. Bowne then sought discovery of the same information. The court found a

waiver, even though AmBase and the employees might have had a common interest in blaming

the printer for the problem or in AmBase succeeding against the shareholder plaintiffs. 150

F.R.D. at 478–81. Similarly, here, the fact that THL and WGM could be said to have a common

interest in THL defending itself successfully against the shareholder plaintiffs or in THL

obtaining recovery from other parties such as Mayer Brown is not sufficient to overcome the

clear adversity between THL and WGM.22

THL’s reliance on Morales v. United States, No. 94 Civ. 4865, 1997 WL 223080, at *1

(S.D.N.Y. May 5, 1997) (Rakoff, J.), is similarly misplaced under these circumstances. Much

like the opinion in Plew, there is no indication in Morales that the non-party police officers were

in any way adversarial or potentially adversarial to the attorneys from the United States

Attorneys’ Office who shared work product with the officers.

Reliance Ins. Co. v. McNally, Inc., 1992 US Dist. LEXIS 22605 (D. Kan. Feb. 5, 1992),

also cited by Plaintiffs, is not consistent with the law in this Circuit. The Reliance court held that

disclosure to an adversary (plaintiff’s disclosure of work product to defendant) did not waive

work-product protection as to other adversaries. In In re Steinhardt Partners, the Second Circuit

22 Plaintiffs cite a number of cases involving the common-interest doctrine under the attorney-client privilege. App. at 12-13. These cases are inapposite, as Plaintiffs have made clear that they are not asserting a common-interest attorney-client privilege. Moreover, case law under the common-interest privilege confirms that merely sharing a desire that one side succeed in litigation is not sufficient to create a common interest. See Gulf Islands Leasing, Inc. v. Bombardier Capital, Inc., 215 F.R.D. 466, 473 (S.D.N.Y. 2003) (Gorenstein, M.J.); Shamis v. Ambassador Factors Corp., 34 F. Supp. 2d 879, 893 (S.D.N.Y. 1999).


14

considered and rejected that position. 9 F.3d at 235. “[B]y disclosing work product to an

adversary in one case, parties may waive protection in future cases against different adversaries.”

United States v. Stewart, 287 F. Supp.2d 461, 468 (S.D.N.Y. 2003); accord Westinghouse Elec.

Co. v. Philippines, 951 F.2d 1414, 1429 (3d Cir. 1991).

Finally, in the unlikely event that the Court were not persuaded of the adversity between

THL and WGM, Mayer Brown respectfully requests the opportunity to take reasonable

discovery on that issue and an evidentiary hearing.

II. EVEN IN THE ABSENCE OF WAIVER, COMMUNICATIONS AT THE DEPOSITION PREPARATION SESSIONS ARE DISCOVERABLE.

Even if there were no waiver of work-product protection, communications at the

preparation sessions should still be discoverable. Although Special Master Hedges did not reach

this argument, his Order may be affirmed on this basis.

A party invoking the work-product doctrine “bears the heavy burden of establishing its

applicability.” In re Grand Jury Subpoena Dated July 6, 2005, 510 F.3d 180, 183 (2d Cir.

2007). That burden requires a showing based on “competent evidence [of] the facts” supporting

the assertion of work-product protection. Bodega Investments, LLC v. United States, 2009 WL

1456642, at *4 (S.D.N.Y. May 14, 2009) (Dolinger, M.J.). “Merely conclusory or ipse dixit

assertions” do not suffice. In re Grand Jury, 510 F.3d at 184 (quotations omitted).

Here, Plaintiffs have not submitted any evidence to substantiate their invocation of the

work-product doctrine. Their Appeal is filled with “merely conclusory or ipse dixit assertions.”

Thus, at the threshold, Plaintiffs’ Appeal should be denied because they have failed—despite

ample opportunity—to establish the application of the work-product doctrine in the first instance.

In addition, absent evidence to the contrary, there is good reason to believe that most, if

not all, of the communications during the preparation sessions were not work product at all.


15

First, the statements made by witnesses in their deposition preparation sessions are not

entitled to work-product protection because they do not reveal any of the attorneys’ mental

impressions. SR Int’l Bus. Ins. Co. Ltd. v. World Trade Center Properties LLC, No. 01 Civ.

