United States District Court, S.D. New York
November 8, 2005.
EXPORT-IMPORT BANK OF THE UNITED STATES, Plaintiff,
ASIA PULP & PAPER CO., LTD., PT INDAH KIAT PULP & PAPER TBK, PT PABRIK KERTAS TJIWI KIMIA TBK AND PI PINDO DELI PULP & PAPER MILLS Defendants.
The opinion of the court was delivered by: JAMES FRANCIS IV, Magistrate Judge
MEMORANDUM AND ORDER
The defendant and the plaintiff in this action have each moved
pursuant to Rule 37 of the Federal Rules of Civil Procedure for
orders compelling discovery. The defendant, the Asia Pulp & Paper
Company, Ltd. ("APP" or "the company"), contends, among other
things, that the plaintiff has applied the deliberative process
privilege improperly. The plaintiff, the Export-Import Bank of
the United States ("Ex-Im" or "the agency"), objects to the
defendant's use of the "functional equivalent" doctrine, which
extends the attorney-client privilege to communications between a
corporation's counsel and corporate consultants who are de facto
employees. Ex-Im also asserts that APP forfeited its
attorney-client privilege over an entire subject by discussing an
attorney's advice on the subject during a deposition. Background
Ex-Im brought this lawsuit against APP and its affiliates to
recover funds due under several promissory notes. (Second Amended
Complaint ("SAC"), ¶ 1). Organized under federal law as an agency
of the United States of America, Ex-Im has a statutory mandate to
promote American employment by aiding in the financing of
purchases by overseas buyers of American goods.
12 U.S.C. § 635(a)(1). The agency does this by offering several kinds of
financial products, including loan guarantees. (SAC, ¶ 10). The
credit extended in this case involved loan guarantees to various
commercial banks and financial institutions that financed
purchases of American products by APP and its affiliated
companies. (SAC, ¶¶ 12, 17).
APP, a Singapore corporation, together with its related
companies in Indonesia, constitutes one of the largest paper
manufacturers in the world. (SAC, ¶¶ 5-8, 18). In March 2001, APP
and its affiliates, with worldwide debts approaching $14 billion,
announced a decision to stop servicing all of APP's loans and to
seek an out-of-court negotiated restructuring of its
international debt. (Declaration of Ferry Siswojo Djongianto in
Opposition to Plaintiff's Motion to Compel Disclosure ("Ferry
Decl."), ¶ 4). This triggered close to three years of intensive
negotiations between APP and its creditors, including Ex-Im and
the Indonesia Bank Restructuring Agency ("IBRA"), an agency of
the Indonesian government. (Declaration of Kenneth R. Puhala in
Support of Defendant's Motion to Compel and Certification of Good Faith
("Puhala Decl."), ¶¶ 5, 6). In October 2003, Ex-Im withdrew from
the negotiations and filed suit to collect on APP's indebtedness.
(Puhala Decl., ¶¶ 5, 6).
APP raises the affirmative defense of equitable estoppel, which
forms a principal basis for its discovery requests. The company
contends that Ex-Im is estopped from asserting its claims because
the agency actively negotiated with APP and obtained onerous
concessions by leading APP to believe that it would sign the
restructuring agreement. (Puhala Decl., ¶ 7).
Document production to date has been extensive. APP has
produced in excess of 90,000 documents and a 450-page privilege
log. (Puhala Decl., ¶ 8; Declaration of AUSA Nicole Gueron in
Support of Plaintiff's Motion to Compel ("Gueron Decl."), Exh.
E). The log lists approximately 6,500 documents, all described as
shielded by either the attorney-client privilege, work product
immunity, or both. (Gueron Decl., Exh. E). A number of entries
list as recipients of privileged documents Nicky Tan, a financial
consultant who was engaged by APP to help the company restructure
its debt, or employees of Mr. Tan's consulting business. (Gueron
Decl., Exh. E).
