Here's IBM's Motion to Compel Production of Documents on SCO's Privilege Log [PDF], as text, thanks to Henrik Grouleff.
Here's what's happening now. SCO has refused to hand over certain documents to IBM in discovery, claiming privilege. The issue here is apparently attorney-client privilege, although IBM is only guessing. As usual with SCO, that's all you can do, because although they asked SCO for an explanation, they say they didn't get one. I'll explain IBM's arguments in more depth in the next article, on their memorandum supporting this motion, but this is an overview, so you can understand the specifics of attorney-client privilege. IBM explains the situation like this:
SCO claims that documents created by or for four entirely different companies, AT&T, USL, Novell, and Santa Cruz, are privileged as to SCO. Although SCO has nowhere articulated the precise basis for such a claim, SCO apparently contends that it may assert an attorney-privilege belonging to other companies still in existence because these companies, like SCO, once owned certain of the UNIX assets at issue in this and other litigation. SCO cannot properly claim attorney-client privilege over documents originating with other corporations and their attorneys.
This is so far-fetched that you can sense IBM's astonishment. Of course, to be fair, we have to wait for SCO to explain itself. It was supposed to file their side of the story on Friday, and we'll reserve judgment in part until we can read their filing. It is at least possible that IBM is guessing incorrectly, for example, and SCO has some novel theory it plans to try to hide behind, not attorney-client privilege, in which case all the arguments here won't be on point. Sometimes lawyers don't answer questions the other side poses precisely so that the other side wastes one opportunity to argue their case. IBM will have another go at it, though, after they read SCO's filing. Meanwhile, I'll explain a little about the attorney-client privilege, so you'll understand what IBM thinks is probably going on.
First, what is a privileged communication, in LegalSpeak? My legal dictionary, "Law Dictionary," by Steven H. Gifis, says privilege is "an advantage not enjoyed by all; 'a particular or peculiar benefit enjoyed by a person, company, or class beyond the common advantages of other citizens; an exceptional or extraordinary exemption; or an immunity held beyond the course of the law. . .'"
And it says privileged communications are "communications which occur in a context of legal or other recognized professional confidentiality. The fact that certain communication is termed privileged allows the speakers to resist legal pressure to disclose its contents."
So in plain English, no one can make your attorney reveal what you two talked about in planning how to handle litigation you are involved in, subject to some recent developments I'll explain in a minute. It's not like journalistic privilege, which is uncertain at best, and depends on what state you happen to be in. You can sue your lawyer if he or she breaches confidentiality, subject to some limitations. It's not an absolute privilege, but in general, the law assumes that it's in the public interest to make sure folks feel free to confide in their lawyers, and so the dictionary says this:
"The attorney-client privilege is the oldest of the privileges for confidential communications known to the common law.... Its purpose is to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice."
Obviously, your lawyer can't help you if you don't tell him everything. It doesn't help you if he is surprised by some negative bit revealed by the other side at trial, for example, that he could have prepared for or even blocked from being brought up at all, had he known about it in advance.
But if you know the other side can plonk him in a chair, hold his hand on a Bible, and make him tell them everything you told on yourself, how much will you tell him?
The Electronic Privacy Information Center (EPIC) has an article on the subject of privileges that reads in part like this:
Basically, privileges are rights to withhold information, from any legal proceeding, without suffering legal consequences (being held in contempt of court). Privileges can either be created by statute or developed through the common law.
Although the parameters of the privilege vary from jurisdiction to jurisdiction the following four requirements are nearly universal: First, there must be a relationship between attorney and client and, second, it must exist in reference to the matter to which the communication relates. Third, the communication must be made under circumstances showing the client intended to make communication in confidence, and fourth the client must show she had a reasonable expectation of confidentiality. Communication can be spoken or written, as well as an act performed in the attorney's presence, like showing a weapon used in the commission of a crime. . . .
Information obtained from third parties is not covered by the privilege, but may still be immune from discovery under other provisions of evidence law. In addition, the material gained from third parties on behalf of the client, or at the client's request, may be protected by the attorney's, state-created, professional responsibility or ethics requirements.
As you can see, the bar is set pretty high, and on first glance, there seems no way for SCO to qualify for attorney-client privilege over documents attorneys not representing them wrote or prepared for other entities. But you likely noticed the phrase "other provisions of evidence law," and maybe SCO is being creative again. A firm that could come up with "the GPL is unconsitutional" is probably up for anything.
