Salomon Bros. Treasury Litigation v. Steinhardt Partners, L.P.
Docket: No. 873, Docket 93-3079
Court: Court of Appeals for the Second Circuit; November 7, 1993; Federal Appellate Court
Defendants-petitioners Steinhardt Partners, L.P., Steinhardt Management Co., and Michael Steinhardt are involved in a civil class action suit alleging market manipulation of two-year Treasury notes from Spring to Summer 1991. In responding to a discovery request, they identified a memorandum prepared by their attorneys and submitted to the SEC but refused to produce it, claiming attorney work product protection. The plaintiffs moved to compel its production, and the district court granted the motion, ruling that prior disclosure to the SEC waived work product protection. Steinhardt then filed a petition for a writ of mandamus to prevent the document's discovery, which was denied by the court.
The SEC initiated an informal investigation in June 1991 and later formalized it, issuing subpoenas to Steinhardt. Following interactions with the SEC, including a request for a memorandum addressing legal theories and facts, Steinhardt submitted the document in June 1992, marked as "FOIA Confidential Treatment Requested." However, there was no agreement on confidentiality. The SEC has not pursued enforcement actions against Steinhardt regarding its trading activities. During the ongoing civil suits alleging fraud and manipulation, Steinhardt identified the memorandum as responsive to discovery requests but declined to produce it based on the work product doctrine. The district court's decision to compel its production was met with a mandamus petition from Steinhardt, which the court stayed pending review.
The court is assessing whether to use mandamus to review a district court's order requiring the production of a memorandum. Traditionally, the circuit has been hesitant to employ mandamus for pretrial discovery orders, particularly those involving claims of privilege. It will only consider mandamus in exceptional situations, specifically when: (i) a significant and novel issue arises, (ii) the privilege could be forfeited before a final judgment, and (iii) immediate review could prevent detrimental changes to discovery practices that would undermine the privilege.
This case is noteworthy, as it addresses whether revealing attorney work product during a government investigation waives the privilege in subsequent civil discovery—a question previously unaddressed by the circuit. The district courts have produced conflicting rulings on this matter, and other circuits are similarly divided. The potential loss of privilege, if the memorandum is disclosed, supports the need for immediate review. Furthermore, the argument that the district court's ruling could adversely affect discovery practices is substantiated by precedents from other circuits.
On the merits of the petition, a strict standard for mandamus is applied, requiring the petitioner to demonstrate no adequate alternative for relief and a clear right to the writ, indicating a clear abuse of discretion or judicial overreach. This necessitates showing an "extreme need for reversal," rather than merely that the district judge may have erred. Even a significant error by the judge does not suffice for mandamus relief.
The district court did not determine if the memorandum was attorney work product, as it focused on whether the work-product protection had been waived. The court noted that the plaintiffs did not challenge the classification of the memorandum as work product. It assumed the memorandum reflected an attorney's mental impressions, as defined by Fed. R.Civ. P. 26(b)(3). The court found that Steinhardt voluntarily disclosed the memorandum to an adversary, which constituted a waiver of the privilege in this civil suit. This conclusion was consistent with precedents like Westinghouse and In re Subpoenas Duces Tecum, which emphasize that the policies of the work-product doctrine do not justify exceptions to the waiver rule.
The district court's conclusion that Steinhardt’s disclosure was voluntary was supported by the lack of evidence showing coercion from the SEC, distinguishing this case from others where disclosure was compelled. The SEC was in an adversarial position regarding Steinhardt, as he was aware of the SEC investigation when the memorandum was requested. The adversarial nature was further underscored by the SEC's Enforcement Division being involved, even though no formal proceedings against Steinhardt resulted from the investigation.
The work product doctrine aims to protect attorneys' mental processes and strategies from opposing counsel. It allows attorneys to prepare their clients' cases without fear of adversarial intrusion, preserving a private space for legal analysis and strategy development.
Common sense and litigation practicalities limit the work product doctrine, which protects the thought processes of counsel. Once a party discloses privileged information to an adversary, the privilege is waived for other parties. This waiver doctrine applies to voluntary disclosures, as established in *Nobles* and *In re John Doe Corp.*. Steinhardt argues that disclosing privileged material to a government agency does not waive the privilege for subsequent private litigants, citing *Diversified*. However, *Diversified* focused on attorney-client privilege, not work product doctrine, but its reasoning is still relevant.
The examination of conflicting authorities and the doctrine's purpose indicates that Steinhardt waived work product protection by submitting a memorandum to the SEC. The *Diversified* court’s "selective waiver" theory aimed to encourage cooperation with government investigations, but the Supreme Court in *Nobles* rejected using work product doctrine for unilateral testimonial use. Previous decisions have denied privilege claims for selective disclosures.
The D.C. Circuit, in *Permian Corp.*, criticized the selective waiver theory, arguing it allows manipulation of privilege for tactical benefits. It emphasized that confidentiality is crucial for fostering frank attorney-client communication, and the privilege diminishes when the client appears not to seek secrecy. Clients cannot selectively waive privilege with some opponents while asserting it against others, especially after compromising confidentiality for personal gain. This reasoning has been similarly applied to work product protection in subsequent cases, including *In re Sealed Case* and *Westinghouse Elec. Corp.*.
Voluntary disclosure by corporations is motivated by perceived benefits, as analyzed by James D. Cox regarding market incentives for sharing both positive and negative information. The SEC argues that the protection of privilege is unnecessary to promote compliance with its investigative requests, as it continues to receive voluntary cooperation despite the rejection of the selective waiver doctrine by two circuits. The D.C. Circuit acknowledges that corporations have significant incentives to assist the SEC, including avoiding prolonged investigations and the potential for leniency regarding prior misconduct.
When a corporation chooses to disclose voluntarily to the SEC, it accepts that the advantages of participation outweigh the confidentiality benefits, thus sacrificing certain protections of the adversary system to mitigate the challenges associated with SEC disputes. The petitioner claims that denying their petition creates a "Hobson’s choice" between waiving work product protection or not cooperating with authorities. However, this argument is deemed unconvincing, as difficult choices arising from federal investigations do not justify a broad exception to the waiver doctrine.
The ruling specifies that waiving work product protection through voluntary disclosures is not automatic; each case must be evaluated individually. Establishing a strict rule would overlook scenarios where the disclosing party and the government share common interests or have agreements ensuring confidentiality. In this case, Steinhardt's voluntary submission of a memorandum to the SEC constituted a waiver of work product protections for future litigants. Consequently, the petition is denied, and the stay is lifted.
