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A New York law firm can be ordered to turn over the non-privileged documents of an overseas client not itself subject to U.S. subpoena, a federal appeals court has ruled. The decision by the 2nd U.S. Circuit Court of Appeals overturns a January district court ruling that had shielded the law firm, Davis Polk & Wardwell, from producing documents relating to a Securities and Exchange Commission investigation into one of its clients, Ernst & Young Netherlands. “[D]ocuments held by an attorney in the United States on behalf of a foreign client, absent privilege, are as susceptible to subpoena as those stored in a warehouse within the district court’s jurisdiction,” the appellate panel wrote in Ratliff v. Davis Polk & Wardwell, 03-7194. “Documents obtain no special protection because they are housed in a law firm.” Davis Polk had represented Ernst & Young in the course of its voluntary cooperation with an SEC inquiry into audits that the accountancy performed between 1995 and 1997 for the Baan Co., a Netherlands-based software maker. Ernst & Young sent documents to Davis Polk to be shared with the SEC, and the law firm also retained transcripts of testimony given by Ernst & Young employees before the SEC. Ernst & Young paid a penalty to settle the SEC investigation in June 2002. The documents relating to the investigation were subsequently sought from Davis Polk by plaintiffs suing Baan for securities fraud in federal court in Georgia. In refusing to turn over the documents, Davis Polk conceded the documents were not protected by attorney-client privilege because they had already been given to the SEC. But the firm argued that the 2nd Circuit’s earlier decision in In Re Sarrio S.A., 119 F.3d 143 (1997) supported their position. In that case, Chase Manhattan Bank was shielded from producing documents sent from overseas branches to New York for review by counsel. Davis Polk argued that the Sarrio case established that, in instances where courts lacked jurisdiction over a law firm’s foreign client, they could not compel production of the clients’ documents from the U.S.-based firm. Southern District of New York Judge Lawrence M. McKenna agreed with Davis Polk’s argument and denied the plaintiff’s motion to compel production of the Ernst & Young documents in January. But a unanimous 2nd Circuit panel composed of Judges Jon O. Newman, Sonia Sotomayor and Richard C. Wesley found the Sarrio case largely addressed a situation in which the attorney-client privilege applied. “[Ernst & Young] might be entitled to protection if it sends documents to its law firm to obtain legal advice,” Wesley wrote for the court. “But any such protection does not continue when the client voluntarily discloses the documents to a third party, here a government agency.” The appeals court further concluded that “nothing in Sarrio or any other decision applying the attorney-client privilege provides protection for the transcripts of SEC proceedings or correspondence with the SEC.” Philip R. Schatz of Wrobel & Schatz, lawyer for the plaintiffs, noted the 2nd Circuit’s decision was a useful clarification of the Sarrio case and was in line with decisions reached in courts elsewhere, including the U.S. Court of Appeals for the D.C. Circuit. Jerome G. Snider, the Davis Polk partner who represented the firm, did not return a call seeking comment.

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