The privilege works both ways, in that your attorney can't tell the other side what he told you either, subject to some limitations, as EPIC explained, and written communications and documents are also usually covered. The weasle wording I'm using is because if you tell your lawyer you plan to murder your boss, you'd best not rely on attorney-client privilege. The privilege doesn't have a time limit, either, and it continues even if you die or you fire your lawyer. That is what SCO will be relying on, if they are claiming such a privilege, but again, the issue is, do they qualify for the privilege in the first place? We'll get into that when we discuss the memorandum next. You can read about corporations and the corporate attorney-client privilege in this paper [PDF].
Here's a Utah ruling that explains privilege clearly:
(b) General rule of privilege.
A client has a privilege to refuse to disclose and to prevent any other person from disclosing confidential communications made for the purpose of facilitating the rendition of professional legal services to the client between the client and the client's representatives, lawyers, lawyer's representatives, and lawyers representing others in matters of common interest, and among the client's representatives, lawyers, lawyer's representatives,and lawyers representing others in matters of common interest, in any combination.
(c) Who may claim the privilege.The privilege may be claimed by the client, the client's guardian or conservator, the personal representative of a deceased client, or the successor, trustee, or similar representative of a corporation, association, or other organization, whether or not in existence. The person who was the lawyer at the time of the communication is presumed to have authority to claim the privilege on behalf of the client.
(d) Exceptions. No privilege exists under this rule:
...(4) Document attested by lawyer. As to a communication relevant to an issue concerning a document to which the lawyer is an attesting witness; or
(5) Joint clients. As to a communication relevant to a matter of common interest between two or more clients if the communication was made by any of them to a lawyer retained or consulted in common, when offered in an action between any of the clients.
2. Section78-24-(8)(2) of the Code provides:
An attorney cannot, without the consent of his client, be examined as to any communication made by the client to him or his advice given regarding the communication in the course of his professional employment. An attorney's secretary, stenographer, or clerk cannot be examined, without the consent of his employer, concerning any fact, the knowledge of which has been acquired in his capacity as an employee.
Here the question is simply this: Is SCO entitled to claim that lawyer-client communications between Novell, for example, or Santa Cruz Operation, attach to SCO, because they bought some assets from Novell and Santa Cruz years ago? It's, to put it mildly, a stretch. IBM argues that the only way that could happen would be if SCO bought Novell or Santa Cruz hook, line and sinker. They didn't, proof of which being that Novell still exists, separate from SCO, and Sun just bought Tarantella, the company that was Santa Cruz prior to the name change.
Until Enron, communications between a corporate general counsel and corporate employees were protected, but prosecutors have come up with an end run around that privilege, in that whether or not prosecutors decide to indict in white collar crime, or how severe the punishment is, hinges partially on whether or not a company or executive "cooperates," and that is defined as whether they agree to waive the attorney-client privilege. SCO's former auditors, KPMG, are part of that story, as you can read in this impassioned article, "Say Good-bye to the Attorney-Client Privilege," by Paul Craig Roberts, formerly an assistant editor of The Wall Street Journal and and a former assistant secretary of the U.S. Treasury:
Faced with the threat of being declared uncooperative, KPMG announced that it would pay its employees legal fees only if they waived the attorney-client privilege and "cooperated" with the investigation. Invariably, "cooperation" requires self-incrimination and negotiation of a guilty plea. By making it impossible for a defendant to defend, the government never has to have a real case.
Americans need to think seriously about the quality of "justice" that is coming from the Justice Department. Prosecutors have defined "cooperation" as aid in convicting oneself or a fellow employee, as waiving all constitutional rights and privileges, as betrayal of fellow employees, and as helping prosecutors create the appearance of guilt even when no crime has been committed.
Among the pending victims in the KPMG case, Jeffrey Eischeid faces 20 years in prison for marketing KPMG tax shelters that experts said were legal.
How else can we explain how the four foundations of our legal system – no retroactive law, no crime without intent, no self-incrimination, and the attorney-client privilege – have been swept aside in the federal case against KPMG?
Mr. Roberts is the author of a book, The Tyranny of Good Intentions, and he provides a small quotation from the book:
"If the government had access to the communications between a client and his lawyer, the lawyer would be nothing but a government agent, like Soviet defense attorneys whose official role was to serve as adjuncts to the prosecution."