Ex-Im has produced roughly 190,000 pages of documents
(Declaration of AUSA Sarah Light in Support of Plaintiff's
Opposition to Defendant's Motion to Compel ("Light Decl."), ¶ 3), and a 1,100-page privilege log. (Puhala Dec., Exh. F). Ex-Im
claims the attorney-client privilege, work product immunity, or a
combination of the two over a great preponderance of documents
listed in its privilege log. Approximately 500 documents are
identified as protected solely by the deliberative process
privilege. (Puhala Decl., Exh. F; Declaration of James K. Hess,
Chief Financial Officer, U.S. Export-Import Bank ("Hess Decl."),
Att. A (extracting and listing the deliberative process privilege
In response to APP complaints, Ex-Im has expanded its
descriptions of the deliberative process documents in its
privilege log, elaborating upon what had been brief phrases such
as "status report," "draft document," and "draft correspondence."
(Puhala Decl., Exh. D, at 5; Light Decl., Exh. I, at 2). The new
entries give more specific information. However, Ex-Im has not
altered entries describing documents protected by attorney-client
and work product privileges, and many of those are merely two- or
The parties have deposed a number of witnesses. APP conducted a
deposition of a former Ex-Im employee, Reyhana Mostofi, in May
2005 in Hong Kong, reserving a right to seek a reopening of the
deposition. (Letter of Kenneth R. Puhala dated May 15, 2005,
attached as Exh. L to Puhala Decl.). Ex-Im has deposed six APP
witnesses, including Bertie Mehigan, a partner at White & Case
who served as an advisor to APP during the restructuring process.
During the deposition, Mr. Mehigan, who testified as a designated
representative of APP, discussed his advice to APP to abstain
from making a $90 million payment to IBRA, despite alleged
pressure from Ex-Im to make the payment (Gueron Decl., Exh L at
15-17), and despite APP's $1 billion debt to IBRA.
In November 2004, APP served a subpoena on the United States
Department of State ("the State Department") seeking testimony
and all documents relating to APP over a period stretching from
January 2001 to December 2004. (Nov. 22, 2004 Subpoena; Letter of
Benjamin P. Deutsch dated Nov. 16, 2004, attached as Exhs. B and
C, respectively, to Declaration of Sarah E. Light in Support of
Specially Appearing Non-Party State Department's Opposition to
Defendant's Motion to Compel dated June 7, 2005 ("Light Decl.
II")). In response to the subpoena, the State Department produced
a red-weld containing documents, a privilege log listing 184
documents, and a letter addressed to APP counsel from James
Thessin, Acting Legal Advisor to the State Department. Mr.
Thessin expressed his conclusion that production of documents
sought by APP is governed by 22 C.F.R. part 172, which grants the
State Department discretion to determine whether it should
produce requested documents. (Puhala Decl., ¶ 21; Light Decl. II,
All of this discovery had given rise to an assortment of
challenges by each party. I will address each party's motion in turn.
A. Defendant's Motion to Compel
APP seeks an order compelling Ex-Im to produce documents
withheld based on the deliberative process privilege; to cure
deficiencies in its privilege log, either by producing all
documents or revising the log; and to reopen the deposition of
Ms. Mostofi. It also seeks to compel the State Department to
produce a sworn statement justifying its invocation of the
deliberative process privilege.
For the reasons discussed below, the application for an order
seeking documents withheld on the basis of the deliberative
process privilege is denied; the request for an order compelling
Ex-Im to revise its privilege log is granted; the request for an
order to reopen Ms. Mostofi's deposition at Ex-Im's expense is
denied; and the application for an order compelling a statement
from the State Department is denied.
1. The Deliberative Process Privilege
APP argues that Ex-Im has swept too many documents under the
protective umbrella of the deliberative process privilege and
that, in all events, the agency has failed to give precise and
certain reasons for invoking the privilege.
The deliberative process privilege shields from disclosure
"documents `reflecting advisory opinions, recommendations and deliberations comprising part of a process by which governmental
decisions and polices are formulated.'" NLRB v. Sears, Roebuck
Co., 421 U.S. 132, 150 (1984) (quoting Carl Zeiss Stiftung, v.
