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A.I.A. Holdings, S.A. v. Lehman Brothers, Inc.

United States District Court, S.D. New York
Nov 12, 2002
97 Civ. 4978(LMM)(HBP) (S.D.N.Y. Nov. 12, 2002)

Opinion

97 Civ. 4978(LMM)(HBP)

November 12, 2002


OPINION AND ORDER


I. Introduction

By a letter dated August 5, 2002, plaintiffs raised several discovery disputes. Defendant Bear Stearns Co., Inc. ("Bear Stearns") responded in a letter dated August 22, 2002 and the issues were discussed during a conference held on August 26, 2002. Although I had initially intended to resolve all the open discovery issues in the Opinion and Order that I issued on October 18, 2002, I inadvertently omitted one issue from that Order. This Order resolves that issue.

The present dispute involves tape recordings of 57 telephone calls made by Bear Stearns between May 16 and May 19, 1995. Plaintiffs claim that there has been an inadequate showing that these calls were made or tape recorded in anticipation of litigation and that work-product protection is, therefore, unavailable. As a fall-back position, plaintiffs claim that, if work-product protection is applicable to the tape recordings, all tape-recorded conversations in which Sarko Sandrik is a party should be produced because plaintiffs have a substantial need for Sandrik's conversations and the information is not available from any other source.

For the reasons set forth below, plaintiffs' application is granted in part and denied in part.

II. Facts

A. Background

The facts underlying this action have been set forth in detail in several opinions by the Honorable Lawrence M. McKenna, United States District Judge, addressing various dispositive motions made by the parties. See A.I.A. Holdings, S.A. v. Lehman Bros., Inc., 97 Civ. 4978 (LMM), 2002 WL 1334809 (S.D.N.Y. June 17, 2002); A.I.A. Holdings, S.A. v. Lehman Bros., Inc., 97 Civ. 4978 (LMM), 2002 WL 88226 (S.D.N.Y. Jan. 23, 2002); A.I.A. Holdings, S.A. v. Lehman Bros., Inc., 97 Civ. 4978 (LMM), 1998 WL 159059 (S.D.N.Y. Apr. 1, 1998). Familiarity with these opinions is assumed.

For present purposes, it is sufficient to note that this action arises out of an allegedly massive fraud perpetrated in Lebanon by an individual named Ahmad Al-Daouk. According to the complaint now before the Court, plaintiffs are approximately 270 individuals and entities, mostly from the Middle East, who gave money to Daouk and entities controlled by him to invest in securities and other investment vehicles. Daouk allegedly informed his customers that their funds had been invested with the defendant brokerage companies. Through various types of chicanery, betrayal and deceit, Daouk allegedly dissipated his victims' funds, misappropriated money for himself and either misapplied or misappropriated any profits that his investments were fortunate enough to earn. Among other things, Daouk allegedly intercepted account statements sent by defendants to the plaintiffs, destroyed the originals and fabricated false statements to show that plaintiffs' investments were doing far better than they actually were.

For the most part, the events giving rise to this litigation came to a close on or about May 16, 1995 when Daouk's fraud was discovered. Thomas S. Cohen, who was then Bear Stearns' Associate Director in the Legal and Compliance Department, described the events of that date as follows:

2. Beginning on or about May 15th or 16th, 1995, Bear Stearns learned that Mid East Trading Ltd. ("MET"), an introducing broker to Bear Stearns controlled by Ahmand Daouk ("Daouk"), had ceased operations. On May 16, 1995 and thereafter, Bear Stearns began receiving numerous letters and telephone calls from customers of Daouk who were making inquiries about the status of the accounts they had opened with Mr. Daouk.
3. In particular, in the morning of May 16, 1995, a client of MET called Bear Stearns to inquire about his account, which, it was immediately discovered, had a much lower balance than the caller had stated he had. During the phone call, the client was asked to fax a monthly statement of his account to Bear Stearns, which he did. Upon receipt of the statement from that customer, it was immediately determined that the statement was a forgery and the matter was brought to my attention.
4. Upon review of the documents, I quickly concluded that they were forged and contained false information. Additionally, Bear Stearns was told during the course of the communications with Lebanese customers on May 16, 1995 that Daouk's office had closed and that Daouk had disappeared. Sometime later, we learned that Daouk had been arrested in Beirut.
5. On the morning of May 16, 1995, I met with Barbara Bishop ("Bishop"), a Managing Director in the Legal and Compliance Department, and Mark Lehman ("Lehman"), Senior Managing Director and Bear Stearns' General Counsel. Bishop and Mark Lehman directed that all inquiries from MET's customers be handled under the direction of the legal department. Bishop and Lehman then convened a team to handle the investigation including me; Daniel Taub ("Taub"), James Hubbert ("Hubbert") and W. Clifford Mallery ("Mallery"), litigation attorneys and Managing Directors in the Legal and Compliance Department; Rose Takavorian, a member of the Balances and Controls Department; Larry Youell, an Associate Director in the Legal and Compliance Department; Gerald Brennan, a Managing Director of Operations Administration; and Maria Echevarria, a member of the Legal and Compliance Department; and other Bear Stearns personnel to handle the investigation. Our conduct of the investigation was solely to assist the legal department in defending claims that were likely to be brought by MET's customers. Other Bear Stearns employees, such as Peter Bonet of the Futures Sales Department, were enlisted by the department on a project-by-project basis to collect or analyze information relating to MET and its customers under the direction of the legal department. All interactions that I and other Bear Stearns employees [sic] had after Bear Stearns received a copy of the forged account statement on May 16, 1995 was [sic] under the direct supervision of counsel. In particular, Bishop and Lehman advised us on how to deal with calls from MET's clients and directed that we collect information from the calls for use in Bear Stearns' defense against the litigation that was likely to (and did in fact) arise.
6. Within days of the time that MET ceased its operations, Bear Stearns retained outside counsel to assist in preparing a defense to the claims. Bear Stearns also learned that governmental authorities in Lebanon were investigating this apparent fraud, including Bear Stearns' alleged role in it. We learned of a criminal investigation by an Examining Magistrate, Issam Abbou Aloune, and that a trustee in bankruptcy for Mid-East and Daouk, Adnan Jaafar, was also conducting an inquiry.
7. At the direction of both in-house and outside counsel, in mid-May, I, along with the other Bear Stearns employees working under the direction of Bishop and Lehman began the task of collecting and analyzing the information we possessed concerning the clients of MET.
8. This work included determining whether the clients of MET had actual accounts on Bear Stearns' books and records, analyzing the transfers into and out of accounts, as well as other related tasks. The only reasons the documents relating to these tasks were maintained and the only reason that these analyses were performed was because they were needed in order to assist Bear Stearns' lawyers in preparing to defend against the actual and anticipated claims that were being asserted by the customers of MET. The reports and analyses were thus either provided to counsel or maintained in files that would be used in the future to provide reports to counsel concerning the claims made by MET's customers.
9. My work as part of the investigation, and the work of others in the compliance department, was not done in our capacity as compliance officers and our analysis of the information concerning MET's customers did not serve any routine compliance function.

(Affidavit of Thomas S. Cohen, sworn to June 20, 2001 ("Cohen Aff."), ¶¶ 2-9; see also Affidavit of Barbara Bishop, sworn to June 20, 2001 ("Bishop Aff."), ¶¶ 7-9). Plaintiffs have not submitted any evidence to contradict or controvert the events that allegedly occurred at Bear Stearns on the morning of the May 15, 1995 and the days immediately thereafter.

Plaintiffs have asserted various theories of liability against defendants and have offered some evidence that some of the defendants' employees were active participants in the scheme and shared in its alleged proceeds. The aggregate damages claimed are in excess of $100 million.

B. Plaintiffs' Motion

Plaintiffs' current motion seeks copies of tape recordings of 57 telephone conversations between various Bear Stearns employees and between Bear Stearns employees and third parties that were conducted between May 16 and May 19, 1995. Bear Stearns has withheld these tapes on the basis of the protection afforded to work product, and plaintiffs claim that Bear Stearns has not demonstrated that it had an expectation of litigation prior to May 19, 1995 that was sufficiently specific to justify work-product protection. In the alternative, plaintiffs seek production of the recordings of all conversations in which Sarko Sandrik is a party on the theory that Sandrik has fled the Court's jurisdiction, is not available for deposition, and that there is, therefore, a "substantial need" for the conversations in which he is a party sufficient to penetrate work-product protection.