The New York Times had an article on the issue, which is deeply disturbing to many attorneys:
A recent bar association report notes that while it is difficult to determine how frequently companies are asked by regulators and prosecutors to waive the privilege, those interviewed by the committee said "these requests, backed by an express or implied threat of harsh treatment for refusing, have become increasingly common." . . .
But Mr. Ide, the chairman of the bar association's task force, and other lawyers say they worry that when prosecutors insist on a waiver, they are essentially making corporations an offer they cannot refuse.
That may have serious consequences. For example, companies may have difficulty conducting internal inquiries if employees do not talk because they know their statements may end up being handed over to the government; executives may decide not to consult lawyers before making critical business decisions; and lawyers may temper their advice if they know it may one day be exposed.
"One concern is that this will chill corporate officials' willingness to get good legal advice," said Michael Young, a lawyer at Willkie Farr & Gallagher. "The result ironically would be less access to sound legal counsel."
For a look at the other side of the coin, you might find it interesting to read a paper by one of the Enron prosecutors, whose position is that the system isn't working, the SEC isn't doing its job, and strong measures are needed to make sure the public isn't hustled or defrauded. It's called "Enron, Fraud and Securities Reform: An Enron Prosecutor's Perspective," by John R. Kroger. In passing, he references a New York Times article about brokerages that favor favorable research results because it encourages transaction volume, and analysts who make favorable comments during conference calls, "Fawning Analysts Betray Investors," by Gretchen Morgenson:
A recent New York Times story covering an Intel quarterly earnings conference call is instructive. Gretchen Morgenson reports: "Providing that the more things change, the more they stay the same, Wall Street analysts have their pompoms out again. Yes, cheerleader analysts are not quite as prevalent as they were in 2000. But as the Intel earnings conference call last Tuesday showed, too many analysts still seem to think it is part of their job to high five the companies they are supposed to be assessing for the benefit of their clients." Morgenson went on too repeat some of the analyst comments during the call. Dan Niles, Lehman Brothers: "Another nice quarter, guys!" Eric Gomberg, Thomas Weisel Partners: "Nice quarter!" Mark Edelstone, Morgan Stanley: "Congratulations on a truly phenomenal quarter!"
I always wondered why some said things like that during SCO conference calls, in the face of obvious realities, obvious to me anyway, and now I know at least one conceivable explanation. I'm so naive about stocks, I thought they were just being polite and it was maybe part of the Wall Street culture. SCO has provided me quite an education, I must say.
Kroger doesn't praise the SEC's culture or job performance, by the way, and here is where he says the line in the sand under current law is as to when an executive can be sued for not being truthful:
Currently, senior corporate executives can be sued for securities fraud civilly only if they commit fraud with scienter: knowingly or recklessly, with a conscious disregard of the risk of inaccuracy. Similarly, executives cannot be prosecuted criminally unless they make false statements to the market knowingly and intentionally. If we are really
interested in improving the quality of the information flow to the equity market, we should use the criminal laws to impose a duty of care on management to take all reasonable steps to insure their disclosures are accurate. ....
We also need to improve the SEC's ability to proactively investigate and uncover widespread and systematic securities violations before millions of investors are harmed, instead of waiting to investigate until the problems have exploded publicly in the headlines of the Wall Street Journal. As Chairman Donaldson recently noted, "[f]or too long the Commission has found itself in a position of reacting to market problems rather than anticipating them."
In the three major securities scandals since the Enron collapse, for example, involving fraudulent practices on the floor of the New York Stock Exchange, Wall Street analyst conflicts of interest, and trade timing abuses in the mutual fund industry, the SEC either knew nothing about the problems until they were publicized by others or, more alarmingly, knew about problems but failed to rectify them. For example, the SEC received tips about problems in the mutual fund industry but
failed to act on those leads.
In some cases, the SEC's failure to follow up on tips has led tippers to approach other regulators rather than the SEC because the tippers feel the SEC will simply ignore their information. In contrast, New York Attorney General Elliot Spitzer, with his securities staff of fifteen, has repeatedly been able to proactively identify and bring to light major institutional problems in the securities industry. Spitzer is successful, and the SEC is not, because Spitzer is able to gather intelligence about market problems in an effective manner and then prioritize and attack those problems swiftly.
But getting back to privilege, here's Utah's General Rule of Privilege, Utah Rules of Evidence 504(b):
General Rule of Privilege.
