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In re Adelphia Communications Corp. Securities and Derivative Litigation

July 1, 2009

IN RE ADELPHIA COMMUNICATIONS CORPORATION SECURITIES AND DERIVATIVE LITIGATION


The opinion of the court was delivered by: McKENNA, D.J.

MEMORANDUM AND ORDER

This Document Relates to 05 Civ. 9050

1.

The Bank Defendants object to a February 11, 2009 order of Magistrate Judge Ellis to the extent that that order denied their motion for an order compelling the production of what are called the "Covington Log Documents." (See Objections at 1-2.)*fn1

A Special Committee of directors of Adelphia Communications Corporation ("Adelphia") retained the law firm Covington & Burling ("Covington") in March of 2002, initially in connection with questions regarding the relationship of Adelphia with Adelphia Business Solutions, Inc., but shortly thereafter in relation to the revelation that Adelphia was jointly and severally liable for more than $2 billion of borrowings by entities controlled by members of the Rigas Family, which liability had not been disclosed in Adelphia's publicly filed financial statements. An informal, and then a formal, investigation by the Securities and Exchange Commission ("SEC"), grand jury subpoenas, an SEC civil enforcement proceeding, and an Adelphia civil action against its auditor followed, with all of which Covington was concerned, assisting the Special Committee's investigation and advising it. (See generally, Baird Decl., July 23, 2008.)

Covington prepared three reports with numerous exhibits including summaries of witness interviews. The reports are (i) the First Report to the Special Committee, May 24, 2002, (ii) the Draft Summary of Investigation, December, 2002, and (iii) the Draft Summary of Investigation, March 2003. Both plaintiff Adelphia Recovery Trust ("ART") and the Bank Defendants have the Covington Report and supporting documentation, including witness interview summaries. Neither has the Covington Log Documents.

The Covington Log Documents, as described by Covington, contain Covington's notes, e-mails, memoranda, internal communications, legal research and analysis, and work product all reflecting confidential legal advice as well as the thoughts, mental impressions, and opinions of Covington attorneys engaged in the representation of Adelphia and the Special Committee. (Baird Decl. ¶ 24.) The Covington logs are said to include more than 23,000 entries (Objections, at 1), over a period from March 29, 2002 through January 10, 2005. (Id. at 1-2, n.1.)

Judge Ellis denied the Bank Defendants' motion for production of the Covington Log Documents as protected work product "because they were created in contemplation of litigation." (Ellis Opinion & Order, February 11, 2009, at 2-3.

The Bank Defendants argue, first, that the Covington Log Documents are not entitled to work product protection because the Special Committee investigation was not in "anticipation of litigation,"*fn2 second, that any such protection was waived by the production of the Covington Reports and underlying materials "and such selective disclosure cannot withstand a waiver analysis," and, third, that no client has asserted a privilege or work product objection and that Covington cannot do so on a client's behalf. (Objections, at 3.) The Bank Defendants also urge that they have a substantial need for the Covington Log Documents and cannot obtain the information by other means, so that the documents should be produced pursuant to Fed. R. Civ. P. 26(b)(3).

The Court is not persuaded by any of the Bank Defendants' arguments.

2.

The Bank Defendants argue first that the documents were not created "in anticipation of litigation," but rather for a business purpose, as evidenced in a May 23, 2002 press release (Smith Decl., Feb. 26, 2009, Ex. K) and Covington's May 24, 2002 Initial Report. (See Objections at 7-9 (citing Allied Irish Banks p.l.c. v. Bank of America, N.A., 240 F.R.D. 96, 107-09 (S.D.N.Y. 2007))). The Second Circuit has said that the appropriate formulation is whether a document was prepared because of -- not to primarily assist in -- litigation. United States v. Adlman, 134 F.3d 1194, 1198-1203 (2d Cir. 1998). "The fact that a document's purpose is business-related appears irrelevant to the question whether it should be protected under Rule 26(b)(3)." Id. at 1200 (footnote omitted).

Here -- very much as in Woolworth Corp. Sec. Class Action Litig., No. 94 Civ. 2217, 1996 WL 306576, at *3 (S.D.N.Y. June 7, 1996) (quoted with approval in Adlman, 134 F.3d at 1201) -- "the reality of impending litigation [was] clear." (Id.)

Even the Adelphia press release that the Bank Defendants quote in support of their argument that Covington was retained by the Special Committee for a business purpose (see Objections, at 8 (quoting Smith Decl., Feb. 26, 2009, Ex K at 1-2)) notes, among material risks and ...


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