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Securities and Exchange Commission v. Stanard


June 26, 2007


The opinion of the court was delivered by: Gerard E. Lynch, District Judge


On June 20, 2007, the Court received a joint submission from the parties, pursuant to Section 2.F of the undersigned judge's Individual Practices, relating to two discovery disputes. One of these disputes, concerning the sequence of depositions, was resolved by order dated June 25, 2007. This Opinion and Order resolves the other.

Defendants seek to compel production of documents relating to interviews with fact witnesses conducted by plaintiff Securities and Exchange Commission ("SEC") in the course of its investigation into the transaction from which this case arises. The SEC has refused to produce several categories of documents: (1) memoranda prepared by SEC staff concerning witness interviews; (2) notes taken by FBI agents during interviews conducted in the course of the FBI's parallel investigation; and (3) notes taken by the SEC on the FBI's interview notes, which the SEC reviewed but did not copy.


Rule 26(b)(3) of the Federal Rules of Civil Procedure provides that documents "prepared in anticipation of litigation or for trial" are not subject to discovery except upon "a showing that the party seeking discovery has substantial need of the materials in the preparation of the party's case and that the party is unable without undue hardship to obtain the substantial equivalent of the materials by other means." Accordingly, courts must ask first whether the work-product doctrine applies to the documents in question, and second, whether defendants have shown that need and unavailability require discovery in spite of the privilege.

I. Whether the Work-Product Doctrine Applies

Rule 26(b)(3) "applies only to documents prepared principally or exclusively to assist in anticipated or ongoing litigation." Martin v. Valley Nat'l Bank, 140 F.R.D. 291, 304 (S.D.N.Y. 1991). Thus, "if a party prepares a document in the ordinary course of business, it will not be protected even if the party is aware that the document may also be useful in the event of litigation." Bowne of New York City, Inc. v. AmBase Corp., 150 F.R.D. 465, 471 (S.D.N.Y. 1993) (internal citation and quotation marks omitted). "The SEC, as the party invoking the work product privilege, bears the burden of establishing its existence." SEC v. Cavanagh, No. 98 Civ. 1818, 1998 WL 132842, at *2 (S.D.N.Y. Mar. 23, 1998) (internal citations and quotation marks omitted).

"Analysis of one's case 'in anticipation of litigation' is a classic example of work product, and receives heightened protection under [Rule] 26(b)(3)." Id. The privilege was found applicable in Cavanagh on facts similar to the facts of this case:

[T]he notes were taken by SEC attorneys during interviews that, although they preceded the formal initiation of this litigation, were conducted 'in order to provide the Commission with information so that it could make the determination whether to proceed with litigation in this matter.' This type of work, prepared in the anticipation of litigation, falls squarely within the protections of the work-product doctrine.

Id. The interviews here were similarly conducted in order to determine whether to initiate litigation. Moreover, the list of withheld documents (Joint Submission Ex. A) includes no document dated earlier than June 8, 2005, six or seven weeks before the SEC notified the defendants of its intent to initiate a civil action.*fn1 "The close proximity of the dates on which the notes were prepared to the date on which the instant action was filed [or, as in the present case, announced] . . . make[s] clear that the notes were prepared 'in anticipation of litigation.'" SEC v. Treadway, 229 F.R.D. 454, 455-456 (S.D.N.Y. 2005). In short, the facts of this case clearly show that the SEC was "anticipating" litigation at the time it conducted the interviews, even if it was still considering whether to file. See SEC v. Downe, No. 92 Civ. 4092, 1994 WL 23141, at *2 (S.D.N.Y. Jan. 27, 1994).*fn2

