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McKesson Corp. asked a skeptical Ninth Circuit U.S. Court of Appeals panel Wednesday to keep plaintiff attorneys off the coattails of government prosecutions of alleged corporate wrongdoing. At issue is an internal investigation conducted by Skadden, Arps, Slate, Meagher & Flom after McKesson discovered improperly recorded revenues following the 1999 merger with HBO & Co. That investigation was handed over to Department of Justice prosecutors and the Securities and Exchange Commission. Now, defense attorneys for former company executives indicted by the DOJ want the internal report because they believe it contains exculpatory evidence. But McKesson says the report is privileged attorney-client work product. White-collar practitioners are closely watching the case, U.S. v. Bergonzi, 03-10511, because it highlights the collision of civil and criminal prosecutions in cases of alleged corporate wrongdoing. Companies share internal reports in order to win favor with government investigators. But if those reports end up exposing them to liability in securities fraud suits, they may not be as cooperative on the criminal side. Although McKesson agrees defense attorneys deserve to see some of the evidence, the company doesn’t want it to fall into the hands of plaintiff lawyers, who would like the internal investigation to bolster shareholder suits. Skadden asked the Ninth Circuit on Wednesday to limit the sharing with a protective order. But Skadden attorney Keith Krakaur had to fight uphill. First on the judges’ agenda was the agreement Skadden signed when it turned over the internal report. “What is it you’re asking this court to decide, when the document you signed expressly contemplates that attorney-client work product is going to be disclosed?” asked Judge Raymond Fisher just minutes into Krakaur’s presentation. Krakaur argued that the company was not adverse to the SEC nor the DOJ and did not expect the internal report would be used in the way plaintiff lawyers would like. Fisher seemed the most suspicious of Skadden’s position, but his fellow panelists, Judge William Fletcher and Senior Judge Robert Beezer, also joined the fray. The questions and interruptions continued throughout Krakaur’s time at the podium as the three judges explored whether they could balance McKesson’s concerns with defendants’ rights. Krakaur shared his time with SEC lawyer Edward Schweitzer Jr., and the judges had so many questions that both attorneys went over their allotted time by several minutes. The SEC argues that sharing the internal report would discourage companies from cooperating with fraud investigations. If McKesson and the SEC seem like an odd team, the other table was occupied by Assistant U.S. Attorney Timothy Crudo and two defense attorneys for former company executives. Former McKesson board chairman Charles McCall is represented by Alex Oh of the New York office of Paul, Weiss, Rifkind, Wharton & Garrison. Jay Lapine, the former general counsel of HBO & Co., has hired William Goodman of San Francisco’s Topel & Goodman. Krakaur did not argue that Oh and Goodman should not see the investigation. Rather, he just wants to make sure that only certain portions of the report are released. But a protective order, Fisher said, could interfere with the executives’ defense. “What would be the rights of defendants?” Fisher asked. “What you’re trying to do is put constraints on the constitutional rights of the defendants.” Judge Beezer concurred, and told Krakaur that McKesson was putting defendants in “a terrible position.” “What we’re asking has been granted by other courts,” Krakaur said. “The problem that McKesson faces is having once been victimized by a recently acquired subsidiary � now it’s being victimized a second time by plaintiff counsel.” The appeal landed before Wednesday’s panel after U.S. District Judge Martin Jenkins ruled in favor of defense attorneys. He said McKesson waived attorney-client privilege by sharing the report with prosecutors. Judge Fletcher pointed out that Wednesday’s argument could be moot because the defense attorneys already have access to the report. In February, the state’s First District Court of Appeal decided that McKesson had waived the attorney-client privilege. That case, which dealt with a shareholder suit against McKesson, is McKesson v. San Francisco Superior Court, 04 C.D.O.S. 1476.

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