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Yet another court has ruled that McKesson Corporation must turn over an internal investigation to its shareholders because the company has already shared the report with the government. The February decision by a California state appellate panel follows similar rulings last year by state and federal trial courts. The problems began for McKesson, a San Francisco-based drug distributor, with its 1999 acquisition of HBO & Co., a software business headquartered in Atlanta. Shortly after the deal closed, McKesson was forced to restate earnings at HBOC. The disclosure prompted a spate of shareholder suits, as well as probes by the U.S. attorney’s office and the Securities and Exchange Commission. The company hired Skadden, Arps, Slate, Meagher & Flom to defend the suits and conduct an investigation. McKesson then agreed to share Skadden’s report with the government, which took no criminal action against the company. Several former HBOC executives � including ex-general counsel Jay Lapine � haven’t been so lucky, and have been indicted by the Justice Department and sued by the SEC [ "Another GC Readies for Trial," December 2003]. Unlike the government, shareholders weren’t willing to let McKesson off the hook, and filed securities fraud suits in state and federal court. After the state cases were consolidated, the plaintiffs filed a motion to obtain the internal investigation, which the trial judge granted. McKesson appealed the decision, arguing that the report was still protected. It also said that giving the report to shareholders would discourage other companies from cooperating with the government in the future. The SEC and the Securities Industry Association, a trade group of securities firms, backed McKesson in amicus briefs. These arguments didn’t sway a three-judge California appellate panel, however. The court unanimously ruled that the report wasn’t protected by attorney-client privilege, since McKesson had already shared it with prosecutors and the SEC. Moreover, the judges weren’t worried about a chilling effect, “given the various incentives for cooperating with government investigations.” One of McKesson’s lawyers at Skadden declined to comment on the case because he was still digesting the opinion at press time. Shareholders in the federal securities suits are also seeking access to the McKesson report [ "Waiving Privilege Good-Bye," July 2003]. That case is currently on appeal to the U.S. Court of Appeals for the Ninth Circuit.

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