A client has a privilege to refuse to disclose, and to prevent any other person from disclosing, confidential communications made for the purpose of facilitating the rendition of professional legal services to the client between the client and the client's representatives, lawyers, lawyer's representatives and lawyers representing others in matters of common interest, and among the client's representatives, lawyers, lawyer's representatives and lawyers representing others in matters of common interest, in any combination.
Get that? It's just saying, I think, that you can refuse to disclose and can prevent your lawyer from disclosing, stuff prepared in connection with legal advice you got or discussed with your attorney or an attorney representing somebody with a common legal interest with you. Perhaps here, in this wording, "any other person", SCO thinks it has some wiggle room. Of course, when legalese isn't so clear, case law steps up to the plate and helps us to understand what the statute is saying. We'll get to that when we talk about the IBM memorandum in support. Here is Utah's rule on confidentiality:
Rule 1.6. Confidentiality of information.
(a) A lawyer shall not reveal information relating to representation of a client except as stated in paragraph (b), unless the client consents after consultation.
(b) A lawyer may reveal such information to the extent the lawyer believes necessary:
(1) To prevent the client from committing a criminal or fraudulent act that the lawyer believes is likely to result in death or substantial bodily harm, or substantial injury to the financial interest or property of another;
(2) To rectify the consequences of a client's criminal or fraudulent act in the commission of which the lawyer's services had been used;
(3) To establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client or to establish a defense to a criminal charge or civil claim against the lawyer based upon conduct in which the client was involved; or
(4) To comply with the Rules of Professional Conduct or other law.
(c) Representation of a client includes counseling a lawyer(s) about the need for or availability of treatment for substance abuse or psychological or emotional problems by members of the Utah State Bar serving on the Lawyers Helping Lawyers Committee.
I don't see much that is helpful to SCO here, unless SCO has dug up some arcane law somewhere I don't know about. The rule on conflict of interest doesn't help SCO either:
Rule 1.9. Conflict of interest: Former client.
A lawyer who has formerly represented a client in a matter shall not thereafter:
(a) Represent another person in the same or a substantially factually related matter in which that person's interests are materially adverse to the interests of the former client unless the former client consents after consultation; or
(b) Use information relating to the representation to the disadvantage of the former client except as Rule 1.6 would permit with respect to a client or when the information has become generally known.
After termination of a client-lawyer relationship, a lawyer may not represent another client except in conformity with this Rule. The principles in Rule 1.7 determine whether the interests of the present and former client are adverse. Thus, a lawyer could not properly seek to rescind on behalf of a new client a contract drafted on behalf of the former client. So also a lawyer who has prosecuted an accused person could not properly represent the accused in a subsequent civil action against the government concerning the same transaction.
The scope of a "matter" for purposes of Rule 1.9(a) may depend on the facts of a particular situation or transaction. The lawyer's involvement in a matter can also be a question of degree. When a lawyer has been directly involved in a specific transaction, subsequent representation of other clients with materially adverse interests clearly is prohibited. On the other hand, a lawyer who recurrently handled a type of problem for a former client is not precluded from later representing another client in a wholly distinct problem of that type even though the subsequent representation involves a position adverse to the prior client. Similar considerations can apply to the reassignment of military lawyers between defense and prosecution functions within the same military jurisdiction. The underlying question is whether the lawyer was so involved in the matter that the subsequent representation can be justly regarded as a changing of sides in the matter in question.
Information acquired by the lawyer in the course of representing a client may not subsequently be used by the lawyer to the disadvantage of the client. However, the fact that a lawyer has once served a client does not preclude the lawyer from using generally known information about the client when later representing another client.
Disqualification from subsequent representation is for the protection of clients and can be waived by them. A waiver is effective only if there is disclosure of the circumstances, including the lawyer's intended role in behalf of the new client.
With regard to an opposing party's raising a question of conflict of interest, see Comment to Rule 1.7. With regard to disqualification of a firm with which a lawyer is associated, see Rule 1.10.
As you can see, SCO is in a difficult position. Utah says that once a lawyer represents a client, the lawyer can't later represent someone with opposing or conflicting interests. How can it claim to be Novell, entitled to Novell's attorney-client privilege, then, when Novell and SCO are currently in litigation? Obviously their interests are opposed. A lawyer hired by Novell years ago would be disqualified from representing SCO, one would assume, absent a waiver, which is more than extremely unlikely. Yet SCO is essentially in the position, IBM is pointing out, of claiming that legal advice given to Novell is privileged to SCO. I won't draw any firm conclusions until we hear from SCO, but I can't see, from this research so far, where SCO can possibly maintain its position successfully, assuming IBM has guessed right.