V.E.B. Carl Zeiss, Jena, 40 F.R.D. 318, 324 (D.D.C. 1966)); see
Department of Interior v. Klamath Water Users Protective
Association, 532 U.S. 1, 8-9 (2001); In re Sealed Case,
121 F.3d 729, 737 (D.C. Cir. 1997); Grand Central Partnership, Inc.
v. Cuomo, 166 F. 3d 473, 482 (2d Cir. 1999). The rationale for
the privilege is that it helps the public obtain the best
possible policies by promoting "free expression, integrity, and
independence of those responsible for making the determinations
which enable the government to operate." United States v. Hooker
Chemicals & Plastics Corp., 114 F.R.D. 100, 102 (W.D.N.Y. 1987)
(citations omitted); see also In re Franklin National Bank
Securities Litigation, 478 F. Supp 577, 580-82 (E.D.N.Y. 1979).
To qualify for the privilege, the government must show that the
document to be protected is both "predecisional" and
"deliberative," Grand Central Partnership, Inc. v. Cuomo,
166 F.3d 473, 482 (2d Cir. 1999), and must explain its decision to
withhold documents with "precise and certain" reasons.
Resolution Trust Corp. v. Diamond, 773 F. Supp. 597, 604
The privilege is a qualified privilege, "a discretionary one
that depends upon ad hoc considerations of competing policy
claims." Franklin National Bank, 478 F. Supp. at 582 (citations omitted). The competing interests weighing against the privilege
include, foremost, the public's interest in accurate judicial
decision-making. Id. To determine whether a government agency's
claim of the privilege is justified, courts consider a number of
factors, including the relevance of the evidence the agency seeks
to protect, the availability of other evidence, the seriousness
of the litigation, the role of the agency in the litigation, and
the possibility that disclosure will inhibit candid debate among
agency decision-makers. Id. at 583; accord United States
Postal Service v. Phelps Dodge Refining Corp., 852 F. Supp. 156,
165 (E.D.N.Y. 1994); Resolution Trust Corp.,
773 F. Supp. at 605; Hooker Chemicals & Plastics, 114 F.R.D. at 102. In
conducting this balancing test, courts must weigh with great care
the potential value of the evidence sought by the litigant.
Franklin National Bank, 478 F. Supp. at 582.
APP's argument fails at the threshold of this analysis because
the evidence it seeks lacks relevance. APP's "main defense to
[this] lawsuit and the principal subject of discovery in this
case is whether Ex-Im is estopped or otherwise equitably
prevented from asserting its claims." (Puhala Decl., ¶ 7). APP's
assertion of the defense, however, is futile, and thus, the
evidence it seeks has no relevance at all.
Two factors make APP's estoppel defense fruitless. First, it is
asserted against the government. "The doctrine of equitable estoppel is not available against the government except in the
most serious of circumstances and is applied with the utmost
caution and restraint." Drozd v. INS, 155 F.3d 81, 90 (2d Cir.
1998) (internal quotation marks and citations omitted); see
also City of New York v. Shalala, 34 F.3d 1161, 1168 (2d Cir.
1994); United States v. Boccanfuso, 882 F.2d 666, 669 (2d Cir.
1989); United States v. Cyprus Amax Minerals Company, No. 92
Civ. 290 1998 WL 698500, at *1 (D. Conn. Sept. 16, 1998).
Courts apply estoppel against the government only in those
limited circumstances where the defendant can establish
government misconduct. Shalala, 34 F.3d at 1168. See also
Cyprus Amax Minerals, 1998 WL 698500, at *1 ("The acts or
conduct relied upon must go beyond mere negligence."). The
conduct APP alleges Ex-Im representing that it would sign a
restructuring agreement and using its influence over the entire
restructuring process to demand and extract significant
concessions from APP is hardly egregious. See 80 Nassau
Associates v. Crossland Federal Savings Bank, 169 B.R. 832
(1994) (creditor did not engage in misconduct when it extracted
payment concessions from debtor and then withdrew from
Second, "a party cannot assert estoppel . . . as a result of
being `induced' to do what he is already legally required to do."
