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Counsel’s Orally Reading to SEC Her Notes of Internal Investigation Interviews Waived Work Product Protection Even Though Done Pursuant to Confidentiality Agreement

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From Securities and Exchange Commission v. Vitesse Semiconductor Corp., 2011 U.S. Dist. LEXIS 77538 (S.D.N.Y. July 13, 2011):

[N]on-party Nu Horizons Electronic Corporation ("NuHo") moved to quash the subpoenas issued by defendants Tomasetta and Hovanec requesting the production of handwritten notes taken during NuHo's internal investigation. ***

[T]he SEC's complaint in this action alleges that during the period from 1995 through April 2006, defendant Vitesse Semiconductor Corporation ("Vitesse") engaged in fraudulent revenue recognition practices and stock options backdating misconduct.... These fraudulent practices were allegedly orchestrated by the four individual defendants: Vitesse's co-founder and CEO, Louis Tomasetta; its Chief Financial Officer ("CFO") and Executive Vice President, Eugene Hovanec; its Controller and CFO [and others].***

[B]efore the instant complaint was filed, the SEC notified NuHo that it was conducting a confidential investigation entitled In the Matter of Vitesse Semiconductor Corp. On April 13, 2007, the SEC issued subpoenas to NuHo for documents relating to Vitesse. Thereafter, NuHo's independent audit committee (the "Audit Committee") hired Gage Spencer & Fleming LLP ("GSF") to conduct an internal investigation into NuHo's relationship with Vitesse. In connection with the internal investigation, GSF interviewed present and former NuHo employees. While conducting these interviews, Laura-Michelle Horgan, an attorney with GSF, took handwritten notes of the interviews.... These notes have not been shown or produced to anyone outside GSF, no copies have been made, and the notes have not been reduced to formal interview memoranda. *** On February 12, 2009, GSF concluded its internal investigation and issued a report to the Audit Committee (the "Internal Report")/ which included: (i) a seventy-eight page written summary of GSF and FTI's conclusions; (ii) a Power Point Presentation prepared by GSF summarizing GSF and FTI's conclusions; and (iii) six tables prepared by FTI summarizing its conclusions.

On July 28, 2008, the Audit Committee produced to the SEC documents *** and "an oral summary of the internal investigation's prior interviews of Paul Durando" pursuant to a non-waiver agreement, which stated that the SEC agreed to "maintain the confidentiality of the Confidential Materials pursuant to this agreement" and not disclose them to any third party unless "disclosure is otherwise required by law or would be in furtherance of the Commission's discharge of its duties and responsibilities." *** At the SEC's request, GSF also provided oral interviews — or "downloads" — of other witness interviews to the SEC. ***

On January 27, 2011, defendants Tomasetta and Hovanec issued subpoenas to GSF and FTI seeking "[a]ll documents that you reviewed, prepared, used, sent or received in connection with or concerning the Internal Investigation." Tomasetta and Hovanec issued a subpoena to NuHo with the same request on February 1, 2011. On March 4, 2011, NuHo moved to quash the subpoenas issued by defendants Tomasetta and Hovanec to the extent that they sought disclosure of the Internal Report. On March 15, 2011, the Court denied NuHo's motion and, as a result, the Internal Report was produced to Tomasetta and Hovanec subject to a confidentiality agreement. After receiving the Internal Report, which made reference to certain attorney notes taken by GSF in connection with NuHo's internal investigation, Tomasetta and Hovanec sought production of the handwritten notes taken by Ms. Horgan. ***

[As a factual matter,] not all of the oral summaries provide by NuHo to the SEC were actually provided pursuant to a non-waiver agreement. *** However, even assuming that all the oral summaries were provided pursuant to a non-waiver agreement, that would not end the Court's inquiry into waiver given the absence of a per se rule. See In re Steinhardt Partners, L.P., 9 F.3d 230, 235 (2d Cir. 1993).

After hearing oral argument on NuHo's motion to quash and defendants' motion to compel, the Court concluded that it could not determine whether waiver applied without having a better understanding of the level of detail provided in the oral summaries to the SEC. Specifically, waiver would probably not apply if NuHo merely provided general impressions of the interviews without organizing the presentations "in a witness-specific fashion," but might very well apply if NuHo "orally relayed in substantial part" the contents of witness interviews to the SEC. See United States v. Treacy, 08 Cr. 366 (JSR), 2009 WL 812033, at *2 (S.D.N.Y. March 24, 2009). Thus, in addition to conducting an in camera review of the handwritten notes taken by Ms. Horgan, the Court ordered the SEC to turn over its notes of the "downloads" provided by Ms . Horgan and conducted an in camera review of the SEC's notes.

After comparing Ms. Horgan's notes to the SEC's notes, it became clear to the Court that the oral summaries provided to the SEC were very detailed and, indeed, there were many instances where the SEC's notes matched Ms. Horgan's notes almost verbatim. Thus, the Court concluded that NuHo waived work product privilege with respect to the notes by providing very detailed, witness-specific information to the SEC. While it is undisputed that NuHo did not actually produce the notes themselves to the SEC, after reviewing the SEC's notes the Court found that NuHo effectively produced these notes to the SEC through its oral summaries.... [W]hile producing privileged materials to the Government will not constitute waiver in all cases, in this case, the SEC — the very government agency that received the privileged material — is actually a party to the instant action and thus could use the information produced by NuHo in its case against the defendants. See SEC v. Vitesse Semiconductor Corp., F.Supp.2d , 2011 WL 1142343, at *3 (S.D.N.Y. 2011) . Moreover, as also noted in the Court's previous Memorandum, many of the key allegations in the SEC's complaint against Tomasetta and Hovanec concern Vitesse's relationship with NuHo, the very topic of the Internal Report and the interviews conducted by GSF. See id. Thus, finding that NuHo waived the privilege by providing very detailed oral summaries to the SEC and finding that disclosure was required to "level the playing field," the Court directed NuHo to produce the notes to defendants Tomasetta and Hovanec.

[Privilege]

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New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.
New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.

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