9291, 2002 WL 13324821, at *5 (S.D.N.Y. June 19, 2002) (“While it may be appropriate to

preclude questioning specifically designed to discover opposing counsel’s work-product . . .

[this] reasoning should not be extended to preclude any questioning as to what a witness said to

another party’s attorney.”). General questioning concerning a witness’s recollection of

conversations with an attorney who does not represent her about relevant events is not work

product, id., and is a commonplace topic of unobjectionable deposition questioning.

Second, statements by lawyers to non-clients to prepare them to testify are widely

recognized to be subject to discovery. See, e.g., Paul Lisnek & Michael Kaufman, Depositions:

Procedure, Strategy & Technique § 10.7 (2009) (“The attorney should guard any strategic

disclosure with a non-client witness, because the substance of any preparation is discoverable by

the other side at the deposition.”); ABA Section of Litigation, Business and Commercial

Litigation in Federal Courts 2d § 19.43 (Robert L. Haig ed.) (2009) (“When preparing a

nonclient witness, where the attorney-client privilege is not available, additional care should be

taken as to what is discussed with the witness since she can be interrogated at the subsequent

deposition as to what the attorney discussed with her during the prep session.”). Indeed, such

discovery is one of the primary protections against improper coaching of witnesses. See Gedders

v. United States, 425 U.S. 80, 90 (1976) (“to deal with the problem of possible improper

influence on testimony or ‘coaching’ of a witness,” an opposing attorney “may cross-examine a

defendant as to the extent of any ‘coaching’”); Hamdi & Ibrahim Mango, Co. v. Fire Ass’n, 20

F.R.D. 181, 183 (S.D.N.Y. 1957) (to protect against abuses, the opposing party is permitted “to


16

question the witness on cross-examination about prior conversations with counsel”). Thus,

statements by the Paul, Weiss attorneys (and the WGM litigators, if those litigators did not

represent the WGM witnesses during the sessions) to the WGM witnesses also are discoverable.

III. MAYER BROWN WAS NOT REQUIRED TO SHOW SUBSTANTIAL NEED TO OBTAIN DISCOVERY OF COMMUNICATIONS AT THE DEPOSITION PREPARATION SESSIONS AND IN ANY EVENT HAS A SUBSTANTIAL NEED FOR THE COMMUNICATIONS.

In Section C of their Appeal, Plaintiffs argue that Special Master Hedges erred by failing

to apply Rule 26(b)(3)(A)(ii)’s substantial-need requirement in holding that communications that

occurred during the WGM witnesses’ preparation sessions are discoverable. Special Master

Hedges did not need to apply Rule 26 with respect to the communications, however, because he

found that there was a “waiver of any attendant work product privilege.” Order ¶ 1. See, e.g.,

ESPN, Inc. v. Office of Com’r of Baseball, 76 F. Supp.2d 383, 415 (S.D.N.Y. 1999) (work

product is “not discoverable absent a showing of substantial need or waiver”) (emphasis

added).23

Indeed, Special Master Hedges’ ruling with regard to the attorneys’ notes demonstrates

that he applied the proper framework. Special Master Hedges held that because the notes were

not shared among attorneys, they were entitled to work-product protection in the first instance,

subject to a possible challenge based on substantial need at a later date. In other words, as

Special Master Hedges correctly recognized, substantial need enables a litigant to discover

23 Accord SEC v. Roberts, 254 F.R.D. 371, 375 (N.D. Cal. 2008) (“If there was a waiver, then the court will determine the scope of this waiver. If there was no waiver, the court will determine if the documents in question should nonetheless be produced . . .because of a substantial need and undue hardship.”); Caliber One Indemnity Co. v. Millard Chicago Window Cleaning, No. 04 C 2424, 2006 WL 573895, at *2, *3 n.4 (N.D. Ill. Mar. 6, 2006) (stating that “the work-product privilege can be overcome, through the theories of waiver or substantial need” and finding it unnecessary to reach the issue of substantial need after finding waiver). See also In re Steinhardt Partners, L.P., 9 F.3d 230 (2d Cir. 1993) (not analyzing or imposing a substantial need requirement after finding waiver).