Id. at 842. The case of 80 Nassau Associates is instructive.
There, debtors sought an order subordinating one bank's secured claims to the claims of all other creditors. Id. at 835. The
basis of the debtors' motion was a charge that the bank had
engaged in inequitable conduct: the bank's repeated assurance
that it would restructure the debt if the debtors paid their
obligations lulled the debtors' into making tax payments; then,
at the eleventh hour, instead of negotiating a restructuring of
the debt, the bank filed a foreclosure action. Id. at 835-36.
The court rejected the estoppel claim, holding that, as a matter
of law, debtors cannot be lulled into paying expenses they are
independently obligated to pay. Id. at 842.
APP's effort to estop Ex-Im suffers from the same infirmity as
the debtors' efforts in 80 Nassau Associates. APP may have
devised alternate ways to restructure its debt in the absence of
Ex-Im's entreaties. However, it was APP's debts, not Ex-Im's
entreaties, that obligated APP to make the payments it made to
As a matter of law, APP fails to set forth an estoppel claim
against the government, and thus fails to demonstrate that the
government's documents have relevance. Nor do other factors tip
the balance in APP's favor. Courts weighing the government's need
to protect communications against the public's interest in
accurate fact-finding also consider the availability of other
evidence, the seriousness of the litigation, the government's
role in the litigation, and the chilling effect disclosure might
have upon future policymakers. With regard to the availability of other evidence, APP has
access to its own principals who can answer whether Ex-Im's
representations caused APP to change position, as well as to
hundreds of thousands of pages of Ex-Im documents that have
already been produced. See Carl Zeiss Stiftung v. V.E.B. Carl
Zeiss, Jena, 40 F.R.D. 318, 327-28 (D.D.C. 1966) (argument for
forcing disclosure unavailing where adverse party fails to show
that thousands of pages already furnished do not contain
The need for full disclosure is not increased by the
seriousness of this litigation. Courts that have cited the
seriousness of an action as a factor in ordering disclosure have
noted the importance of the public policies involved and the
public's need to know how effectively government is working.
See Resolution Trust Corp., 773 F. Supp. at 605 (seriousness
weighs in favor of disclosure where litigation implicates state
and federal policies that would effect living conditions of
thousands of New York City tenants). An insider's look at the
process of restructuring a debt, a process that requires business
and financial decisions, does implicate the effectiveness of
public policies to the same extent.
Similarly, the role of the government in this case does not tip
the balance in favor of APP. APP argues that the deliberative
process privilege is not available to the government when the
government is the plaintiff (Defendant's Memorandum of Law in Support of Motion to Compel Disclosure at 11 (citing United
States v. Ernstoff, 183 F.R.D. 148, 152 (D.N.J. 1998); FDIC v.
Hatziyannis, 180 F.R.D. 292, 293 (D. Md. 1998)), but that
proposition is not the law in this circuit, see Hooker
Chemicals & Plastics, 114 F.R.D. at 102 ("[T]he state does not
waive its right to withhold privileged deliberative documents
simply because it is a plaintiff in a given action."), and, in
any event, has no logical foundation.
Finally, the risk that disclosure here will inhibit frank
discussion in the future among the agency's officers is
sufficient to tip the balance against APP. Ex-Im has provided
declarations of its current acting financial officer and its
previous chief financial officer, both of whom contend that
disclosing the agency's internal deliberations would have the
result of stilling communications necessary to conducting
high-level financial transactions. The agency, they point out, is
repeatedly involved in restructuring efforts around the globe,
and Ex-Im staff would act to protect the agency's effectiveness
as a negotiator by limiting non-confidential written
communications within the agency. (Hess Decl., ¶¶ 9, 10;
Declaration of Michael J. Discensa, Jr., Acting Chief Financial
Officer, U.S. Export-Import Bank ("Discenza Decl."), ¶¶ 9, 10). I
have no reason to discredit this assessment.
As none of these factors tilt in APP's favor, its request for
an order compelling disclosure of Ex-Im's privileged deliberative communications is denied.
