Securities And Exchange Commission v. Schroeder

Memorandum in Opposition to Kenneth L. Schroeder's 75 Motion to Compel

N.D. Cal.August 1, 2008

MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW MORGAN, LEWIS & BOCKIUS LLP JOHN H. HEMANN (SBN 165823) JOSEPH E. FLOREN (SBN 168292) THOMAS R. GREEN (SBN 203480) MATTHEW S. WEILER (SBN 236052) One Market, Spear Street Tower San Francisco, CA 94105-1126 Tel: 415.442.1000 Fax: 415.442.1001 Email: jhemann@morganlewis.com jfloren@morganlewis.com tgreen@morganlewis.com mweiler@morganlewis.com Attorneys for Non Party KLA-Tencor Corporation UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA, SAN JOSE DIVISION SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. KENNETH L. SCHROEDER, Defendant. Case No. C-5:07-cv-3798-JW (HRL) NON PARTY KLA-TENCOR CORPORATION’S OPPOSITION TO KENNETH L. SCHROEDER’S MOTION TO COMPEL Date: September 9, 2008 Time: 10:00 a.m. Dept.: Courtroom 2, 5th Floor Judge: Magistrate Judge Howard R. Lloyd Trial Date: Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 1 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS Page DB2/20774290.6 i KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW I. INTRODUCTION .............................................................................................................. 1 II. SCOPE OF SCHROEDER’S JOINT MOTION AND SEPARATE RESPONSES BY KLA AND SKADDEN ................................................................................................ 1 III. RELEVANT BACKGROUND AND MEET AND CONFER PROCESS ........................ 3 A. The Wall Street Journal Article and the Proliferation of Lawsuits Relating to the Alleged Backdating of Stock Option Grants at KLA.................................... 3 B. Government and Company Inquiries Into Historical Stock Option Grants at KLA and the SEC’s Civil Complaint Against Schroeder ....................................... 3 1. USAO and SEC Policies Compel KLA To Cooperate with the Federal Investigators, Who Shared KLA’s Interest in Uncovering Any Option Granting Improprieties ............................................................ 3 2. The SEC Files Civil Actions Against Ken Schroeder and Lisa Berry........ 5 C. Schroeder Seeks Discovery From KLA and the Special Committee in this Action and Begins the Meet and Confer Process.................................................... 5 D. Schroeder Files a Motion to Dismiss the SEC’s Complaint and Disengages from the Meet and Confer Process.......................................................................... 6 E. KLA Makes Significant Progress Resolving Much of the Backdating Litigation, Including Settling With Schroeder ........................................................ 7 F. Schroeder Files His Motion to Compel and Rejects All Meet and Confer Efforts, Including an Offer to Allow the Discovery Sought by this Motion........... 8 IV. ARGUMENT .................................................................................................................... 10 A. Schroeder’s Motion to Compel Production and Testimony Relating to KLA’s Historical Documents Should Be Denied Because it is Moot .................. 10 B. Schroeder’s Motion Should Be Denied Because He Failed to Abide by His Meet and Confer Obligations. ............................................................................... 13 C. As a Former Officer and Director of KLA Schroeder Can Obtain Privileged and Confidential Communications........................................................................ 15 D. Ninth Circuit Law Does Not Support Finding Waiver of the Attorney Client Privilege Under the Circumstances of this Case ........................................ 17 1. KLA Did Not Voluntarily Waive the Privilege Because It Had No Choice But to Cooperate and Produce Privileged Documents to the Government............................................................................................... 18 2. KLA and the Federal Investigators Shared a Common Interest in Uncovering Any Stock Option Improprieties. .......................................... 22 Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 2 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS (continued) Page DB2/20774290.6 ii KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW 3. The Selective Waiver Doctrine Allowed KLA to Share Privileged Documents Without Waiving the Privilege as to Third Parties. ............... 23 V. CONCLUSION................................................................................................................. 25 Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 3 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Page DB2/20774290.6 iii KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW Cases Bittaker v. Woodford, 331 F.3d 715 (9th Cir. 2003)..................................................................................................... 23 Byrnes v. IDS Realty Trust, 85 F.R.D. 679 (S.D.N.Y. 1980) ................................................................................................ 24 Dellwood Farms, Inc. v. Cargill. Inc., 128 F.3d 1122 (7th Cir. 1997)................................................................................................... 24 Ellis v. Woodford, No. C-05-2110 SI, 2007 WL 1033477 (N.D. Cal. April 4, 2007) ............................................ 14 Gottlieb v. Wiles, 143 F.R.D. 241 (D. Colo. 1992).......................................................................................... 12, 16 Howard v. Rustin, No. 06-00200, 2008 WL 2008937 (W.D. Pa. May 2, 2008)..................................................... 11 In re Cardinal Health, Inc. Sec. Litig., No. 04 Civ. 575, 2007 WL 495150 (S.D.N.Y. Jan. 26, 2007).................................................. 23 In re Grand Jury Subpoena (Dated July 13, 1979), 478 F. Supp. 368 (E.D. Wis. 1979)........................................................................................... 24 In re M&L Bus. Mach. Co., 161 B.R. 689 (D. Colo. 1993) ................................................................................................... 