17

information even if it is work product; when waiver occurs, however, the information is no

longer work product, and therefore substantial need is not required.

In addition, a finding of substantial need also is unnecessary if the information in

question was not work product to begin with. As demonstrated in Section II above, Plaintiffs

have not established that the work-product doctrine applies to any communication at issue here.

Accordingly, the cases cited by THL relating to substantial need are irrelevant.

Even if substantial need were required, however, it would be present in this case because

of the discovery problems caused by THL and WGM. As a result of the problems, Mayer Brown

has been deprived of relevant discovery for many months and conducted the initial depositions of

the WGM witnesses without the benefit of thousands of pages of relevant documents. Mayer

Brown is entitled to inquire into the content of the preparation sessions, among other reasons, to

explore the existence of additional relevant evidence that has not been produced. Examples of

the discovery problems in this case include:

Inappropriate Redactions—THL and WGM have made redactions to key documents in

order to prevent Mayer Brown from discovering information that is embarrassing or damaging to

THL’s case. This issue has required the attention of Special Master Hedges on April 19 and June

8, 2010. April 19, 2010 Hearing Tr. 54–55, 65:14–20; June 8, 2010 Hearing Tr. 21–27.

Pursuant to Special Master Hedges’ order of April 19, THL reproduced 3,700 pages of

previously redacted documents, but testing of these reproduced documents revealed that many

still contained improper redactions. As a result, Special Master Hedges ordered that THL and

WGM again review their documents for inappropriate redactions on June 8, 2010. On July 2,

2010, THL and WGM produced another round of 2,000 previously redacted documents to Mayer

Brown, which Mayer Brown is in the process of reviewing.


18

Document Collection Problems—THL’s initial collection from its e-mail archive in

October 2005 went seriously awry, and many e-mails containing relevant keyword search terms

were not collected and, therefore, not produced. Not until November 2009 did Mayer Brown

begin to suspect problems, and THL did not produce any of the responsive documents that it

failed to originally collect until March 17, 2010.24 WGM’s own document-collection efforts also

were seriously flawed. Much like THL, WGM’s initial collection also deviated from its

disclosed production protocol.25 Ultimately, pursuant to an order by Special Master Hedges,

WGM produced over 94,000 pages of additional documents in April 2010.

Ultimately, THL’s and WGM’s production problems led Special Master Hedges to issue

a revised case management order, April 14, 2010 Order ¶ 1, and THL agreed to allow Mayer

Brown and other parties in the MDL to redepose many of the key witnesses in light of the new

documents. Among those witnesses who will be redeposed are WGM transactional attorneys Jay

Tabor and James Westra—attorneys who prepared for their depositions in the presence of

attorneys from Paul, Weiss, representing THL.

WGM’s Failure to Disclose the Existence of Backup Tapes—In October 2009, in

response to Mayer Brown’s question about the existence of backup tapes containing e-mail from

the period at issue in this case, WGM responded that “WGM’s policy is to retain back-up e-mail

tapes only for a 7-day period solely for disaster-recovery purposes and thus no such back-up

24 Many of the documents that THL failed to collect in 2005 were critical to the case. For example, one of the main issues in the case is whether THL reasonably believed that Refco was in sound financial condition when it made its investment in Refco. One of the newly produced documents, authored by THL executive George Taylor and sent to another THL executive, states his belief that the accounting report prepared by THL’s accounting advisor KPMG was the “scariest accounting report I’ve ever seen – and I worked on Qwest which didn’t have an audit, was under SEC investigation and had an ongoing FBI probe of its executives for fraud.” THLRES 00014753.

25 The similarities between the document productions of THL and WGM are not surprising. WGM, which represented THL in performing due diligence on Refco, also represents THL in this litigation. As a result, many of the same attorneys were likely responsible for the collection and production of THL and WGM documents.


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tapes exist covering the time period at issue.” October 30, 2010 e-mail from Seth Goodchild

of WGM to Dan Shanahan of Williams & Connolly (emphasis added). Mayer Brown accepted

WGM’s representation. However, during a May 3, 2010 meet-and-confer, Mayer Brown learned

that WGM does in fact have approximately 1,500 backup tapes in its New York office covering

the time period from 2004-2006. The backup tapes may contain information critical to the case

and unavailable elsewhere because WGM’s e-mail servers in New York were subject to a 45-day

purge of a user’s inbox during the time period relevant to this litigation.

