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It’s hard to predict things, especially the future.” But Yogi Berra, just this once, got it wrong. Some things are easy to predict. No matter how sunny it is today, we own an umbrella because we can predict it will rain in the future. No matter what the baseball standings are today, we know that the Cubs will find a way to break our hearts. No matter how friendly two entities are today, we need to prepare for the real possibility that friends will become foes. Because when that happens, it will have real implications for preserving privileges. As the judge said, a ‘classic corporate love story’ We could not put it better than did Judge Richard D. Cudahy in GSC Partners CDO Fund v. Washington, 368 F.3d 228, 232 (3d Cir. 2004): it is “the classic corporate love story. Company A meets company B. They are attracted to each other and after a brief courtship, they merge . . . nine months later, however, things begin to fall apart . . . It is an old story but it never fails to elicit a tear.” The problem can arise in all sorts of contexts. Two companies might merge and later split. A company might sell a subsidiary to a purchaser who later feels cheated. Two companies might form a joint venture and subsequently find themselves at odds. While the marriage was working, the two entities freely shared information with one another, including privileged materials. But when they part, like any couple in a divorce, the parties will fight over possession of their possessions. And so the question is: “Who gets possession of privileged materials?” OK, where should we start? Well, we like the advice the King gave the White Rabbit: “Begin at the beginning and go on until you are finished; then stop.” We begin with the basics. Point One: Communications with an attorney designed to elicit or impart legal advice are privileged. We recognize that privilege, even though its assertion is in conflict with the truth-finding function of our system of justice, because that same system more highly rates candid exchange between counsel and client than it does truth-finding. All right, that was unnecessarily cynical. The point is that there are plenty of ways to learn the truth without invading legitimate privileges, and it is important, very important, to encourage open communication between client and counsel without fear of disclosure. So the attorney-client privilege is sacrosanct. Ah, but not so sacrosanct. Point Two: Disclosure to a third party of otherwise privileged communications destroys the privilege. Now, there are some jurisdictions holding that disclosure must be intentional rather than inadvertent for the privilege to be lost; others find the privilege abrogated by any disclosure, however unintentional or innocent. Some jurisdictions allow a party to selectively waive a privilege under limited circumstances. So some disclosures waive the privilege, some do not. And a recent case in the Southern District of New York demonstrates the lengths some courts will go to avoid waiver. In In re Cardinal Health Inc. Securities Litigation, 2007 U.S. Dist. Lexis 36000, *29 (S.D.N.Y. 2007), the plaintiffs sought production of privileged materials created by counsel to the audit committee of the defendant corporation, after those materials had been voluntarily shared with the Securities and Exchange Commission and the U.S. attorney. Now, the law in the 2d U.S. Circuit Court of Appeals was announced in Salomon Bros. Treasury Litig. v. Steinhardt Partners L.P., 9 F.3d 230, 235-36 (2d Cir. 1993): voluntary disclosure of privileged materials to the SEC is a waiver of the privilege. But because Salomon had acknowledged that sharing privileged information among persons with a common interest might not destroy the privilege, the Cardinal Health court made a finding that the audit committee and the government shared a common interest to ensure compliance with the law � so disclosure to the government did not waive the privilege. We think that’s a stretch. All corporate boards and officers have an interest in obeying the law. But “I’m from the government, and I’m here to help you” is not always a comfort. The government has an interest in making examples of wrongdoers, and in their zeal to do so, a few dolphins invariably get caught in the nets cast for sharks. The Cardinal Health reasoning � that law abiding citizens and the government always have the same interest � in effect creates a per se rule of nonwaiver whenever there is disclosure to the government � effectively overruling Salomon. We’re not so sure Cardinal Health will survive 2d Circuit review. Ah, well, Point Three: Disclosure to another entity that genuinely shares a common interest should not defeat the privilege. Actually, courts typically reach this destination by one of three different routes. When information is shared between separate corporate entities who are members of the same corporate family, some courts view the separate entities as a single client. See, e.g., Glidden