Judge Refuses to Close Trial in McKesson Case

In a victory for plaintiff attorneys and media groups, U.S. District Judge Martin Jenkins on Monday decided to keep open the trial of a former McKesson Corp. executive accused of securities fraud. McKesson had moved to close portions of the criminal trial of its former chief financial officer, Richard Hawkins, in order to keep from the public the contents of an internal investigation conducted at the behest of McKesson after allegations of corporate wrongdoing triggered $9 billion in investor losses.

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In a victory for plaintiff attorneys and media groups, U.S. District Judge Martin Jenkins on Monday decided to keep open the trial of a former McKesson Corp. executive accused of securities fraud. McKesson had moved to close portions of the criminal trial of its former chief financial officer, Richard Hawkins, in order to keep from the public the contents of an internal investigation by Skadden, Arps, Slate, Meagher & Flom. The law firm conducted the inquiry at the behest of McKesson after allegations of corporate wrongdoing triggered $9 billion in investor losses following the health care giant’s 1999 merger with Atlanta-based software maker HBO & Co. McKesson wanted the trial closed if any witnesses discussed the report, arguing that its attorney-client privilege trumps the First Amendment right of access to judicial proceedings. Jenkins said that argument doesn’t hold water. “The court does not take lightly McKesson’s articulated interest in preserving the attorney-client privilege and the confidentiality of attorney work product,” Jenkins wrote in a brief order. “However � the facts and circumstances of this case demonstrate that McKesson’s interest � is not sufficiently compelling.” Jenkins also cited his previous finding — in another case involving the criminal prosecution of a McKesson executive — that McKesson had waived its privilege because it turned over the report to the government. That ruling is on appeal to the Ninth Circuit U.S. Court of Appeals. McKesson’s attorney, James Lyons of Skadden’s San Francisco office, could not be reached for comment Monday afternoon. However, several attorneys following the case predicted McKesson would try to appeal to the Ninth Circuit. Hawkins’ bench trial on conspiracy and securities fraud charges was supposed to begin Monday but McKesson’s motion delayed the proceedings for at least a week. An appeal could push things back even further, especially if McKesson asks the court to stay the trial. McKesson and Skadden turned the internal report over to government investigators in a successful bid to avoid criminal charges. Instead, federal prosecutors and regulators filed civil and criminal charges against Hawkins and other executives. Other company officials have pleaded out and are cooperating with the government. White-collar attorneys have been closely following McKesson’s efforts to keep its investigation confidential. Leo Cunningham, a former federal prosecutor now at Wilson Sonsini Goodrich & Rosati, said he advises clients that sharing such materials can win favor with government prosecutors but raises other issues. “You tell them that it’s a shifting legal landscape and there are risks [to sharing],” said Cunningham, who does white-collar defense and conducts internal investigations. “If the decision is made to share with anyone, then the privilege is likely in jeopardy.” Cunningham said he “salutes” McKesson for trying to preserve attorney-client privilege. There is a good policy argument, he said, in having companies sniff out wrongdoers without having to worry about the information eventually being used against them in civil cases. McKesson’s motion was opposed by plaintiff lawyers who have filed suits against McKesson in state and federal court as well as by several media organizations, including The Recorder. A federal grand jury indicted Hawkins last March, charging that he conspired to artificially inflate McKesson sales during the first quarter after the firm bought HBO & Co. Shortly after the takeover, McKesson announced that profits had been vastly inflated — a revelation that caused McKesson’s stock to drop by nearly 50 percent in a single day, wiping out $9 billion in shareholder value. The plaintiff attorneys want the internal report because they think it could serve as a roadmap to successful damage awards. So far, courts have rejected Skadden’s privilege argument. The report was turned over to plaintiff attorneys who sued McKesson in state courts and to attorneys defending executives.

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