2. Deficiencies in the Privilege Log
Ex-Im's privilege log is a 1,100 page document listing over
11,000 documents. For the vast majority of documents, Ex-Im rests
its privilege claims on assertions of the attorney-client and
work product privileges. Descriptions of the documents are
bare-boned. "Draft correspondence," "agenda," and "e-mail
regarding draft correspondence," are typical entries in the
column of the privilege log that Ex-Im has reserved for
indicating the relationship of the document to legal
representation. (Puhula Decl., Exh. F). Some entries are undated,
fail to identify the author of the document, provide only the
name of a law firm, or fail to identify recipients of the
document. The log is inadequate.*fn1
Under the Federal Rules of Civil Procedure a party withholding
documents on the basis of an asserted privilege must describe the
nature of the documents with enough detail "to enable other
parties to assess the applicability of the privilege."
Fed.R.Civ.P. 26 (b)(5). At the very least, the party claiming the
attorney-client privilege must give evidence that the document
"was created for the purpose of providing or obtaining legal
rather than business advice." NextG Networks of N.Y., Inc. v.
City of New York, No. 03 Civ. 9672, 2005 WL 857433, at *2 (S.D.N.Y. April 13, 2005); see also United States v.
Construction Products Research, Inc., 73 F.3d 464, 473 (2d Cir.
1996) (descriptions lacking details to support privilege claim
are inadequate); Bowne of New York City, Inc. v. Ambase Corp.,
150 F.R.D. 465, 474 (2d Cir. 1993) (privilege log must give
sufficient detail "to permit a judgment as to whether the
document is at least potentially protected from disclosure");
A.I.A. Holdings, S.A. v. Lehman Brothers, Inc., No. 97 Civ.
4978 2002 WL 31385824, at *5 (S.D.N.Y. Oct. 21, 2002) (information
must be sufficient to permit party challenging privilege to state
grounds of its challenge).
Ex-Im's skeletal entries leave APP and the Court "to guess at
the nature of what is being withheld and why." A.I.A. Holdings,
2002 WL 31385824, at *5. "Draft correspondence," for example,
could be letters about financial matters that bear no relation to
legal advice. Ex-Im has demonstrated that it knows how to cure a
sketchy privilege log: in response to APP's objections to its
descriptions of deliberative process documents Ex-Im produced
more detailed entries. Ex-Im must do the same for the rest of its
Accordingly, Ex-Im is ordered to promulgate a revised privilege
log that identifies each document with as much specificity as is
needed to demonstrate that the communication was made for the
purpose of obtaining or providing legal services and that the communication was intended to be and was kept
confidential, where attorney-client privilege is claimed, or was
prepared to assist in anticipated or ongoing litigation, where
work product immunity is claimed.
3. Rehane Mostofi's Deposition
APP deposed a former Ex-Im employee, Reyhane Mostofi, in Hong
Kong in May 2005. During the course of the deposition, Ex-Im's
lawyer, Assistant United States Attorney Sarah Light, raised
objections to a number of APP's questions on the basis of the
attorney-client and deliberative process privileges. (Light
Decl., Exh. D at 11-16, 43, 48-49, 57-58, 96, 194-96, 207, 212).
APP seeks an order allowing it to continue the deposition of
Ms. Mostofi at Ex-Im's expense. Ms. Mostofi is a former Ex-Im
employee living in Hong Kong. APP's rationale for reopening the
deposition is not persuasive. APP argues that Ex-Im prevented APP
from obtaining information from Ms. Mostofi by objecting to APP's
questions. As discussed above, Ex-Im had a good faith basis for
its objections: APP is not entitled to information Ex-Im withheld
on the basis of the deliberative process privilege; nor is it
entitled to information Ex-Im withheld on the basis of the
APP contends that Ms. Mostofi's communications with Ex-Im
lawyers were not covered by the attorney-client privilege because
Ms. Mostofi was a former employee of the agency at the time the conversations took place. Virtually all courts hold that
communications between company counsel and former company
employees are privileged if they concern information obtained
during the course of employment. Surles v. Air France, No. 00
Civ. 5004 2001 WL 815522, at *6 (S.D.N.Y. July 19, 2001)
(gathering cases and noting that the "vast majority of federal
cases" so hold). It is true, as APP contends, that the privilege
guarding such discussions will not protect pre-deposition
conversations that are held to refresh a deponent's memory. See
Wade Williams Distribution, Inc. v. American Broadcasting
Companies, Inc., No. 00 Civ. 5002, 2004 WL 1487702, at *1
(S.D.N.Y. June 30, 2004). However, this is a very narrow
exception. Pre-deposition conversations may also be work product;
to the extent Ex-Im's attorneys communicated their legal opinions
and theories of the case, their conversations are immune from
discovery. Peralta v. Cendant Corp., 190 F.R.D. 38, 42 (D.