II. Whether Defendants Can Overcome the Privilege

Defendants argue that even if the privilege applies, they can overcome the privilege by showing substantial need and unavailability. See Fed. R. Civ. P. 23(b)(3). This argument is meritless. As noted in another case, "[d]efendants are free to question each of the witnesses at their depositions, and at trial, concerning the witnesses' statements to the SEC" at earlier interviews. Treadway, 229 F. R.D. at 456. Defendants do not contend that they are unable to depose the relevant witnesses. "No case cited by [d]efendants concludes that parties cannot, by deposing witnesses, obtain 'the substantial equivalent' of earlier attorney interview notes of the same witnesses without 'undue hardship.'" Id. Moreover, the SEC has already produced to defendants the transcripts (and accompanying exhibits) of testimony taken by the SEC during its investigation. (Joint Submission at 10 n.7.)*fn3

Defendants argue that they have a "substantial need" for the specific notes at issue because of the risk of witnesses tailoring their testimony in response to "the government's considerable power to threaten witnesses with prosecution or enforcement proceedings." (Joint Submission at 6.) If this were a sufficient basis for a showing of substantial need, however, the government would be unable to claim the work-product privilege for interview notes in any enforcement proceeding, because the government's power to threaten prosecution is present in every case. Indeed, defendants' argument would allow the work-product privilege to be overridden in any case in which there is a reason to suspect a witness of changing stories, that is to say, in almost every case. Defendants have not shown substantial need and unavailability, and are therefore not entitled to discovery of the interview notes.

III. Documents in the Possession of the US Attorney's Office

When defendant Stanard was interviewed by the SEC and the FBI, an FBI agent took notes. Later, SEC attorneys were allowed to review the agent's notes without removing them from the United States Attorney's Office (USAO), and to make notes on the notes, but not to make copies of them. (Joint Submission at 6 n.3.) Defendants seek the notes and other memoranda documenting the interviews.*fn4 The parties disagree over whether the SEC has control over the notes and memoranda in the USAO and FBI files. (Joint Submission at 7, 12.)

Courts have interpreted Rule 34 of the Federal Rules of Civil Procedure, which requires a party to produce documents only if it has "possession, custody or control" of the them, "to require production if the party has the practical ability to obtain the documents from another, irrespective of his legal entitlement to the documents." Golden Trade, S.r.L. v. Lee Apparel Co., 143 F.R.D. 514, 525 (S.D.N.Y. 1992).

Defendants argue that the notes in the USAO's files are effectively in the SEC's custody because the SEC and the USAO worked together on the investigation during which they were created, and that the SEC's "possession, custody or control" is demonstrated by the fact that the SEC was able to review the documents. Defendants do not, however, contest the SEC's representation that the USAO has indicated it will not turn over the notes to either side in this matter. (Joint Submission at 9.) Indeed, defendants have independently confirmed the USAO's recalcitrance; when defendants tried to subpoena the notes from the USAO and FBI, they were advised by the USAO that it would "fight" the subpoenas. (Joint Submission at 8. n.5.) Nor do defendants suggest that the SEC has any authority to order the USAO to turn over the documents.

It is true that courts often find effective control when agencies are involved in a joint investigation, see United States v. Finnerty, 411 F. Supp. 2d 428 (S.D.N.Y. 2006) (interpreting identical language in Fed. R. Crim. P. 16).*fn5 In this case, however, the USAO has actively refused to provide the FBI notes to the SEC or even to allow the SEC to copy them. The SEC is an independent agency from the USAO. The facts of this case make clear that the investigations, while they may have overlapped, were not conducted jointly, and that the SEC has neither possession, custody, nor control of the FBI's notes.

It is worth noting that while the SEC lacks control over the documents, the USAO, which has the documents, is within the subpoena power of this Court. Indeed, defendants have already begun the process of subpoenaing the records from the USAO, which in turn has already indicated that it intends to litigate whether the relevant documents must be produced. The issue therefore can, and presumably will, be joined directly between the parties in interest. Thus, defendants' concern that the government has engaged in a "carefully orchestrated effort . . . to ensure that the fruits of a cooperative investigation are 'unavailable'" (Joint Submission at 8) are misplaced.

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