24 In re McKesson HBOC, Inc. Sec. Litig., No. C-99-20743, 2005 U.S. Dist. LEXIS 7098 (N.D. Cal. March 31, 2005)....................................................................... 4, 24, 25 In re Mortgage & Realty Trust, 195 B.R. 740 (Bankr. C.D. Cal. 1996)...................................................................................... 17 In re Qwest Commc’ns Int’l Sec. Litig., 450 F.3d 1179 (10th Cir. 2006)........................................................................................... 19, 20 In re Sealed Case, 676 F.2d 793 (D.C. Cir. 1982) .................................................................................................. 24 In re Subpoenas Duces Tecum, 738 F.2d 1367 (D.C. Cir. 1984) ................................................................................................ 24 In re Syncor Erisa Litig., 229 F.R.D. 636 (C.D. Cal. 2005) .............................................................................................. 18 Modesto Irrigation District v. Gutierrez, No. 1:06-cv-00453 OWW DLB, 2007 WL 763370 (E.D. Cal. March 9, 2007) ........................................................................... 23 Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 4 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES (continued) Page DB2/20774290.6 iv KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW People ex. rel. Spitzer v. Greenberg, 851 N.Y.S.2d 196 (N.Y.App.Div. 2008) ...................................................................... 12, 16, 17 Pucket v. Hot Springs School District No. 23-2, 239 F.R.D. 572 (D. S.D. 2006) ................................................................................................. 11 Regents of the Univ. of Cal. v. Sup. Ct., 2008 WL 2908123, No. D051364 (Cal. Ct. App. July 30, 2008) ................................. 19, 21, 22 Renda Marine, Inc. v. U.S., 58 Fed.Cl. 57 (Fed. Cl. 2003) ................................................................................................... 11 Saito v. McKesson HBOC, Inc., Civ.A. 18553, 2002 WL 31657622 (Del. Ch. Nov. 13, 2002), aff’d, 818 A.2d 970 (Del. 2003)................................................................................................ 24 Schmidt v. Levi Strauss & Co., No. C-04-01025 RMV (HRL), 2007 WL 518600 (N.D. Cal. Feb. 13, 2007) ............................................................................ 10 Transamerica Computer Co., Inc. v. Int’l Bus. Mach. Corp., 573 F.2d 646 (9th Cir. 1978)..................................................................................................... 19 U.S. v. Reyes, 239 U.S. 591 (N.D. Cal. 2006).................................................................................................. 24 United States v. Am. Tel. & Tel. Co., 642 F.2d 1285 (D.C. Cir. 1980) ................................................................................................ 22 United States v. Ary, 518 F.3d 775 (10th Cir. 2008)................................................................................................... 20 United States v. O’Hagan, 521 U.S. 642 (1997).................................................................................................................. 17 United States v. Stein (Stein I), 435 F. Supp. 2d 330 (S.D.N.Y. 2006)....................................................................................... 22 United States v. Stein (Stein II), No. S1 05 Crim. 0888, 2006 WL 2060430 (S.D.N.Y, July 25, 2006)...................................... 22 US v. Bergonzi, 403 F.3d 1048 (9th Cir. 2005)................................................................................. 11, 18, 23, 24 Proposed Regulation Attorney-Client Privilege Protection Act of 2008, S. 3217, § 3, 110th Cong. (2008) .............................................................................................. 21 Attorney-Client Protection Act of 2007, H.R. 3013, 110th Cong. (2007)................................................................................................. 21 Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 5 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES (continued) Page DB2/20774290.6 v KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW Other Authorities 2 AM. JUR. PROOF OF FACTS 3D 189 Proof of Waiver of Attorney-Client Privilege, 1 (July 2008) ................................................................................................................................ 19 Brian W. Walsh, What We Have Here Is Failure to Cooperate: The Thompson Memorandum and Federal Prosecution of White-Collar Crime, LEGAL MEMORANDUM, Nov. 6, 2006, 1 ............................................................................................... 18 The Thompson Memorandum’s Effect on the Right to Counsel in Corporate Investigations: Hearing Before the S. Comm. on the Judiciary, 109th Cong. (2006) .............. 20 William R. McLucas et al., The Decline of the Attorney-Client Privilege in the Corporate Setting, 96 J. CRIM. L. & CRIMINOLOGY, no. 2, 621, 631 (2006) ............................ 20 Rules Federal Rule of Civil Procedure 37......................................................................................................................................... 13, 14 Northern District Local Rule 1-5(n)......................................................................................................................................... 14 Northern District Local Rule 37(a)(1).................................................................................................................................. 