Second Circuit Round-Up

June 1, 1998 Advisory

In United States v. Adlman,
the United States Court of Appeals for the Second Circuit expanded the scope of the work-product doctrine. That doctrine protects against compelled disclosure of work-product, such as memoranda, analyses, investigations and reports, undertaken in anticipation of litigation. Prior to Adlman, several courts limited the doctrine to protect only those materials created primarily or exclusively to assist in particular litigation, offering no protection for documents prepared to help a corporation make business decisions regarding future litigation risks.

In Adlman, the Internal Revenue Service ("IRS") petitioned to enforce a summons for a memorandum that the taxpayer's outside accounting firm had prepared to evaluate the desirability of a business transaction, which, if undertaken, would likely result in future litigation with the IRS. The taxpayer asserted that the memorandum discussed the likely IRS challenges to the reorganization and had been prepared at the instruction of its counsel. The IRS argued that the memorandum was not protected by the work-product doctrine because it was created to inform a business decision - whether to undertake a reorganization - not to prepare for litigation.

The Second Circuit found such limitation on the doctrine "unwarranted," noting it would defeat the doctrine's purpose, which is "to preserve a zone of privacy in which a lawyer can prepare and develop legal theories and strategy 'with an eye toward litigation,' free from unnecessary intrusion by his adversaries." The court concluded that protected work-product included any document prepared "because of" the prospect of litigation. Such a document "does not lose protection ... merely because it is created in order to assist with a business decision." Id. Conversely, the court explained that the privilege would not apply if the same document would have been prepared irrespective of the potential future litigation.

While the protections afforded by the work-product doctrine and the attorney-client privilege often overlap, the work-product doctrine provides corporations and individuals protection from compelled disclosure of documents even if such materials would not be protected by the attorney-client privilege. Such circumstances might exist if the attorney-client privilege had been waived by showing the documents to third parties or when a party seeking to assert the privilege cannot establish the documents were created to assist the lawyer in rendering legal advice. In fact, the work-product issue arose in Aldman because the Second Circuit had earlier rejected the taxpayer's claim that the documents were protected by the attorney-client privilege.

In Securities and Exchange Commission v. Palmisano, the Second Circuit further limited the protections afforded criminal defendants by the Double Jeopardy Clause of the Fifth Amendment to the United States Constitution when it interpreted and applied the United States Supreme Court's ruling in Hudson v. United States. Before Hudson, a criminal defendant, seeking to limit the civil penalties the government might wish to impose after a criminal conviction, could argue that such civil penalties constituted second "punishment" for the same crime in violation of the Double Jeopardy Clause. But in Palmisano, the Second Circuit confirmed that current law only protected defendants against the imposition of multiple criminal punishments for the same offense in successive proceedings. If the legislature labeled a particular punishment a civil, rather than a criminal, sanction the Double Jeopardy Clause would offer a defendant protection only under the virtually non-existent circumstance where the defendant could establish the requirements of a seven-part test discussed by the court. Not surprisingly, the Second Circuit found "little indication" that the Double Jeopardy Clause barred the Securities and Exchange Commission's civil enforcement action and affirmed the order that the defendant disgorge $9.2 million and pay a $500,000 civil "penalty," even though the defendant had already been convicted for the same conduct, sentenced to over 15 years in prison, ordered to pay restitution and forfeited $700,000 in property.

In United States v. Avellino, the Second Circuit strongly reiterated the government's disclosure obligations in a criminal case, paving the way for more intelligent and knowing decisions by defendant corporations and individuals in evaluating their options whether to plead guilty or take a matter to trial. In Avellino, the defendant sought to withdraw his guilty plea, arguing that the government failed to disclose prior to defendant's decision to plead guilty that the government's key witness had perjured himself in other trials.

The court emphasized that the government had an obligation to disclose "material evidence favorable to the defendant" known to the prosecutor, which would include not only exculpatory evidence, but also evidence useful for impeachment, namely evidence with the potential to alter the jury's assessment of the credibility of a significant prosecution witness. The disclosure obligation attached not only to the accused's rights to prepare to trial, but also to his determination whether or not to plead guilty.

After carefully outlining the disclosure obligations, the court affirmed the conviction, concluding that the particular evidence at issue in the case was not "material" because the defendant would have entered the plea and foregone trial even if the evidence had been disclosed.