III. Analysis

The scope of the work-product doctrine is set forth in Fed.R.Civ.P. 26(b)(3):

[A] party may obtain discovery of documents and tangible things otherwise discoverable under subdivision (b)(1) of this rule and prepared in anticipation of litigation or for trial by or for another party or by or for that other party's representative (including the other party's attorney, consultant, surety, indemnitor, insurer, or agent) only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of the party's case and that the party is unable without undue hardship to obtain the substantial equivalent of the materials by other means. In ordering discovery of such materials, when the required showing has been made, the court shall protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation.

The applicability of the work-product doctrine is exclusively governed by federal law. Bowne of New York City, Inc. v. AmBase Corp., 150 F.R.D. 465, 471 (S.D.N.Y. 1993).

In contrast to the attorney-client privilege, which is intended to encourage full disclosure by the client, the work-product doctrine "is intended 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." United States v. Adlman, 134 F.3d 1194, 1196 (2d Cir. 1998), quoting Hickman v. Taylor, 329 U.S. 495, 511 (1947). "`[A]t its core, the work-product doctrine shelters the mental processes of the attorney, providing a privileged area within which he can analyze and prepare his client's case.'" In re Leslie Fay Cos. Sec. Litig., 161 F.R.D. 274, 279 (S.D.N.Y. 1995), quoting United States v. Nobles, 422 U.S. 225, 238 (1975). Like the attorney-client privilege, the party asserting the protection of the work-product doctrine bears the burden of proof. In re Grand Jury Subpoena Dated December 19, 1978, 599 F.2d 504, 510 (2d Cir. 1979).

"[T]hree conditions must be met to earn work product protection. The material must (1) be a document or a tangible thing, (2) that was prepared in anticipation of litigation, and (3) was prepared by or for a party, or by or for his representative." In Re Grand Jury Subpoenas Dated December 18, 1981 January 4, 1982, 561 F. Supp. 1247, 1257 (E.D.N.Y. 1982) (McLaughlin, J.). Accord Weinhold v. Witte Heavy Lift, Inc., 90 Civ. 2096 (PKL), 1994 WL 132392 at *2 (S.D.N.Y. April 11, 1994) 2 Michael C. Silberberg, Civil Practice in the Southern District of New York, § 15.04 at 15-12 — 15-13 (2d ed. 2002)

The Court of Appeals for the Second Circuit has explained that the second element of this test does not limit the doctrine to documents prepared primarily or exclusively to assist in litigation:

The text of Rule 26(b)(3) does not limit its protection to materials prepared to assist at trial. To the contrary, the text of the Rule clearly sweeps more broadly. It expressly states that work-product privilege applies not only to documents "prepared . . . for trial" but also to those prepared "in anticipation of litigation." If the drafters of the Rule intended to limit its protection to documents made to assist in preparation for litigation, this would have been adequately conveyed by the phrase "prepared for trial." The fact that documents prepared "in anticipation of litigation" were also included confirms that the drafters considered this to be a different, and broader category. Nothing in the Rule states or suggests that documents prepared "in anticipation of litigation" with the purpose of assisting in the making of a business decision do not fall within its scope.
United States v. Adlman, supra, 134 F.3d at 1198-99. Thus, the appropriate test for assessing the second element of the test is whether "`in light of the nature of the document and the factual situation in the particular case, the document can fairly be said to have been prepared or obtained because of the prospect of litigation.'" United States v. Adlman, supra, 134 F.3d at 1202, quoting 8 C. Wright, A. Miller R. Marcus, Federal Practice Procedure § 2024 at 343 (1994).