6, 14 Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 6 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 1 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW I. INTRODUCTION Defendant Kenneth L. Schroeder (“Schroeder”) should have never filed this motion as it relates to KLA-Tencor Corporation’s (“KLA”) historical communications. In the first instance, Schroeder’s motion is moot as to KLA. He moves for the production of KLA’s historical documents which he already possesses, as the SEC produced them to him as part of its initial disclosures in this action; similarly, he seeks testimony from KLA witnesses about certain privileged communications, but KLA has repeatedly informed Schroeder that he can examine KLA witnesses about such communications as long as he agrees to reasonable confidentiality provisions. Had Schroeder met and conferred with KLA prior to filing his motion, as he was required to do, he would have learned that KLA would not stand in the way of his defending himself. Accordingly, this Court should deny Schroeder’s mooted motion, and at most should order Schroeder to abide by his meet and confer obligations he has all but ignored. Despite having been offered the relief he seeks from the Company, Schroeder asks this Court to find that KLA has waived the privilege with respect to its historic attorney-client privileged communications relating to its stock option practices. In doing so, Schroeder ignores the fundamental dynamic that existed when KLA received requests for the production of documents from the United States Attorneys’ Office (“USAO”) and the SEC. Schroeder is correct that KLA produced documents to the federal agencies, but he neglects to describe how KLA had no choice but to express its “cooperation” by producing privileged materials. The coercive effect of the Department of Justice’s Thompson Memorandum, which was in full effect at the time of KLA’s production, is now widely recognized, and KLA’s production does not constitute a waiver because it had no effective choice but to produce the privileged materials. But this Court need not address Schroeder’s waiver argument, or his oversimplified analysis of the common interest and selective waiver doctrines, because KLA has offered to provide Schroeder with the discovery he seeks from the Company. II. SCOPE OF SCHROEDER’S JOINT MOTION AND SEPARATE RESPONSES BY KLA AND SKADDEN Schroeder’s Motion to Compel encompasses multiple subpoenas of different parties Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 7 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 2 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW seeking different discovery on different theories. Schroeder served separate subpoenas on KLA and Skadden, Arps, Slate, Meagher & Flom and many of its attorneys (collectively “Skadden”), as counsel for the Special Committee and the Special Litigation Committee (“SLC”) to KLA’s Board of Directors. KLA and Skadden have filed separate oppositions to this joint Motion so that the Court can address the distinct issues, documents, and testimony that are raised by the separate subpoenas. Schroeder’s Motion seeks documents and testimony relating to five categories of information: (1) documents that were contemporaneously created, i.e. documents that pre-date the existence of the Special Committee (“KLA historical documents” or “KLA documents”) that concern granting and approving KLA stock option grants and testimony about such documents; (2) Skadden’s interview notes and early drafts of the Final Interview Memoranda which were produced to the SEC; (3) Special Committee documents produced or shown to the SEC, the DOJ, or the NASD; (4) documents and testimony relating to the Special Committee investigation, including Skadden’s communications with the Special Committee; and (5) documents provided to KLA’s outside auditors. See Motion to Compel at 21:16-22:2; Statement in Compliance with Civil Local Rule 37-2 Regarding Documents Sought from KLA-Tencor Corporation, Docket No. 77. The first category is the only category of discovery sought by this motion that concerns KLA documents and testimony, as opposed to Special Committee documents and testimony.1 The remaining requests seek documents and testimony exclusively from the Special Committee or its counsel. The requests relating to the Special Committee and Skadden are not addressed by this opposition, and are instead addressed by Skadden’s separate opposition brief filed concurrently with this one. 1 The only documents in Category Five referenced in Schroeder’s moving papers are Special Committee documents disclosed to Price Waterhouse Coopers (“PWC”), KLA’s outside auditor. Conceivably, Schroeder also seeks KLA historical documents, but Schroeder has never clarified what, if anything, he wants from KLA relating to PWC’s work. Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 8 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 3 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW III. RELEVANT BACKGROUND AND MEET AND CONFER PROCESS A. THE WALL STREET JOURNAL ARTICLE AND THE PROLIFERATION OF LAWSUITS RELATING TO THE ALLEGED BACKDATING OF STOCK OPTION GRANTS AT KLA On May 22, 2006 the Wall Street Journal published an article suggesting that KLA, and numerous other companies, had “backdated” certain stock option grants between 1994 and 2001. Relying exclusively on historical financial data from years earlier, the article analyzed stock options granted to three executives and concluded that certain historical stock options granted to each individual probably had been backdated. This article unleashed a flood of lawsuits in federal and state courts asserting various derivative and class action claims. Within months, two primary lawsuits coalesced relating to KLA stock options, a consolidated federal securities class action, and a consolidated federal derivative action. These lawsuits name KLA and several current and former KLA officers and directors as defendants, including Schroeder, who served as a director and the Chief Executive Officer at KLA from 1999 through 2005. B. GOVERNMENT AND COMPANY INQUIRIES INTO HISTORICAL STOCK OPTION GRANTS AT KLA AND THE SEC’S CIVIL COMPLAINT AGAINST SCHROEDER Within hours after publication of the Wall Street Journal article, the KLA Board of Directors, the SEC and the USAO had initiated inquiries into the circumstances surrounding KLA’s historical stock option grants. The KLA Board of Directors immediately formed a committee comprised solely of independent directors (the “Special Committee”), providing the Special Committee with the full authority and resources necessary to conduct a comprehensive investigation. 