Conn. 1999) (holding that deposition questions to an ex-employee
regarding conversations with employer's counsel were protected by
work product immunity); see also Morales v. United States,
No. 94 Civ. 4865, 94 Civ. 8773 1997 WL 223080, at *1 (S.D.N.Y.
May 5, 1997) (applying the work product doctrine to deposition
questions to non-party witnesses); In re Gulf Oil/Cities Service
Tender Offer Litigation, Nos. 82 Civ. 5253, 87 Civ. 8982 1990 WL
108352, at *3 (S.D.N.Y. July 20, 1990) (same). Under Rule 30(a)(2)(B) of the Federal Rules of Civil Procedure,
"[a] party must obtain leave of the court . . . [whenever] the
person to be examined has already been deposed in the case."
Courts are to be guided by the standards set forth in Rule
26(b)(2) of the Federal Rules, which requires, among other
things, that the court limit discovery where "the party seeking
discovery has had ample opportunity . . . to obtain the
information sought," or "the burden or expense of the proposed
discovery outweighs its likely benefit."
APP has had its opportunity to obtain from Ms. Mostofi the
non-privileged information to which it is entitled. The benefit
that might be obtained from asking Ms. Mostofi about
communications with Ex-Im lawyers that neither concerned
information she learned while she was an Ex-Im employee nor was
work product is outweighed by the burden a new deposition would
impose on Ex-Im.
4. The State Department's Deliberative Process Privilege
APP's final request is for an order requiring the State
Department to produce a sworn statement by a senior official
justifying its invocation of the deliberative process privilege.
This request is denied. Documents disclosing the internal
deliberations and opinions of the State Department staff have no
more relevance to APP than deliberative documents prepared by
Ex-Im's staff, which is negligible in light of the futility of
APP's equitable defense.
B. Plaintiff's Motion to Compel
Ex-Im seeks two categories of documents from APP: those shared
with APP's financial advisors, principally Nicky Tan and the
employees of Mr. Tan's consulting business, nTan, and those that
relate to APP's $90 million payment to IBRA, the Indonesian Bank
Restructuring Agency. Ex-Im's request for documents relating to
the $90 million dollar payment is denied; its request for
documents APP shared with Mr. Tan and other financial advisors is
1. Documents Shared with APP's Financial Advisors
APP's privilege log shows that financial advisor Nicky Tan and
members of his consulting firm regularly participated in
communications between APP and the company's lawyers. The company
now asserts attorney-client privilege over those communications.
By its own description, APP engaged Mr. Tan and his firm to lead
APP through the debt restructuring process. (Ferry Decl., ¶ 5).
Mr. Tan occupied a broad role that reflected a considerable
degree of responsibility. The company itself did not have
management level personnel with restructuring experience, so it
engaged Mr. Tan as an independent contractor to negotiate on
behalf of APP, to help formulate the company's financial
strategies, and to articulate APP positions to the creditor
community. (Ferry Decl., ¶¶ 5-7). APP relies upon two doctrines to protect the attorney-client
communications that included Mr. Tan and his associates. First,
the company claims the communications are privileged because Mr.
