Did Bank of America and its lawyers at Cleary Gottlieb Steen & Hamilton make a mistake in the order waiving attorney-client privilege in the bank's case against the Securities and Exchange Commission?
One expert thinks so.
Gregory Joseph, a lawyer who studies evidence and attorney-client privilege, thinks the bank's waiver could result in many more lawyers getting access to privileged documents than the bank intended.
To review: The SEC sued BofA for violating shareholder disclosure requirements during its merger with Merrill Lynch last fall. After an aborted settlement last month, the case has focused increasingly on BofA's lawyers at Wachtell, Lipton, Rosen & Katz, which advised the bank during the merger.
Flash-forward a month. Just about everybody was pushing BofA to waive its attorney-client privilege and turn over communications between bank executives and Wachtell lawyers that would reveal exactly who decided what during the merger talks. BofA has repeatedly told regulators it relied on advice from its Wachtell lawyers in crafting the merger documents that allegedly violated disclosure requirements.
The bank finally acceded to those demands when it waived the privilege in its SEC case and the ongoing investigation conducted by New York attorney general Andrew Cuomo. That has Wachtell panicking and experts speculating that the firm's partners could face securities fraud charges, according to The New York Times.
But back to the SEC waiver. As we reported Thursday, the bank drafted a court order outlining what disclosures it would make, and Judge Jed Rakoff signed that order. The order relied on Federal Rule of Evidence 502, which became law just 13 months ago.
The rule's intent is to allow the targets of an investigation to disclose privileged documents to an authority without the disclosure becoming a blanket attorney-client privilege waiver that would spill over into other pending litigation. In its proposed disclosure order, BofA listed 58 cases that would not be subject to the disclosure, including a massive consolidated class action in federal court in Manhattan.
But you have to write the court order correctly if you want such protections. And the bank didn't, Joseph says. Joseph, who has his own firm, was involved in drafting the revised Rule 502, he says. He talked to several congressional staffers and lobbied for a rule that would have offered more expansive privilege protections. (Daniel Capra, a professor at Fordham University School of Law and the man credited with drafting the rule, declined to comment for this story.) Joseph also is the former head of litigation at Fried, Frank, Harris, Shriver & Jacobson and the president-elect of the American College of Trial Lawyers, according to his C.V. He's also written about the new Rule 502 for The National Law Journal. Joseph first wrote about BofA's possible mistake in his blog: "In my view, [the order] does not operate to preserve the privilege as it is phrased because it is not authorized by Federal Rule of Evidence 502," he wrote. We called Joseph and asked him to elaborate.
It turns out the bank's first mistake is simple: They referred repeatedly to a "waiver" in their court order, and Rule 502 does not deal with "waivers," Joseph says. It gives corporations the ability to disclose privileged documents in a limited way under the terms of a court order, not a waiver. It may seem like a semantic distinction, and it is, but Joseph says its implications could be huge. Put simply, any privileged document the bank discloses to the SEC is now fair game for plaintiffs lawyers in those 58 cases we mentioned earlier, Joseph says. BofA's order protects the bank against the SEC or those plaintiffs lawyers from getting their hands on documents the order doesn't specifically cover. But what the bank turns over to the SEC is no longer protected, Joseph says. "They've waived the privilege" as it relates to documents the bank turns over to the SEC "in this case and every other case."
Lewis Liman, the lead Cleary partner representing BofA, did not return messages seeking comment. David Rosenfeld, the top SEC lawyer on the case, also declined to comment. (The SEC is listed as a drafter of the order along with Cleary.) The disclosure order Rakoff signed also attempts to limit the effects of any similar disclosures the bank makes before other authorities, including Cuomo. But Rule 502 does not provide for such protections, Joseph says.
Plaintiffs lawyers with pending private cases against BofA related to the Merrill merger have repeatedly declined to comment about the privilege waiver. We'll let you know if we hear anything from Cleary, BofA, the SEC or plaintiffs attorneys.
This article first appeared on The Am Law Daily blog on AmericanLawyer.com.