In In re Grand Jury Proceedings, No. M-11-189, 2001 WL 1167497 at *14 (S.D.N.Y. Oct. 3, 2001), Judge Preska summarized the factors relevant to determining whether a document is prepared in anticipation of litigation:

A lawsuit need not already have been filed for the "in anticipation of litigation" requirement to be met. Thus, a document may be protected even if it was "created prior to the event giving rise to litigation" because "[i]n many instances, the expected litigation is quite concrete, notwithstanding that the events giving rise to it have not yet occurred." Adlman, 68 F.3d at 1501. For example, in Upjohn v. United States, 449 U.S. 383, 386-87, 397-402, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981), the Court applied work-product protection even though no proceedings against the company were threatened when the documents were prepared. See id. at 386-87 (involving documents created during internal investigation of "`possibly illegal' payments to foreign government officials"). "The party asserting the privilege must demonstrate that a `substantial probability' of litigation existed at the time the material was created." Garrett v. Metropolitan Life Ins. Co., 95 Civ. 2406, 1996 WL 325725, at *3 (S.D.N.Y. June 12, 1996), report and recommendation adopted, 1996 WL 563343 (S.D.N.Y. Oct. 3, 1996); Fustok v. Conticommodity Servs., Inc., 106 F.R.D. 590, 591-92 (S.D.N.Y. 1985) (denying work-product protection because "at the time the report was commissioned or prepared the prospect of litigation was not `identifiable' because `specific claims [had not] already arisen'"); Gould Inc. v. Mitsui Mining Smelting Co., Ltd., 825 F.2d 676, 680 (2d Cir. 1987) (finding that work-product rule requires "existence of a real, rather than speculative, concern")
It is not enough that a document is created after the threat of litigation becomes real, but it is also necessary that the motivation for creating that document be the litigation. That is, a document is prepared "in anticipation of litigation" if "`in light of the nature of the document and the factual situation in the particular case, the document can fairly be said to have been prepared or obtained because of the prospect of litigation.'" Adlman, 134 F.3d at 1202 (emphasis in original) (quoting Wright et al., 8 Federal Practice Procedure § 2024, at 343 (1994)). The "because of" standard does not require that the event giving rise to litigation to have actually occurred, Adlman, 134 F.2d at 1203; Adlman, 68 F.3d at 1501 (noting that "non-occurrence of events giving rise to anticipated litigation is factor that can argue against application of work-product doctrine"), and it is not necessary that the document "be created in anticipation of the current litigation," Garrett, 1996 WL 325725, at *4; see Fine v. Facet Aerospace Prods. Co., 133 F.R.D. 439, 445 (S.D.N.Y. 1990) (citing FTC v. Grolier, 462 U.S. 19, 25, 103 S.Ct. 2209, 76 L.Ed.2d 387 (1983)) (finding it immaterial whether document was created for another litigation, as long as it was created in anticipation of some litigation).

As could be expected, Bear Stearns takes a broad view of which calls should be afforded work-product protection. For example, Bear Stearns claims that all contacts Bear Stearns employees had with customers of Mid East Trading after Bear Stearns' receipt of the forged account statement on May 16, 1995 should be granted work-product protection (Letter of Kimberly J. Rosner, Esq., dated August 22, 2002 ("Rosner Letter"), at 6). In addition, notwithstanding the fact that it bears the burden of proof, Bear Stearns claims that even calls from the early morning of May 16, 1995 should be afforded work product protection because there was a possibility that there were earlier calls that gave rise to an expectation of litigation:

Plaintiffs further argue that Bear Stearns should at a minimum produce phone calls from the morning of May 16, 1995. The fact that the first recorded conversation of a Mid-East Trading customer was recorded at 9:03 a.m. on May 16, 1995, does not preclude the existence of an earlier phone call to Bear Stearns. Telephone calls to Bear Stearns could have gone directly to the compliance/legal department, whose lines were not recorded, and the calls prior to 9:11 a.m. on May 16, 1995, reveal that Bear Stearns had already been made aware of the problem with the Mid-East Trading customer's account referred to above by that time. In any event, it is clear that, at the latest, as of 11:09 a.m. on May 16, 1995, Cohen, under the supervision of Bishop and Lehman, was involved in the investigation.

(Rosner Letter at 6 (footnote omitted)).

Neither parties' position is entirely convincing.

Bear Stearns' claim that it anticipated litigation as soon as it received the first complaint on the morning of May 16, 1995 is unconvincing because a customer complaint does not automatically imply litigation. In all businesses, there will be customer disputes, some of which will result in litigation and some of which will not. To create a rule that automatically extends work-product protection to all post-complaint communications would extend the protection to situations where there was no genuine expectation of litigation.