Tan's participation helped APP's lawyers understand the
complicated accounting principles undergirding the restructuring
of the company's massive debt. Under United States v. Kovel,
296 F.2d 918, 922 (2d Cir. 1961), communications with a financial
advisor are covered by the attorney-client privilege if the
financial advisor's role is limited to helping a lawyer give
effective advice by explaining financial concepts to the lawyer.
If this were APP's only argument, Ex-Im's request could be
granted without further analysis: Mr. Tan was by the company's
own reckoning a major participant in APP's financial affairs, not
a mere interpreter. See id. at 922 (no privilege exists if
advice sought is financial, not legal); see also United States
v. Ackert, 169 F.3d 136, 139 (2d Cir. 1999) (it is not
sufficient to trigger privilege that communication proves
important to lawyer's ability to represent client); United
States v. Adlman, 68 F.3d 1495, 1500 (2d Cir. 1995) (no
privilege exists to protect lawyer's consultation with client's
tax advisor where advice sought was on tax implications of
However, APP invokes a second doctrine that presents a closer
question. The company argues that Mr. Tan was so thoroughly
integrated into APP's corporate structure that he should be treated as though he were a corporate employee for privilege
purposes. Under a doctrine adopted by the Eighth Circuit Court of
Appeals and some district courts in the Second Circuit,
communications between a company's lawyers and its independent
contractor merit protection if, by virtue of assuming the
functions and duties of full-time employee, the contractor is a
de facto employee of the company. See In re Bieter Co.,
16 F.2d 929, 936-37 (8th Cir. 1994); In re Copper Market
Antitrust Litigation, 200 F.R.D. 213, 218-19 (S.D.N.Y. 2001);
Ross v. UKI Ltd., No. 02 Civ. 9297, 2004 WL 67221, at *4
(S.D.N.Y. Jan. 15, 2004); Twentieth Century Fox Film Corp. V.
Marvel Enterprises, Inc., No. 01 Civ. 3016, 2002 WL 31556383, at
*2 (S.D.N.Y. Nov. 15, 2002).
To determine whether a consultant should be considered the
functional equivalent of an employee, courts look to whether the
consultant had primary responsibility for a key corporate job,
In re Bieter, 16 F.2d at 933-34; Ross, 2004 WL 67221, at *4,
whether there was a continuous and close working relationship
between the consultant and the company's principals on matters
critical to the company's position in litigation, In re Bieter,
16 F.2d at 938; In re Copper Market, 200 F.R.D. at 219; Ross,
2004 WL 67221, at *4, and whether the consultant is likely to
possess information possessed by no one else at the company, In
re Bieter, 16 F.2d at 938. APP has the burden of showing that Mr. Tan and his associates
meet this standard of integration into the APP corporate
structure, see Bowne, 150 F.R.D. at 470 (S.D.N.Y. 1990) (the
burden of proving elements of privilege rests on the party
claiming the privilege), and it has failed to meet this burden.
APP has demonstrated that Nicky Tan was intimately involved in
APP's restructuring talks, yet Mr. Tan's efforts are precisely
those that any financial consultant would likely make under the
circumstances. APP reports that the company provided Mr. Tan with
an office in its Jakarta, Indonesia, premises on the same floor
as APP executives, but, notably, the company does not assert that
Mr. Tan or any of his associates ever used the office. In fact,
as Mr. Tan testified at his deposition, his office was in
Singapore. (Gueron Decl., Exh. I at 8). Mr. Tan stated that
during the most intense months of negotiations with APP's
creditors he spent eighty to eighty-five percent of his time on
the restructuring deal, yet there were times he was free enough
of his APP obligations to start and build a successful consulting
business. (Gueron Decl., Exh. I at 13). Mr. Tan's schedule, the
location of his head offices, and the success of his consulting
business all contradict the picture of Mr. Tan as so fully
integrated into the APP hierarchy as to be a de facto
employee of APP. Possibly Mr. Tan was able to do both run his
company and function as an APP employee but it was APP's job to
prove that he did, and APP has failed to do so.
