Opinion
No. 99 Civ. 10488 (SAS).
September 21, 2001.
For Plaintiffs: James R. Safley, Esq., Thomas B. Hatch, Esq., Randall Tietjen, Esq., Corey L. Gordon, Esq.; Robins, Kaplan, Miller Ciresi L.L.P., Minneapolis, MN. David G. Glasser, Esq., Levin Glasser, P.C., New York, New York.
For Defendants: Adam Ziffer, Esq., Frank C. Razzano, Esq. Howard Schiffman, Esq., Adam Proujansky, Esq., Dickstein Shapiro Morin Oshinsky, LLP, New York, New York. Michael T. Tomanio, Jr., Esq., Sullivan Cromwell, New York, New York. Ian Hochman, Esq., Willkie Farr Gallagher, New York, New York. And W. Patrick Loughlin, Esq., Latham Watkins, New York, New York.
MEMORANDUM OPINION AND ORDER
Plaintiffs Gabriel Capital, L.P. ("Gabriel Capital"), Ariel Fund Ltd. ("Ariel Fund"), and Zuri-Invest AG ("Zuri-Invest") (collectively "Plaintiffs") have moved to compel defendants NatWest Finance, Inc., NatWest Capital Markets Limited and National Westminster Bank PLC (collectively "NatWest") to produce transcripts of certain tape-recorded telephone conversations. Plaintiffs argue that NatWest's assertion of an advice-of-counsel defense effectively waived any attorney-client privilege that could have otherwise been invoked to shield these conversations from discovery. NatWest argues that its waiver of attorney-client privilege is limited to communications made prior to the date the bond offering closed. According to NatWest, the conversations sought by Plaintiffs, all of which occurred after publication of the March 1998 Offering Memorandum, are beyond this limited waiver and, hence, not discoverable. For the reasons that follow, Plaintiffs' motion is granted in its entirety. NatWest is directed to provide Plaintiffs with the tapes and transcripts of the withheld conversations forthwith.
I. FACTS
The facts surrounding this litigation have been exhaustively summarized by the Court in two prior Opinions. See Gabriel Capital, L.P. v. NatWest Finance, Inc., 94 F. Supp.2d 491, 512 (S.D.N.Y. 2000) and Gabriel Capital, L.P. v. NatWest Finance, Inc., 122 F. Supp.2d 407, 437 (S.D.N.Y. 2000). Familiarity with these Opinions is assumed for purposes of the instant motion.
II. ATTORNEY-CLIENT PRIVILEGE
"The attorney-client privilege protects from disclosure communications made between an attorney and a client, made in confidence, for the purpose of rendering or obtaining legal advice." In re Subpoena Duces Tecum Served on Willkie Farr Gallagher, No. M8-85, 1997 WL 118369, at *2 (S.D.N.Y. Mar. 14, 1997) (citing In re Grand Jury Subpoena Duces Tecum, 731 F.2d 1032, 1036 (2d Cir. 1984)). However, when a party voluntarily asserts an advice-of-counsel defense, it is deemed to have waived the privilege with respect to the advice received. See In re Grand Jury Proceedings, No. M-ll-188, U.S. Dist. LEXIS 2425, at *10 (S.D.N.Y. Mar. 2, 2001) (citing In re Grand Jury Proceedings, 219 F.3d 175, 182-83 (2d Cir. 2000)). Tn general, a broad subject matter waiver is found where a party raises an advice-of-counsel defense and seeks to rely upon privileged communications in a judicial setting. See In re Grand Jury Proceedings, 219 F.3d at 183 (citing United States v. Bilzerian, 926 F.2d 1285, 1292 (2d Cir. 1991)). Finally, the temporal restriction urged by NatWest, limiting its waiver of the privilege to those communications made prior to the bond closing, is rejected. If communications exist that reveal the substance of advice given by counsel to NatWest, those communications are discoverable, regardless of when they occurred.
III. DISCUSSION
The first "smoking gun call" took place between Max Holmes and David Wheeler on October 7, 1998, and can be found at DAT Tape 1 of 11 at segments 1336, 1352, 1356, 1361 and 1363. The second "smoking gun call" was a voice mail message left for Steven Burns by Holmes on October 7, 1998. NatWest does not object to production of this message. See Plaintiffs' Brief in Support of Motion to Compel Taped Calls at 6-7.
