GlobalTort : Commentary from lawyers and experts on mass torts, law, insurance and science

How far does privilege go when lawyers apparently have knowledge of a Ponzi scheme? Perhaps not far enough to block a duty to speak, according to an appellate court in Canada, and a McCarthy Tretualt article. 

The fact pattern is unusual because the suit at issue is against a law firm that represented both the Ponzi scheme defendants and an investor in a company that was part of a scheme. The investor client sought securities advice related to the businesses in the alleged Ponzi scheme. On review of a pretrial motion to strike, the appellate court held that the case should go forward to trial. According to the appellate court, the facts revealed at trial might result in striking the privilege and holding the lawyers to a duty to speak about what they knew about the Ponzi scheme. 

The case truly does involve an unusual fact pattern. On the other hand, that fact pattern is not terribly far removed from a fact pattern in which a law firm provides a generic opinion letter to a client that is part of a Ponzi-scheme. It's more than foreseeable that investors will be offered the opinion  letter, and may allege reliance on the opinion letter even though the letter presumably disclaims any intent to allow reliance by third-parties. 

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The idea is to me hard to grasp, but the Canadian tobacco trial today focused much time on the tobacco companies claiming "parliamentary privilege " for all thing said to parliament in hearings. For specifics, see this post from Eye on the Trials, and this "parliamentary privilege" resource page linked by the post. The trial judge has not yet ruled. 

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The 9th Circuit recently joined the group of federal circuit courts rejecting selective waiver of privilege. The opinion is analyzed in depth by Paul Hastings. Key excerpts are:

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Here's a summary of an interesting Illinois opinion in Zangara v. Advocate Christ Medical Center . Nos. 1–09–1911, 1–09–1914 (June 10, 2011). The opinion rejects a claim of medical act privilege for statistical data on hospital infection rates. The opinion is to me interesting because data often matters more than opinions (or spin) about the data. 

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For better or worse, opinions from lawyers  are now tightly woven into management of government agencies and private businesses.  Indeed, opinions of lawyers are frequently cited to justify dubious behavior. For a recent, famous example, consider the massive AIG bonuses paid on the rational that non-payment might cause breach of contract claims. That pathetic explanation was nicely skewered in this New York Times opinion article by Lawrence A. Cunningham, a law professor at George Washington University School of Law. 

In that light, the American Bar Association Journal recently highlighted a March 2011 opinion on the extent of privilege waivers arising from a township publicly trumpeting an investigation's exculpatory conclusion after a police shooting. In Sullivan v. Warminster Township, the district court applied mainly Third Circuit  law and found only limited waiver. It's a brief but interesting opinion, and includes useful citations to cases involving government agencies. The ABA article quotes some ABA discovery committee members who think the opinion is flawed.

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The Akzo Nobel ruling is out from the European Court of Justice, and rejects the attorney-client privilege claim for activities of inside counsel as related to claims regarding unfair competition.   The opinion is here. Go here for a Law.com article with predictable quotes from corporate counsel upset about losing secrecy.

The quotes from corporate groups emphasize that the ruling arises in the context of a competition case. That's true, but the rationale and language of the opinion focus on the conclusion that inside counsel face business pressures and constraints that limit their actual independence. The quotes do not explain how that rationale will be avoided in cases that arise in other substantive areas.

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Here is an interesting NLJ article on the state secrets privilege from a law professor and dean with an impressive background in both public interest litigation and academics. The law professor, Alan B. Morrison, currently is the Lerner Family Associate Dean for Public Interest and Public Service Law at the George Washington University School of Law. In short, he suggests that the price for exercising the privilege should be that the government pays for the harm caused. Here are two key paragraphs:

"The problem to date has been that the arguments have all been about whether the claims of secrecy are actually justified and who should decide that. The best way around that debate is for Congress to pass a law saying to the intelligence community, "You can keep your secrets, but you (the U.S. Treasury) must pay the claimant's damages if you won't allow the case to be tried in the ordinary fashion." That's what the law says will happen if the government wants to take my land to build a military base, and that same principle should apply in these cases as well.

Here's how such a law might work. Cases would be filed in the usual way, and if the government contended that state secrets might have to be divulged if the case were tried, it would make whatever efforts it could to dismiss the case on nonstate secrets grounds. But if that failed, the attorney general could formally invoke the state secrets privilege. At that point, the case would be transferred to the Court of Federal Claims, which hears claims against the government that it has taken someone's property without compensation. However, once the government invoked the state secrets defense, it would lose its right to contest its liability: The only issue remaining would be the proper amount of actual, but not punitive, damages."

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This September 23 NYT article by Charlie Savage describes Obama administration plans to deploy rules that limit the use of the state secrets privilege to block civil litigation. The article also briefly discusses legislative efforts to limit invocation of the privilege.

The existing use of privilege has significantly limited past lawsuits. For an example, see this prior post from this blog regarding civil claims against Saudi entities regarding the September 11 attacks. Make sure to click through to the linked NYT article and its internal links.

Key excerpts follow from the recent article:

Under the new policy, if an agency like the National Security Agency or the Central Intelligence Agency wanted to block evidence or a lawsuit on state secrets grounds, it would present an evidentiary memorandum describing its reasons to the assistant attorney general for the division handling the lawsuit in question.

If that official recommended approving the request, it would be sent on to a review committee made up of high-level Justice Department officials, and then to Deputy Attorney General David W. Ogden and Mr. Holder. All those officials would be charged with deciding whether the disclosure of information would risk "significant harm" to national security, and they would be instructed to seek a way to avoid shutting down the entire lawsuit if possible.

If the Justice Department signed off on asserting the privilege, the head of the agency controlling the information would sign a classified memorandum to be filed with a court explaining in detail the government's reasoning. A judge could request access to particular pieces of underlying evidence.

The policy is silent on whether the government would comply, and officials said such requests would be evaluated on a case-by-case basis. One of the controversies surrounding the privilege is that sometimes judges accept executive assertions about classified evidence without independently examining it.

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