v. Jandernoa, 173 F.R.D. 459, 472 (W.D. Mich 1997). Other courts view the two entities separately but as joint or co-clients. See, e.g., Polycast Tech. Corp. v. Uniroyal Inc., 125 F.R.D. 47, 49 (S.D.N.Y. 1989). And still others view the members of the corporate family as having a community of interest. See, e.g., Glidden, supra. Just as all roads lead to Rome, all three theories lead to the maintenance of the privilege. Except . . . Point Four: the privilege is maintained only as to the rest of the world, not as to the joint clients or community of entities who have shared information with one another. “When former co-clients sue one another, the default rule is that all communications made in the course of the joint representation are discoverable.” Teleglobe Communs. Corp. v. BCE Inc., 2007 U.S. App. Lexis 16942 (3d Cir. 2007). And here it gets interesting (at long last, you say). Let’s take a hypothetical. Mega Holdings Inc. owns 100% of the stock in Wish & Aprayer Enterprises Inc. Mega infuses capital into Wish & Aprayer to develop technology to implant cell phones into the human body, allowing (or requiring) that we stay annoyingly in touch 24/7. Mega has its long-time counsel, Bob Enweave, jointly represent the two entities in the project. Billions of dollars and hundreds of privileged communications later, Mega sours on the concept. It consults Enweave about its options and responsibilities in the course of selling Wish & Aprayer to Pat C. Corp. Of course, Mega does not disclose that it thinks Wish & Aprayer’s business model is fatally flawed. When Pat C. realizes it has bought a sinking ship, it sues. Pat C. seeks discovery of Enweave’s entire file to get the materials he did not already share with Wish & Aprayer during the joint representation. At the same time Pat C. opens a Web site and posts all of Enweave’s confidential, privileged memos already in its possession so that they can be used by happy litigants everywhere. Failing to withdraw not visited upon the client OK, let’s take a deep breath. Although Mega and Wish & Aprayer shared the privilege, neither of them has a unilateral right to waive it as to other parties outside of the joint representation. Teleglobe, supra. Moreover, Mega cannot be compelled by Wish & Aprayer to turn over Enweave’s privileged communications generated during the sale of Wish & Aprayer that went beyond the scope of the joint representation. Enweave probably has some professional liability issues for counseling two entities potentially adverse to one another; but a lawyer’s potential misconduct in failing to withdraw from joint representation is not visited upon the client, and the individual privileges are maintained. Eureka Inv. Corp. v. Chicago Title Insurance Company, 743 F.2d 932 (D.C. Cir. 1984). Great. But what about the Web posting? Wish & Aprayer had no right to waive the privilege � but by publicizing the privileged material, there is a serious issue whether that bell can be un-rung. Mega has a case for breach of duty, but fat chance that will undo the harm. And while Wish & Aprayer can’t invade Mega’s individual privileges, it does have the right to get the rest of Enweave’s privileged materials within the scope of the common interest. In Teleglobe, supra, the parent corporation argued that the privilege should always belong to the parent, since the subsidiary’s duties flow to the parent; therefore, it was argued, the former subsidiary should not be allowed to invade the parent’s privilege even though the subsidiary shared in the privilege while the relationship existed. The 3d Circuit was impressed by that argument, but only superficially so. The problem is, the 3d Circuit reasoned as it ultimately rejected the argument, “control of the privilege passes with control of the corporation, so it is unclear . . . that it is the initial corporate parent who should control the privilege unilaterally once the group breaks up.” There is a possible fix. The Teleglobe court noted that it might be permissible for co-clients to agree in advance to shield information from one another in subsequent adverse litigation. A parent corporation could easily extract that agreement from its wholly owned subsidiary. But the only case the 3d Circuit was able to find on point refused to enforce such an agreement. In re Mirant Corp., 326 B.R. 646 (Bankr. N.D. Texas 2005). So here’s the deal. When two entities share a common interest, it is efficient, it is logical, for them to share counsel. And we don’t suggest that change. But they had better buy an umbrella, wait for the Cubs to blow the crucial game, and get ready to lose their privileges. Jerold S. Solovy, chairman of Jenner & Block, is past chair of the ABA Discovery and Trial Practice committees. He can be reached at [email protected]. Robert L. Byman, a partner at the firm, is past chair of of the American College of Trial Lawyers Federal Civil Procedure Committee. He can be reached at [email protected].

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