1. USAO and SEC Policies Compel KLA To Cooperate with the Federal Investigators, Who Shared KLA’s Interest in Uncovering Any Option Granting Improprieties With a mission to uncover any improprieties involving KLA’s historical granting of stock options, the Special Committee hired outside counsel and consultants to investigate the facts and circumstances surrounding past stock option grants by the Company. The SEC and USAO also tasked personnel to investigate KLA’s historical option granting processes, who in turn requested KLA to produce all documents relating to the stock option grants called into question. KLA had Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 9 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 4 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW little choice but to produce all relevant documents to the federal investigators, including any privileged materials it would uncover in its investigation. For one, KLA and the government shared a common interest in discovering whether any KLA personnel had placed the Company and its stockholders at risk, and sharing any factual evidence the Special Committee could find was entirely consistent with their joint objective. But more importantly, USAO and SEC policies, as reflected in the DOJ’s Thompson Memorandum,2 effectively required KLA to reflect its cooperation by agreeing to produce privileged materials. See Thompson Memorandum, Attached to the Declaration of John H. Hemann in Support of Non-Party KLA’s Opposition to Schroeder’s Motion to Compel (“Hemann Decl.”), ¶¶ 2-3, Ex. 1. The Thompson Memorandum, which described DOJ policy in place at the time of the KLA investigations, made it mandatory for federal prosecutors tasked with determining whether or not to charge a corporation with a crime to consider “the willingness of a corporation to [‘voluntarily’] waive such [attorney client and work product] protection when ‘necessary’ to provide timely and complete information as one factor in evaluating the corporation’s cooperation.” Id., ¶ 3, Ex. 1 (internal quotations added).3 As a public company that could be destroyed by a criminal indictment, KLA had no effective choice but to “cooperate” and provide the government with the relevant privileged materials. Id., ¶¶ 2-5, Exs. 1-2. The Company did what it could to minimize the effect of such “voluntary cooperation” by first entering into confidentiality agreements with each agency that extracted as strong a guarantee of confidentiality as either agency would allow, predicated on the common interest KLA shared with the SEC and USAO in investigating and uncovering any wrong doing, and under the “selective waiver” doctrine recognized in In re McKesson HBOC, Inc. Sec. Litig., No. C-99-20743, 2005 U.S. Dist. LEXIS 7098, at *33-34 (N.D. Cal. March 31, 2005). Id., ¶6. In response to the two inquiries, KLA produced thousands of pages of documents, subject to the 2 The SEC operated under the guidelines announced in the Seaboard Report at the time of its investigation into KLA’s option granting processes, which similarly equated cooperation with producing privileged materials. Hemann Decl., ¶ 4, Ex. 2. 3 As described more fully in Section IV(D)(1) below, the DOJ has since rescinded this policy under pressure from legislators, the bar association and countless other organizations troubled by the coercive effect of the Thompson Memorandum. Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 10 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 5 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW terms of the confidentiality agreements. Id., ¶ 7. The confidentiality agreements precluded disclosure to third parties except to the extent necessary for the two agencies to carry out their prosecutorial duties, a condition each agency required to enter into the confidentiality agreements. Id., ¶ 6, Ex. 3-4. KLA produced the same documents to the SEC as it did to the USAO. Id., ¶ 7. KLA’s compelled cooperation enabled the federal agencies to conduct expedient investigations. The USAO never informed KLA that it was a target or a subject of the Grand Jury Subpoena. Id., ¶ 11. Similarly, the SEC never filed an action alleging securities fraud against KLA and did not fine or seek any penalty or disgorgement from KLA. Id., ¶ 10. KLA and the SEC entered into a Consent to Entry of Final Judgment on July 25, 2007. In this agreement, KLA voluntarily entered into a permanent injunction prohibiting it from violating the books and record provisions of the federal securities laws. No findings of fact or conclusions of law were made against the Company. 2. The SEC Files Civil Actions Against Ken Schroeder and Lisa Berry. Following its investigation the SEC initiated the present action against Ken Schroeder. It also brought an action against Lisa Berry, KLA’s General Counsel during the late 1990s. Contrary to the suggestion in Schroeder’s moving papers, neither KLA nor the Special Committee “placed the blame almost entirely on Mr. Schroeder.” Id., ¶ 12. Neither KLA nor the Special Committee placed any blame on anyone, or bears any responsibility for the independent determinations the SEC or DOJ made in terms of whether to bring or not bring any action(s) against anyone, including Schroeder. KLA received no commitment or guarantee from the government that it would receive any leniency or special treatment as a result of its “cooperation.” Id. C. SCHROEDER SEEKS DISCOVERY FROM KLA AND THE SPECIAL COMMITTEE IN THIS ACTION AND BEGINS THE MEET AND CONFER PROCESS. Schroeder served KLA and Skadden with separate subpoenas for the production of documents in October of 2007. KLA and Skadden objected to many of the requests, primarily on the ground that they discovered Schroeder had already received Company documents relating to KLA stock option grants and processes by way of Initial Disclosures from the SEC. Hemann Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 11 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 6 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW Decl., ¶ 13, Ex. 7. The SEC’s Initial Disclosures, apparently served on