On the other hand, the Cohen and Bishop affidavits establish that Bear Stearns quickly realized that the claimed losses were of staggering dimension which undoubtedly implied the likelihood of litigation.

The first call in issue was recorded at 8:49 a.m. on May 16, 1995; the last call was recorded at 4:48 p.m. on May 19, 1995. I conclude that work-product protection does not apply to any call recorded prior to the conclusion of the meeting Cohen had with Bishop and Lehman on the morning of May 16, 1995. Based on the Cohen and Bishop affidavits, it appears that Bear Stearns realized at this meeting that the complaints from Mid East customers indicated that there was a massive problem with the Daouk accounts and the amounts in dispute were extremely large. It was at this meeting that Bear Stearns' General Counsel and inhouse litigation counsel became involved in the problem, and counsel began directing the responses to be given to customer inquiries and the gathering of information (Cohen Aff. ¶ 5; Bishop Aff. ¶¶ 6-8). Thus, it appears that it was at this meeting that Bear Stearns first determined that litigation was likely.

Accordingly, I conclude that all of the conversations in issue that were recorded after the conclusion of the meeting among Cohn, Bishop and Lehman on the morning of May 16, 1995 are entitled to work-product protection. All of the conversations in issue that were recorded prior to that time shall be produced.

Plaintiffs' second argument, that all conversations to which Sandrik was a party should be produced because plaintiffs have demonstrated a "substantial need" for the recordings is unconvincing. Although Sandrik did flee from the jurisdiction of this Court, like Daouk, he voluntarily made himself available for a deposition overseas. Just as I previously concluded that Daouk's voluntary appearance in Morocco defeated defendants attempt to gain access to plaintiffs' work product on the basis of "substantial need," Sandrik's voluntary appearance for a deposition in Rome defeats plaintiffs' attempt to gain access to Bear Stearns' work product on the same basis. See Tribune Co. v. Purcighotti, 93 Civ. 7222 (LAP), 1998 WL 175933 at *4 (S.D.N.Y. Apr. 14, 1998) ("`Substantial need' cannot be shown where persons with equivalent information are available for deposition."), citing Horn Hardart Co. v. Pillsbury Co., 888 F.2d 8, 12 (2d Cir. 1989). See also Gay v. P.K. Lindsay Co., 666 F.2d 710, 713 (1st Cir. 1981) ("[I]t seems well-settled that there is in general no justification for discovery of the statement of a person contained in work product materials when the person is available to be deposed."); Taylor v. Costa Cruises, Inc., 90 Civ. 2630 (KC), 1992 WL 196793 at *1 (S.D.N.Y. Aug. 3, 1992); 8 Charles A. Wright, Arthur R. Miller Richard L. Marcus, Federal Practice Procedure § 2025 at 375 (2d ed. 1994) ("[D]iscovery of work product material will be denied if the party seeking discovery can obtain the desired information by taking the deposition of witnesses.")

IV. Conclusion

Accordingly, for all the foregoing reasons, plaintiffs' motion to compel production of Bear Stearns tape recorded telephone conversations is granted with respect to the telephone conversations in issue that were recorded prior to the completion of the meeting among Cohen, Bishop and Lehman on the morning of May 16, 1995; plaintiffs' motion is denied in all other respects. Plaintiffs' alternative application to compel production of all tape recorded conversations to which Sandrik was a party is denied. Due to the imminence of trial, the tape recordings whose production is ordered here in shall be produced no later than November 15, 2002.


Summaries of

A.I.A. Holdings, S.A. v. Lehman Brothers, Inc.

United States District Court, S.D. New York
Nov 12, 2002
97 Civ. 4978(LMM)(HBP) (S.D.N.Y. Nov. 12, 2002)
Case details for

A.I.A. Holdings, S.A. v. Lehman Brothers, Inc.

Case Details

Full title:A.I.A. HOLDINGS, S.A., et al., Plaintiffs v. LEHMAN BROTHERS, INC. and…

Court:United States District Court, S.D. New York

Date published: Nov 12, 2002

Citations

97 Civ. 4978(LMM)(HBP) (S.D.N.Y. Nov. 12, 2002)