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Wendt and Sultan on oral downloads: What should counsel share with the SEC?

In prior posts, we covered (1) how two former General Cable executives, now defendants in an SEC enforcement action, sought to compel Morgan Lewis (General Cable’s counsel) to share interview memoranda and notes, investigation reports and other materials from the firm’s internal investigation, and (2) how Judge Jonathan Goodman ruled in the defendants’ favor in part by holding that Morgan Lewis had waived work product protections through oral disclosures of interviews to the SEC.

In this third and final post, we discuss the flurry of activity that resulted from Judge Goodman’s order, which ultimately led to the defendants and Morgan Lewis reaching their own resolution to the discovery dispute.

Dueling Submissions following the Order Granting in part the Motion to Compel. In the ensuing weeks, Morgan Lewis filed a motion for clarification or reconsideration, the defendants filed a motion for immediate enforcement, Morgan Lewis responded to the defendant’s motion for immediate enforcement, the defendants responded to Morgan Lewis’s motion for clarification or reconsideration, Morgan Lewis filed a set of Rule 72(a) objections (which was denied without prejudice by the district judge, who said that the issues were still before the magistrate judge), and the court issued multiple rulings and set a briefing schedule. 

In this flurry of activity, three issues dominated:

  • Morgan Lewis’s notes from their October 2013 meeting with the SEC. In its motion for clarification or reconsideration, Morgan Lewis offered to share these notes as the best authority on what specifically was shared with the SEC (rather than the notes and memoranda from the underlying interviews).  Judge Goodman ordered that Morgan Lewis produce its notes from that meeting to the defendants, and the law firm complied. The defendants responded that because the notes often referred to portions of the meeting that were not captured in detail in the meeting memorandum (for example, when the Morgan Lewis note taker wrote that the speaker “summarize[d] further” or “explain[ed] transaction from statement”), the meeting notes alone could not suffice.
  • Morgan Lewis’s 12 interview memoranda that were “downloaded” to the SEC. Morgan Lewis argued that the firm did not discuss with the SEC the entirety of the firm’s interview notes and memoranda in October 2013 and that therefore Morgan Lewis did not waive work-product protections for the entirety of those documents. Everyone agreed, however, that Morgan Lewis did read directly from one memorandum during the SEC meeting, and the court ordered Morgan Lewis to share the portion of that interview memorandum (noting that Morgan Lewis had not asked for clarification on that point). Morgan Lewis complied.  For the remaining interviews, Morgan Lewis stated that its interview downloads consisted of “only summaries” of the interviews.
  • The scope of underlying subpoena versus the court’s holding. Morgan Lewis argued in its motion for clarification or reconsideration that the underlying subpoena referred to interview downloads related only to the SEC’s Accounting Order against General Cable, dated December 29, 2016 (and not the FCPA Order from the same day or any discussions after that day). In particular, Morgan Lewis argued that there could not have been a work product waiver for any interview downloads after the resolution because General Cable and the SEC were no longer adversarial.

In response to the back and forth between Morgan Lewis and defendants, Judge Goodman issued another ruling on December 19, 2017, requiring the parties to participate in a hearing for factual clarification about what was disclosed to the SEC (and DOJ). 

Judge Goodman started with the quote, “Be careful what you ask for; you might receive it.” Judge Goodman noted that Morgan Lewis attorneys had not clarified what resources were used to prepare for the interview downloads to the SEC and that the available notes from the October 2013 meeting were “merely a handwritten summary by one attorney” and were not a “verbatim version of what was said.” The court also observed that Morgan Lewis had failed to produce the notes and memoranda from the 12 interviews discussed with the SEC, “although the [court’s earlier order] had required” Morgan Lewis to do so within seven days.  

Consequently, the magistrate judge issued the following orders:

  • The SEC was directed to file a notice clarifying whether the investigation relating to the FCPA Order “has anything to do with” the enforcement action against the defendants. The SEC promptly responded that the Accounting Order and FCPA Order (and the related investigations) did not overlap, except in timing.
  • Morgan Lewis was directed to provide a list of all attorneys who participated in the October 2013 SEC meeting or any other meetings with the SEC or DOJ where any interviews “for its internal investigation” (without differentiating between the Accounting and FCPA Orders) were discussed.
  • Morgan Lewis was directed to provide all notes and memos from any such SEC or DOJ meetings discussing investigation interviews, regardless of whether the meeting occurred before or after the date of the Accounting Order; regardless of whether the meeting was in person, by phone, etc.; and regardless of whether the meeting related to the Accounting or FCPA Order.
  • Finally, attorneys to be identified by Morgan Lewis as having participated in such meetings were ordered to appear at a hearing scheduled for January 2018, at which time the defendants’ counsel would be allowed to question them regarding the disclosures to the SEC and DOJ.