October 3, 2007, confirm the production, with the SEC stating that it “has produced for inspection and copying … documents produced to the Commission during its investigation preceding this case, as identified in Exhibit A,” producing over sixty thousand pages of KLA and Special Committee documents to Schroeder. SEC’s Initial Disclosures at 19; Hemann Decl., Ex. 7. Schroeder neglected to share this fact with KLA, feigning a need for documents he already processed. The SEC’s initial disclosures also reveal that it has produced over ten thousand documents it received from PWC. Id. These documents include external and electronic working papers for the fiscal years 1998 through 2005, and emails from various KLA employees. Id. As referenced in the Rule 37(a)(1) certification attached to the end of Schroeder’s moving papers, the parties engaged in limited meet and confer efforts regarding KLA’s objections at times between November 2007 and January 2008. Critically, counsel for Schroeder does not represent that she made any additional effort to meet and confer with counsel for KLA in the months prior to filing her motion to compel. Rather, the meet and confer process stopped when Schroeder filed his motion to dismiss. D. SCHROEDER FILES A MOTION TO DISMISS THE SEC’S COMPLAINT AND DISENGAGES FROM THE MEET AND CONFER PROCESS. Schroeder filed a motion to dismiss the instant action on February 1, 2008, arguing that dismissal was required because Schroeder’s purported inability to access attorney-client privileged documents and communications impaired his ability to defend himself in this SEC action. As part of his strategy, Schroeder discontinued the meet and confer process on his subpoena to KLA, because the last thing Schroeder wanted to do was obtain the discovery he purportedly lacked and eliminate the basis for his motion to dismiss. This Court noted Schroeder’s strategic decision in its Order Granting KLA’s Motion for Protective Order dated February 20, 2008: Defendant Schroeder has the ability to move the court now to clarify the privilege issues which impact [its] depositions. (At a recent discovery conference, Schroeder indicated to the court that he would be filing such a motion shortly. According to the SEC, Schroeder has stated since December that he would be bringing Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 12 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 7 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW such a motion, and the SEC says that it agreed to postpone the deposition of Skadden attorney Elizabeth Harlan for that reason.) But Schroeder has now changed his mind. He just told this court at oral argument that he has no intention of seeking relief as to KLA’s asserted privilege until after his motion to dismiss is resolved. Indeed, he indicated that he made a deliberate and conscious decision not to challenge KLA’s asserted privilege now so that he could pursue that request for dismissal. Id. at 4 (emphasis added). On May 22, 2008, the Court denied Schroeder’s motion to dismiss without prejudice, but noted “the Court finds that KLA’s assertion of privilege, if later confirmed by the Court, may prevent Defendant from asserting potentially viable defenses.” May 22 Order at 6. Seemingly wanting to keep alive his hope that he would ultimately be denied the discovery and would have grounds to renew his motion to dismiss, Schroeder neglected to make any effort to resolve the dormant discovery issues prior to filing this motion. Declaration of Thomas R. Green (“Green Decl.”), ¶ 2. E. KLA MAKES SIGNIFICANT PROGRESS RESOLVING MUCH OF THE BACKDATING LITIGATION, INCLUDING SETTLING WITH SCHROEDER. Since the meet and confer process came to a standstill in January 2008, KLA has made significant progress resolving much of the backdating related litigation it and the individual KLA defendants have faced over the past two years. The consolidated federal class action has now been settled, subject only to final court approval. On June 5, 2008, Judge Charles Breyer of the United States District Court for the Northern District of California entered an order granting preliminary approval of the class action settlement and providing for notice to the class. Final approval of the settlement will be considered at the Settlement Fairness Hearing on September 26, 2008. An order granting final approval of the stipulated settlement will resolve the option backdating related claims of all shareholders who purchased KLA stock between June 30, 2001 and January 29, 2007. KLA is also closer to a potential resolution of the derivative actions. On March 25, 2008, the SLC filed a motion to terminate the consolidated federal shareholder derivative action and approve the settlements the SLC reached with four of the individual defendants in that matter. Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 13 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 8 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW The hearing on the motion to terminate is set for October 6, 2008, before Judge Ware. KLA also anticipates that the two state court derivative actions, Rabin, venued in Santa Clara County, and Langford, venued in the Delaware Court of Chancery, shall be dismissed in the event Judge Ware grants the SLC’s motion to terminate the federal derivative action. Pending the resolution of the Motion to Terminate, the Rabin state court action is effectively stayed. Similarly, the Delaware Court of Chancery has set a hearing date of August 13, 2008, for KLA’s motion to stay the Langford action. Most significantly, KLA and Schroeder entered into two settlement agreements which provide for the mutual releases of all claims between Schroeder and the Company, including numerous employment-related claims Schroeder maintained against KLA. The two settlement agreements resulted from many months of negotiation among Schroeder, KLA, and the SLC. Green Decl., ¶ 5. The two agreements were reduced to their essential terms in March of 2008, and executed on June 3, 2008, less than a week prior to Schroeder filing this motion. Id. F. SCHROEDER FILES HIS MOTION TO COMPEL