Segment numbers identify the place on the tape where a call is found. A single telephone call may span several segment numbers.
On October 7, 1998, Max Holmes, a former Managing Director of Gleacher NatWest and a lead strategist behind the structuring of the NSM bond offering, spoke with David Wheeler, NatWest's lead investment banker on the bond offering. The transcript reveals that a portion of this conversation concerns Steven Burns, a lawyer with Cravath, Swaine Moore ("Cravath"), counsel to the underwriters. This conversation does not, however, reflect the substance of any communications between Burns and a client made in confidence for the purpose of seeking, obtaining, or providing legal advice. Accordingly, because this call does not implicate the attorney-client privilege, it is discoverable.
This conclusion has already been reached by two judges who reviewed transcripts of the disputed calls in connection with other cases related to the NSM bond offering. In IDS Bond Fund, Inc. v. Gleacher NatWest Inc., No. 99-116, slip op. at 4 (D. Mimi. July 24, 2001), Magistrate Judge Jonathan Lebedoff of the United States District Court for the District of Minnesota ordered that the October 7, 1998 conversation be produced. See Order of Magistrate Judge Lebedoff, Ex. C to the Declaration of Cheryl S. Garrod, Plaintiffs' attorney, dated August 7, 2001 ("Garrod Decl. I"), at 4 ("Lebedoff Order") Judge Bryan D. Garruto of the Superior Court of New Jersey reached the same conclusion in Merrill Lynch Global Allocation Fund v. NatWest Finance, Inc., No. L-8457-99 (N.J. Superior Ct. Aug. 13, 2001) ("this call did not contain any communications relating to privileged communications between anyone at NatWest and their attorneys at Cravath, Swaine and Moore"). See Memorandum of Decision on Motion, Dx. A to the Declaration of Cheryl S. Garrod, dated August 24, 2001, at 1 ("Garruto Supp. Order")
This ruling was affirmed by the district court on September 14, 2001. See IDS Bond Fund v. Gleacher NatWest Inc., September 13, 2001 Order of Judge Michael J. Davis.
The "Management Company calls" consist of an October 13, 1998 call between Holmes and Burns, which is found on DAT tape 1 of 11 at segments 7199, 7201, 7213, 7226, 7230, 7238 and 7251, and an October 19, 1998 call between the same parties, which is found on DAT tape 1 of 11 at segments 14475, 14477, and 14523.
On October 13 and 19, 1998, Holmes and Burns discussed the management of the steel mill and representations regarding the management made to potential investors. These conversations concern the advice given by Cravath to NatWest, or lack thereof, with regard to the structure of the Management Company, its management by David Stickler, an investment banker with McDonald Investments, and the limited role of Steel Dynamics, Inc. ("SDI") These conversations, which potentially undermine NatWest's advice-of-counsel defense, are clearly relevant. Furthermore, NatWest waived the attorney-client privilege when it asserted an advice-of-counsel defense with respect to disclosures made in connection with the NSM bond offering. See United States v. Workman, 138 F.3d 1261, 1264 (8th Cir. 1998) (when a party relies on an advice-of-counsel defense, the opposing party has a right "to explore the substance of that advice"). Because these conversations relate to the substance of the advice given, if indeed any advice was given, they must be produced. C. The Road Show Call
NatWest employees frequently asserted an advice-of-counsel defense when deposed. For example, when asked why material facts were not disclosed to potential investors, NatWest investment bankers routinely answered that with respect to disclosure issues, they relied on the advice given by counsel. See, e.g., Deposition of David Wheeler, Ex. F to the Garrod Decl. I, at 1811 ("Again, in terms of what was disclosed to investors, I mean, we relied on counsel for that."), and at 261 ("Again, I did not have the final word on what was disclosed. Counsel would have had — would have advised us on that. If it wasn't disclosed, it would have been based on advice from counsel."); Deposition of Max Holmes, Ex. G to Garrod Decl. I, at 357 (when asked why the voting structure of the Management Company was not disclosed, Holmes replied: "I think you would have to ask White Case and Cravath, Swaine and Moore that question.").