The attorney-client privilege should not be expanded without
considerable caution because the privilege "stands in derogation
of the public's `right to every man's evidence.'" In re
Horowitz, 482 F.2d 72, 81 (2d Cir. 1973) (quoting 8 Wigmore,
Evidence § 2192 (McNaughton rev. 1961), at 70). Caution is
especially apt here because companies in financial crisis will
often find it necessary to obtain the services of outside
financial experts. If the functional equivalent doctrine were
extended to every situation where a financial consultant worked
exhaustively to guide a company through a restructuring deal, the
exception would swallow the basic rule, set forth in United
States v. Arthur Young & Co., 465 U.S. 805, 817 (1984), that
there is no privilege protecting communications between clients
and their accountants.
2. Documents Pertaining to APP's $90 Million Payment to IBRA
Ex-Im seeks all documents that relate to APP's $90 million
payment to IBRA. Ex-Im claims that APP waived its attorney-client
privilege over documents pertaining to the payment when APP's
outside counsel, testifying at a deposition as an APP
representative, voluntarily disclosed that he advised APP against
making the payment. In an effort to demonstrate Ex-Im's
inequitable control over the restructuring process, APP's outside
counsel, Bertie Mehigan, a law partner at White & Case, testified
that he advised APP against making the payment, despite Ex-Im pressure. (Gueron Decl., Exh. L at 16:13-17:21). Ex-Im contends
that Mr. Mehigan's testimony constitutes a subject matter waiver.
Subject matter waiver rests on the principle that a party may not
use the attorney-client privilege as both a sword and a shield.
See United States v. Bilzerian, 926 F.2d 1285, 1292 (2d
Cir.); In re von Bulow, 828 F.2d 94, 103 (2d Cir. 1987)
(citations omitted). The waiver aims to prevent prejudice to a
party that may arise when a "privilege holder releases only
communications or portions of communications favorable to his
litigating position, while withholding any unfavorable ones."
Bowne, 150 F.R.D. at 484 (citing In re Bulow,
828 F.2d at 102). "The client's offer of his own or the attorney's testimony
as to a specific communication to the attorney is [therefore] a
waiver as to all other communications to the attorney on the same
matter." In re Shearman & Sterling, Nos. 2-124, M8-85,
C84-3894, and C84-743, 1986 WL 6157, at *1 (S.D.N.Y. May 30,
1986) (quoting 8 Wigmore, Evidence § 2327 (McNaughton rev.
1961)). Because "[n]otions of fairness underlie the principle of
subject matter waiver," Bank Brussels Lambert v. Credit Lyonnais
(Suisse) S.A., No. 93 Civ. 6876, 1995 WL 598971, at *6 (S.D.N.Y.
Oct. 11, 1995), courts make determinations on a case-by-case
basis, taking into account, among other things, whether a party's
disclosure was demonstrably prejudicial to the other party. In
re Grand Jury Proceedings, 219 F.3d 175, 183 (2d Cir. 2000). Here, Ex-Im contends that Mr. Mehigan's disclosure of his
advice to APP to refrain from making a $90 million payment
prejudices Ex-Im: it advances APP's equitable defense that APP
made payments in sole reliance on Ex-Im's participation on the
restructuring agreement. Ex-Im argues that it should be able to
learn whether APP's lawyers ever gave the advice that paying the
$90 million debt was in APP's interest.
Under the circumstances of this case, however, Ex-Im is not
entitled this because APP's equitable defense is fruitless, as
discussed above, and Ex-Im's disadvantage is therefore illusory.
For this reason, Ex-Im's application to compel production of
documents related to APP's payment of $90 million to IBRA is
APP's motion to compel is granted to the extent that Ex-Im is
ordered to produce a revised privilege log. To permit Ex-Im's
lawyers time to revise the log, and APP's lawyers to review it,
the current November 30, 2005, deadline for submission of a
pretrial order is extended to January 30, 2006. APP's motion to
compel is otherwise denied.
Ex-Im's motion to compel is granted to the extent that APP is
ordered to disclose the documents it shared with Mr. Tan and
other financial advisors. Ex-Im's motion to compel is otherwise
denied. SO ORDERED.
© 1992-2005 VersusLaw Inc.