AND REJECTS ALL MEET AND CONFER EFFORTS, INCLUDING AN OFFER TO ALLOW THE DISCOVERY SOUGHT BY THIS MOTION. Schroeder filed the instant motion on June 9, 2008, having made no effort to meet and confer with counsel for KLA since January of 2008. Green Decl., ¶ 2. In response to Judge Ware denying Schroeder’s motion to dismiss, and Schroeder’s resulting renewed interest in KLA documents and testimony, KLA has made several efforts to resolve this motion, which have been all but ignored by Schroeder. Counsel for KLA first broached the idea of allowing Schroeder to examine current and former KLA employees regarding privileged material with counsel for Schroeder in or around early June.4 Id., ¶ 3. Specifically, KLA counsel suggested that there could be a legal basis to disclose privileged communications to its former officer and CEO and that KLA did not want to deny Schroeder the ability to defend himself. Id. Counsel for Schroeder initially expressed a 4 Schroeder’s motion as it relates to KLA’s historical documents is really a motion to compel testimony regarding those documents, as Schroeder already possesses KLA’s responsive documents because the SEC produced those documents to him as part of its initial disclosures. SEC’s Initial Disclosures; Hemann Decl., Ex. 7. Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 14 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 9 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW general willingness to work with KLA and suggested that Schroeder would be willing to agree that disclosing communications to Schroeder does not constitute a waiver of the privilege. Id. KLA subsequently performed legal research regarding disclosures to former officers and directors and drafted a confidentiality agreement intended to minimize the risk of any disclosure or waiver of privileged communications. Id. KLA counsel sent a draft confidentiality agreement to Schroeder’s counsel on June 23, 2008. Id. The draft provides a mechanism for Schroeder to examine current and former KLA witnesses regarding certain privileged communications without objection by KLA. Schroeder’s initial responses was to object to the entry of a protective order, a position that is clearly at odds with backdating cases involving sensitive Company and employee personal financial information, to say nothing of Schroeder’s ongoing fiduciary duty to preserve the confidentiality of KLA’s privileged and confidential materials. In an email on July 12, Schroeder’s counsel gave zero indication of how the draft was lacking, other than to say that Schroeder viewed “the production to Schroeder of Skadden’s withheld documents as an integral part of a potential agreement.” Id., ¶ 4. In subsequent conversations since that time, Schroeder’s counsel has continued to attempt to leverage KLA’s willingness to permit the discovery requested of KLA to induce Skadden to cave on its discovery position with respect to Skadden’s interview notes and draft interview memoranda. Id. KLA’s efforts to explain that Schroeder’s demands of Skadden have no bearing on Schroeder’s demands of KLA, have only recently resonated with Schroeder.5 Id. Counsel for Schroeder has also rebuffed KLA’s attempts to meet and confer on the grounds that Schroeder would be in a better position if he lost his motion to compel than if he agreed to the entry of a protective order in order to obtain the information he seeks from KLA. Id. Thus, Schroeder appears to be adopting the same strategy he did in his motion to dismiss: his motion to compel is a stratagem, not a genuine effort to obtain the ability to fully defend himself 5 In recent conversations Schroeder seems to have accepted that his inability to resolve his dispute with the Special Committee does not absolve his responsibility to meet and confer with KLA. Since sending Schroeder a draft confidentiality agreement on June 23 KLA has repeatedly requested Schroeder to provide KLA with a revised draft to his liking. Schroeder finally provided his suggested revisions on July 29, 2008, a mere two days before the instant Opposition was due, implicitly acknowledging that the parties had more progress to make prior to filing his motion. Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 15 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 10 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW in this action, relief which has already been offered by KLA. IV. ARGUMENT A. SCHROEDER’S MOTION TO COMPEL PRODUCTION AND TESTIMONY RELATING TO KLA’S HISTORICAL DOCUMENTS SHOULD BE DENIED BECAUSE IT IS MOOT. Schroeder seeks documents and testimony KLA has already agreed to permit him to discover, making the continued pressing of his motion as it relates to KLA’s historical documents improper and unnecessary. This Court has recognized that where a party has agreed to produce categories of documents that are the subject of a motion to compel, the motion should be denied as moot as to those categories of documents. See Schmidt v. Levi Strauss & Co., No. C-04-01025 RMV (HRL), 2007 WL 518600, *1 (N.D. Cal. Feb. 13, 2007). As KLA has offered to produce its historical documents, and allow testimony with respect to those documents, Schroeder’s motion should be denied as moot with respect to KLA’s historical documents and related testimony. As for the KLA documents that are the subject of his motion, Schroeder already possesses everything he seeks. In or around October 2007, the SEC produced in excess of 60,000 pages of documents to Schroeder as part of its initial disclosures, producing to Schroeder every document KLA had previously turned over to the government as part of its production of the universe of documents it could locate relating to its historical stock option grants. Hemann Decl., ¶ 13, Ex. 7. There is no document that this Court could order KLA to produce that Schroeder does not already possess. Schroeder also seeks testimony from witnesses with respect to the documents he already possesses. But again, there is no issue for the Court to rule upon because KLA has repeatedly assured counsel for Schroeder that it will not assert attorney client privilege objections