Judge Lebedoff reached the same conclusion although his Order describes both calls as being made on October 19, 1998. See Lebedoff Order at 5 ("these calls should be produced because the NatWest Defendants waived any available privilege by relying on the advice of counsel defense in opposing Plaintiffs' claims"). Judge Garruto also found the "Management Company calls" to be admissible to show the absence of advice. See June 25, 2001 Order of Judge Bryan G. Garruto, Ex. D to the Garrod Decl. I, at 13 (it appears that Burns is not concerned about having rendered deficient advice but is "trying to react to NatWest's unilateral and wholly independent action with regard to representations made in the offering memorandum")
This call took place between Holmes and Burns on October 19, 1998, and is found on DAT tape 1 of 11 at segments 15116, 15122, 15124-26 and 15145-55.
In this call, Holmes tells Burns of a meeting convened by SDI to inform NSM bondholders that SDI's actual role in the operation of the NSM mill was very limited and that SDI acted merely as a consultant. The remainder of the call reveals the substance of the advice, if any, given by Burns regarding disclosures relating to the Management Company and SDI's role in it. Because this information goes directly to the substance of NatWest's advice-of-counsel defense any claim of attorney-client privilege is waived. NatWest is therefore ordered to produce this call.See Lebedoff Order at 5-6; Garruto Order at 15.
The "closing calls" consist of the following, all of which were made on March 11, 1998: a call between Wheeler and Burns, found at DAT tape 9 of 11 at segment 2128; a call between Wheeler and Gary Heasley of McDonald Investments, found at segment 2137; a call between Wheeler and Burns, found at segment 2147; a call among Wheeler, Stickler and Heasley, found at segment 2156, and a call among Wheeler, Burns and Edward McNamara, a Cravath attorney, found at segment 2177.
In the closing calls, there is much discussion among NatWest and McDonald investment bankers and their attorneys concerning the various problems encountered with the NSM closing. Glaringly absent, however, is any legal advice by the attorneys as to how to handle these problems.
The closing calls can be grouped into the following two categories: (1) calls in which one or more Cravath attorneys participated; and (2) calls between or among NatWest and McDonald employees. As to the first category, NatWest has waived any privilege by asserting an advice-of-counsel defense. As to the second category, the transcripts do not reflect the substance of any confidential communications between a lawyer and client. Although NatWest argues that all of these calls are irrelevant as they relate to closing problems arising from the issuance of NSM securities in a private placement, not the NSM bonds purchased by Plaintiffs, any possible error from the disclosure of these calls would be harmless. NatWest is therefore directed to produce all of the closing call transcripts.
Whether these calls relate solely to an independent private placement is not altogether clear. For example, in the conversation between Wheeler and Burns, Burns states: "I think I would tell them, say, listen, you know, you guys can decide how you want — whether you think that's appropriate — whether it's appropriate to screw up, you know, to try and screw up, you know, a $400 million or a $500 millions deal whatever, over, over you know, a dispute of $500,000." Transcript at 20.
The "financing calls" consist of two calls. The first call took place on July 27, 1998, among Holmes, McNamara and Burns. This call is found at DAT tape 11 of 11 at segments 5296, 5302-05, 5307, 5309, 5311, 5312, 5316, 5318, 5320-22, 5324-26, 5328-30, 5333, 5335-39, 5341, 5342, 5347, 5350, 5353-60, 5362, 5364, 5366, 5368, 5369, 5371, 5372, 5374, 5375, 5377-81, 5383, 5387 and 5391. The second call took place on July 29, 1998, between Holmes and Burns and is found at DAT tape 11 of 11 at segments 9000-03, 9014, 9016, 9023, 9026, 9027, 9030, 9031, 9032 and 9037.
Plaintiffs claim that NatWest knew that the money being raised in the NSM bond offering was not enough to adequately finance the steel mill. According to Plaintiffs, the investors were not told that the underwriters knew that NSM would need additional financing shortly after the closing of the bond offering. Thus, the financing calls relate to the advice given by Cravath, or lack thereof, with respect to disclosures made in the Offering Memorandum and at the road show concerning the adequacy of the financing and NSM's working capital. Once again, because NatWest has raised an advice-of-counsel defense, the attorney-client privilege has been waived and NatWest is directed to produce these calls.
IV. CONCLUSION
For the reasons stated above, NatWest is directed to provide Plaintiffs with the tapes and transcripts of the disputed conversations forthwith. The Clerk of the Court is directed to close this motion.