Given the key role of the WGM attorneys in the underyling facts of this case, the failure

to collect and produce all relevant documents means that the communications at the deposition

preparation sessions may be a key source of otherwise unavailable information. Moreover, many

of the discovery problems are attributable to WGM itself, making it even more likely that the

deposition preparation sessions may provide information that would otherwise be in WGM’s

documents but that is missing or incomplete because of the discovery problems. Even with

respect to the responsive documents that have been finally produced, but that were not produced

until after the deposition preparation sessions, six months or more have passed since most of the

witnesses were originally deposed. Although Mayer Brown would have been able to ask the

witnesses about some of the documents had they been timely produced, the witnesses may no

longer recall the events surrounding the new documents at the time that they are redeposed.

Accordingly, Mayer Brown has a substantial need to obtain the communications at the deposition

preparation sessions, as the communications may shed light on the events surrounding the newly-

produced documents that the witnesses will no longer be able to recall.


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IV. PLAINTIFFS HAVE NO BASIS TO APPEAL THE SPECIAL MASTER’S RULING REGARDING ATTORNEY NOTES.

It is unclear what THL is appealing about Special Master Hedges’ ruling regarding

attorneys’ notes from the deposition-preparation sessions. THL argues that Special Master

Hedges’ ruling regarding the notes was “legally deficient” and “legal error” because (1) Mayer

Brown has not demonstrated substantial need for the notes; and (2) Special Master Hedges

“failed to apply the heightened standard required for core work product.” App. 20. Both

arguments are contrary to the record.

THL appears to be confused about Special Master Hedges’ ruling, because elsewhere in

its Appeal it quotes his ruling that “substantial need has not been shown” by Mayer Brown to

obtain the notes. App. at 3 (citing Order ¶ 2). THL is apparently advocating the ruling that

Special Master Hedges has already made. THL’s second argument is similarly erroneous and

contrary to the record. THL argues that Special Master Hedges should have applied a heightened

standard to the notes because they constitute core work product that could reveal the attorneys’

mental impressions. But Special Master Hedges in fact ruled that the attorneys’ notes are “core

work product,” and indicated that he would apply the appropriate test for core work product in

future disputes regarding the notes. Order ¶ 2; App. at 21. Once again, THL appears to be

advocating the ruling Special Master Hedges has already made.

If the ruling regarding the notes is legally deficient in any way, it is only because, as THL

notes, factual material, as opposed to attorneys’ mental impressions, is not core work product.

See Hickman v. Taylor, 329 U.S. 495, 511 (1947) (“We do not mean to say that all written

materials obtained or prepared by an adversary’s counsel with an eye toward litigation are

necessarily free from discovery in all cases. Where relevant and non-privileged facts remain

hidden in an attorney’s file and where production of those facts is essential to the preparation of


21

one’s case, discovery may properly be had.”). However, Special Master Hedges did not examine

the notes in camera to determine whether they contained factual material or legal conclusions.

Accordingly, the parties have nothing but THL’s unsubstantiated assertions that the notes contain

“core work product.” Nonetheless, it is clear that Special Master Hedges applied the proper

framework, and his ruling should not be disturbed.

CONCLUSION

For the reasons stated above, Plaintiffs’ Appeal should be denied and the Special

Master’s Order should be affirmed.

Dated: July 8, 2010 Washington, DC Respectfully submitted,

WILLIAMS & CONNOLLY LLP /s/ By: George A. Borden John K. Villa ([email protected]) (admitted pro hac vice) Michael S. Sundermeyer ([email protected]) (admitted pro hac vice) WILLIAMS & CONNOLLY LLP 725 Twelfth Street, NW Washington, DC 20005 Ph. 202-434-5000 Fax: 202-434-5029


Documents

UNITED STATES DISTRICT COURT FOR THE SOUTHERN …Case 1:07-cv-06767-JSR Document 155 Filed 07/08/10 Page 6 of 25 3 that the running of any statute of limitations on THL’s claims