In an extra bit of panache, Judge Goodman reminded the parties that he typically follows Civil Procedure Rule 37, requiring a fee-shifting award for the party who loses a discovery dispute.

Preparation for the January hearing. In advance of the scheduled January hearing, Morgan Lewis — now represented by Hogan Lovells — provided a list of 15 of its attorneys who attended meetings with the SEC or DOJ (including the October 2013 SEC meeting) in which Morgan Lewis provided interview summaries. Nine of those attorneys were no longer at Morgan Lewis, presenting another logistical issue.

In early January — approximately one week before the scheduled hearing — Morgan Lewis filed another set of Rule 72(a) objections. Morgan Lewis focused on how the court’s orders required Morgan Lewis to produce (either to defendants or to the judge in camera) much more information than what the defendants had requested in their subpoena and motion to compel. Morgan Lewis also argued that providing the defendants with the opportunity to cross examine non-party Morgan Lewis attorneys was an unprecedented and disproportionate response to the issues before the court.

At the same time, however, Morgan Lewis also filed a motion to stay Judge Goodman’s decision, in part because “Defendants and Morgan Lewis … reached a resolution with regard to the documents that were sought by Defendants via their … motion to compel.” The next day, defendants and Morgan Lewis filed a joint notice that they had resolved the discovery dispute.

Subsequently, Judge Goodman cancelled the hearing and resolved the pending motions, but not without explaining that he had ordered the in camera review of the relevant interview notes and memoranda to help him prepare for the upcoming hearing.

Questions going forward. While the episode was ultimately resolved quietly through an agreement between the defendants and Morgan Lewis, the extensive litigation between the parties nonetheless provides an interesting scenario for examining various questions for professionals and their clients navigating the difficult waters of cooperating with U.S. authorities prior to any resolution.  In reviewing these questions, it is worth remembering the quote by Thomas Sowell that “[t]here are no solutions,” “only trade-offs.” Lawyers and their clients need to assess what trade-offs are optimal in each instance.

  • What materials to use for disclosures. In discussions with U.S. authorities and external auditors, the first question is what materials should be used for any disclosures (either in writing or orally). Should external counsel directly use its privileged and work product protected notes and memoranda (which may create more risk for disclosure), or should counsel prepare new documents and materials for each disclosure (which increases lawyer fees)? 
  • How to share with U.S. authorities. In some cases, it may be best to provide direct summaries of what was learned during specific interviews, in order to build goodwill with U.S. authorities, pursue cooperation credit, etc. But this approach creates risks for waivers and disclosures. In other cases, it may be better to prepare specific materials to use in summarizing facts learned during interviews and avoid (to the extent possible) pinpointing facts to specific interviews. Alternatively, it may be worth exploring alternative approaches to share such facts, such as proffering what a witness might be likely to say during any future interview. Also, this case raised the question — but did not resolve it — whether a company is no longer adversarial to an enforcement agency once the company has concluded a resolution and entered into a cooperation commitment. Because of the uncertainty regarding this argument, it may be best to manage interview debriefings similarly, regardless of whether they occur before or after a resolution.  
  • How to share with external auditors. Sharing attorney-client privileged and work product materials such as investigation reports, memoranda, and/or notes with external auditors may be expedient or even necessary in some instances, but it should be understood that any decisions to share such materials will result in the increased risk of disclosure in subsequent proceedings. There is an array of options for sharing with external auditors — physical transfer, inspection, readings by law firms, summaries by law firms, and more — and a client may have different interests in a specific instance depending on its relationship with the auditor and/or concerns about subsequent disclosures. Currently, several courts have decided that disclosures to external auditors do not waive work product protections, but this issue is still open and could change swiftly. Moreover, it is worth remembering that auditors are unlikely to withhold any information in discovery (for example) on the basis of any law firm’s work product protections. 
  • The Paper Trail. The defendants in this case provided a somewhat robust paper trail using the Accounting Order itself, informal requests from the SEC for interview downloads, and reports and memoranda prepared by the external auditor about what was shared by external counsel and how. This episode raises questions about how to memorialize cooperation in any resolution(s), how to manage the less formal communications with the authorities and an external auditor, and coordinating with the auditor with regard to documenting any disclosure process. Additionally, this episode raises the question about how to document disclosures to the US authorities — draft/final talking points, verbatim notes or even transcripts, or some other form?

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Daniel Patrick Wendt, pictured above left, is a Member in Miller & Chevalier’s International Department. He focuses on matters involving the FCPA. 

Ann Sultan, right, is Counsel with Miller & Chevalier’s International Department. Her practice focuses on international corporate compliance and white collar defense related primarily to the FCPA.

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