I've never seen a case before personally where the defendant had to guess.
SNELL & WILMER L.L.P.
Alan L. Sullivan (3152)
Todd M. Shaughnessy (6651)
Amy F. Sorenson (8947)
[address, phone, fax]
CRAVATH, SWAINE & MOORE LLP
Evan R. Chesler (admitted pro hac vice)
David R. Marriott (7572)
[address, phone, fax]
Attorneys for Defendant/Counterclaim-Plaintiff
International Business Machines Corporation
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
THE SCO GROUP, INC.,
INTERNATIONAL BUSINESS MACHINES
PLAINTIFF IBM'S MOTION TO
COMPEL PRODUCTION OF
DOCUMENTS ON SCO'S
(ORAL ARGUMENT REQUESTED)
Civil No.: 2:03CV-0294DAK
Honorable Dale A. Kimball
Magistrate Judge Brooke C. Wells
Pursuant to Rule 26 of the Federal Rules of Civil Procedure, Defendant/Counterclaim-Plaintiff International Business Machines Corporation ("IBM"), through counsel, hereby moves this Court for an Order compelling Plaintiff/Counterclaim-Defendant The SCO Group, Inc. ("SCO") to produce all documents listed on its privilege log that were created by or for third parties, including AT&T Corporation ("AT&T"), UNIX System Laboratories ("USL"), Novell, Inc. ("Novell"), and The Santa Cruz Operation, Inc. ("Santa Cruz").
SCO claims that documents created by or for four entirely different companies, AT&T, USL, Novell, and Santa Cruz, are privileged as to SCO. Although SCO has nowhere articulated the precise basis for such a claim, SCO apparently contends that it may assert an attorney-privilege belonging to other companies still in existence because these companies, like SCO, once owned certain of the UNIX assets at issue in this and other litigation. SCO cannot properly claim attorney-client privilege over documents originating with other corporations and their attorneys. The transfer of assets from one entity to another does not transfer the attorney-client privilege as well. Instead, control of the entity possessing the privileges must pass to the purchaser for the privilege to pass. It is undisputed that SCO does not control any of the corporations whose privilege it now claims. To the extent documents that were once privileged as to these corporations have been transferred to SCO, any privilege in them has been waived. For the foregoing reasons, and as set forth in further detail in IBM's memorandum in support of its motion to compel production of privileged documents, IBM respectfully requests that this Court order SCO to produce to IBM all documents on its privilege log created by or for third parties.
CERTIFICATION OF COMPLIANCE WITH RULE 37(a)(2)(A)
IBM has attempted in good faith to resolve this issue without intervention by the Court, but it has been unable to do so. On April 11, 2005, IBM objected to SCO's withholding from production all documents created by or for third parties as listed on SCO's privilege log. In addition, in a letter dated September 2, 2005, IBM asked that SCO provide the basis for withholding such documents. SCO responded by stating only that it had "properly" asserted the privilege over documents on its privilege log that were created by or for attorneys for AT&T, USL, Novell, and Santa Cruz. SCO has continued to withhold such documents from production.
IBM further respectfully requests oral argument on this motion.
DATED this 26th day of September, 2005.
SNELL & WILMER L.L.P
Alan L. Sullivan
Todd M. Shaughnessy
Amy F. Sorenson
CRAVATH, SWAINE & MOORE LLP
Evan R. Chesler
David R. Marriott
INTERNATIONAL BUSINESS MACHINES CORPORATION
Donald J. Rosenberg
Alec S. Berman
Attorneys for Defendant/Counterclaim-Plaintiff
International Business Machines Corporation
CERTIFICATE OF SERVICE
I hereby certify that on the 26th day of September, 2005, a true and correct copy of the foregoing was sent by U.S. Mail, postage prepaid, to the following:
Brent O. Hatch
Mark F. James
HATCH, JAMES & DODGE, P.C.
BOIES, SCHILLER & FLEXNER LLP
Stephen N. Zack
Mark J. Heise
BOIES, SCHILLER & FLEXNER LLP
Amy F. Sorenson