should he attempt to elicit testimony from current and former KLA witnesses regarding KLA’s option practices. Green Decl., ¶ 3. KLA even offered to enter into a written agreement, verifying that it would not prevent witnesses from responding to Schroeder’s questions regarding stock option practices and communications. Id., ¶¶ 3-4. To that end, KLA counsel sent counsel for Schroeder a draft agreement more than a month ago. Id. Schroeder has yet to provide a substantive Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 16 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 11 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW response to KLA’s initial draft agreement. Id. The fact that KLA previously asserted privilege objections in January 2008 when Schroeder deposed Stuart Nichols, KLA’s former General Counsel, does not entitle Schroeder to an unnecessary advisory opinion on the merits of his motion. Pucket v. Hot Springs School District No. 23-2, 239 F.R.D. 572, 579 n.1 (D. S.D. 2006) (noting courts are reluctant to render “advisory opinions” regarding documents previously labeled privileged when the issue has not been properly put before the court). As soon as KLA offered to allow Nichols and other KLA witnesses to testify, Schroeder’s motion became moot. US v. Bergonzi, 403 F.3d 1048, 1050 (9th Cir. 2005) (dismissing appeal as moot where documents had already been produced and privilege-holder did not seek to reverse order disclosing documents); Renda Marine, Inc. v. U.S., 58 Fed.Cl. 57, 64 n.10 (Fed. Cl. 2003) (motion to compel response to interrogatory became moot by plaintiff’s agreement to respond); Howard v. Rustin, No. 06-00200, 2008 WL 2008937, at *2 (W.D. Pa. May 2, 2008) (holding motion to compel response to document request is mooted in part by responding party’s representation that they will comply with certain requests). Moreover, though the reasons for KLA’s change of heart are irrelevant, it is not difficult to see how changed circumstances place KLA in a different position today than existed in January 2008. A number of reasons support allowing Schroeder to conduct the discovery he seeks today, that did not exist since he filed his motion to dismiss in early February. First, KLA had no reason to produce documents over the past many months because Schroeder never asked for the documents. Schroeder chose to file a motion to dismiss instead of a motion to compel. And Schroeder chose to not pursue the documents he claims are necessary to his defense until after his motion to dismiss was denied. Even today, as addressed more fully in the following section, Schroeder seems more interested in preserving the ability to renew his motion to dismiss than he seems interested in discovering the information KLA has offered to provide. Second, a firm legal basis exists, that was not previously explored, to support production to Schroeder without waiving the privilege. As discussed more fully below, courts have recognized a “joint client exception” that allows former officers or directors to access privileged Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 17 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 12 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW documents created when they were directors. See, e.g. Gottlieb v. Wiles, 143 F.R.D. 241, 247 (D. Colo. 1992); see also People ex. rel. Spitzer v. Greenberg, 851 N.Y.S.2d 196, 201-02 (N.Y.App.Div. 2008) (finding under New York and Delaware law that former directors “are within the circle of persons entitled to view privileged materials without causing a waiver of the attorney-client privilege.”). KLA has expressed to Schroeder that it does not want to stand in the way of his ability to defend himself in this action, and that it will allow him the discovery he seeks predicated on the basis that production to him under his unique circumstances does not constitute a waiver. Yet Schroeder still insists on trying to compel testimony he has already been offered. Third, KLA does not face the same risks of disclosing privileged communications that it faced in January 2008 because it has since resolved much of the litigation stemming from the alleged backdating of its stock option grants. Critically, the Company has entered into a Stipulation of Settlement to resolve the consolidated federal class action lawsuit before Judge Breyer. Judge Breyer has granted preliminary approval of the settlement and Final Approval could be granted as soon as September 26, 2008 at the Settlement Fairness Hearing. Equally important, KLA has entered into two settlement agreements with Schroeder, which resolve all claims between KLA and Schroeder, conditioned only on the granting of the Special Litigation Committee’s motion to terminate the consolidated federal derivative action before Judge Ware. KLA is also hopeful that the state court derivative actions will also be dismissed if Judge Ware grants the Special Litigation Committee’s motion to terminate. For a variety of reasons, KLA is much more comfortable permitting Schroeder to take documentary and testimonial discovery now under the terms of a protective order and agreement than it did in January 2008. KLA only asks for the entry of a reasonable protective order to allow it to minimize the risk of the unnecessary disclosure of confidential, privileged and personal financial information of the Company and hundreds of its current and former employees. The fact that the parties have not been able to stipulate to the terms of a protective order yet does not create a sufficient basis to consider Schroeder’s mooted motion. Schroeder should be ordered to meet and confer in good faith over the terms of a reasonable protective order to submit to the court, a process Schroeder Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 18 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 13 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW has oddly, and improperly, avoided ever since KLA suggested it would be willing to work with him regarding his discovery demands. B. SCHROEDER’S MOTION SHOULD BE DENIED BECAUSE HE FAILED TO ABIDE BY HIS MEET AND