Commercial Litigation and Arbitration

Work Product — Internal Investigation — Communications with/by Auditors

In re Veeco Instruments, Inc., Secs. Litig., 2007 U.S. Dist. LEXIS 16922 (S.D.N.Y. March 9, 2007), involved a restatement of earnings that led to an internal investigation. Plaintiff sought all reports, workpapers, interview notes, memoranda, and other documents created or prepared by (1) Veeco, (2) outside counsel Kaye Scholer LLP, (3) the accounting firm retained by Kaye Scholer, Jefferson Wells International, Inc., and (4) Veeco's outside auditor Ernst & Young LLP. Items (2) and (3) were likely suspects for protection; items (1) and (4), not so much. All were protected.

The central question was whether documents were entitled to work product protection if they were prepared in anticipation of litigation but also served a dual, business purpose — namely, facilitating the restatement. Applying the leading Second Circuit decision, United States v. Adlman, 134 F.3d 1194, 1196 (2d Cir. 1998), District Judge Colleen McMahon affirmed the magistrate judge’s conclusion that all of the documents comprised protected work product. Judge McMahon reasoned that, ‛[u]nder Adlman, a document created for two purposes — a business purpose as well as a litigation purpose — is protected under the work product doctrine as long as the document would not have been prepared in substantially similar form if not for the prospect of litigation.... As long as that standard is met, the document is eligible for protection under Rule 26(b)(3) even if preparation for litigation is not the document's primary purpose.“

The interesting part of the decision is its conclusion that, under this Adlman analysis, the documents prepared by the Company and by its auditors were protected. Here’s the key to the analysis:

‛[L]ead plaintiff's assertion that because defendants were required to file corrected financial statements, any documents created in connection with the correction of accounting errors 'would have been prepared irrespective of the prospect of litigation' rests on a logical fallacy. Lead plaintiff assumes, without citing any basis in fact, that Veeco would have been unable to correct the ... accounting records without the Kaye Scholer/Jefferson Wells materials. In fact, [defense counsel] plainly states in his affidavit that Veeco would have relied exclusively on its internal finance staff and outside auditors had it been concerned solely with correcting the ... financial records rather than with the prospect of litigation.... Plaintiffs offer no evidence to rebut this statement.“

Share this article:


Recent Posts