CONFER OBLIGATIONS. Since taking former KLA General Counsel Stu Nichols’ deposition in January 2008 Schroeder has not made one meaningful effort to meet and confer with KLA to see if there was a way for Schroeder to obtain the discovery he claims is necessary to defend himself in this case. Instead, Schroeder followed the January 27 deposition of Mr. Nichols with a February 1 motion to dismiss, arguing that “KLA’s selective use of the privilege against him with the aid of the SEC worked to deprive Mr. Schroeder of his Constitutional Due Process right to a fair trial.” Schroeder then sat and waited to see if KLA’s assertion of the privilege would provide him with the get out jail free card he sought. Having just entered into a settlement agreement with KLA, one would think that Schroeder would have reached out to resolve the discovery dispute with KLA after he learned that his motion to dismiss had been denied. Instead, he fired off the instant motion to compel, and has rejected all efforts by KLA to provide him with the very discovery he seeks. KLA’s willingness to work with Mr. Schroeder is not a new event. By early June 2008, counsel for KLA informed counsel for Schroeder that KLA would likely be willing to allow its former director and CEO to conduct the discovery he needed as long as the parties could agree on a methodology to minimize the risk of unnecessary disclosures. Green Decl., ¶ 3. Counsel for Schroeder understood KLA’s position well enough to state that Schroeder was amenable to agreeing that production to Schroeder, as a former officer and director who needs the discovery to defend himself, would not constitute a waiver of any privilege. Id. Schroeder finally offered his first suggested revision to the draft agreement KLA sent Schroeder on July 29, more than a month after KLA sent Schroeder the initial draft. Id., ¶ 4. In failing to meet and confer with KLA prior to filing his motion, and then ignoring KLA’s offer to allow the testimony he allegedly seeks, Schroeder has fallen woefully short of his meet and confer obligations under both Federal and Local Rules. Federal Rule of Civil Procedure Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 19 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 14 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW 37 requires a party to make a good faith effort to obtain disputed discovery without court action prior to filing a motion to compel. Schroeder made no such effort in this case, verified by his counsel’s Rule 37(a)(1) certification, which, though signed on the June 9 filing date of this motion, refers exclusively to meet and confer efforts between November 2007 and January 2008. Local rules go even farther than the Federal Rules of Civil Procedure to assure that this Court does not waste its time considering and ruling upon unnecessary motions to compel. Local Rule 37-1(a) states: “The Court will not entertain a request or motion to resolve a disclosure of discovery dispute unless, pursuant to FRCivP 37, counsel have previously conferred for the purpose of attempting to resolve all disputed issues.” N.D. L.R. 37-1(a) (emphasis added). Under the Northern District Local Rules, the “meet and confer” obligation requires a party to engage, in good faith, in a “direct dialogue or discussion.” N.D. L.R. 1-5(n). Schroeder has not only failed to engage in such a dialogue, he has affirmatively avoided KLA’s efforts to resolve the matter. When a party files a motion without fully satisfying its meet and confer obligations, the Court should deny its motion to compel. See Ellis v. Woodford, No. C-05-2110 SI, 2007 WL 1033477, *1 (N.D. Cal. April 4, 2007) (denying a motion to compel when plaintiff had failed to meet and confer, and noting that the goal of the meet and confer process was to force parties to present “very specific disagreements”). Had Schroeder engaged in a good faith meet and confer dialogue with KLA before filing his motion, he would have found that there was no substantial disagreement regarding KLA’s willingness to allow Schroeder to access KLA’s historic privileged communications relating to its option granting process. At a bare minimum, the scope of issues for this Court to rule upon would have been significantly reduced had Schroeder abided by his affirmative obligations. Any dispute that existed back in January 2008 does not justify Schroeder’s failure to meet and confer prior to filing his motion. As referenced above, at least three significant events transpired between January and June of 2008 that bear on Schroeder’s request. First, Schroeder and KLA entered into a settlement agreement and mutual release of claims. This event fundamentally changed the dynamic of KLA and Schroeder’s positions. Where prior to the Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 20 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 15 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW settlement the parties reasonably anticipated that they would soon be engaged in direct adversarial litigation, their interests are now aligned and focused on bringing closure to the various backdating related cases. Second, KLA, Schroeder and the other defendants in the consolidated class action have entered into a Stipulation of Settlement to resolve the nationwide shareholder class action. This settlement significantly decreases the risk of damage from the wider disclosure of KLA’s attorney-client privileged documents. Third, Jude Ware ruled that Schroeder needed to undertake other remedies—such as bringing a motion to compel—before the merits of his motion to dismiss could be ultimately resolved. Prior to the ruling on Schroeder’s motion to dismiss, Schroeder had little incentive to file a motion to compel, and in turn, KLA had no incentive to provide Schroeder with unfettered access to the once disputed documents and testimony. Schroeder’s admitted failure to re-engage with KLA at any time after January of 2008, despite KLA’s expressed willingness to allow further discovery, violates the letter and spirit of both the Federal and Local Rules. This Court should deny his motion and order Schroeder to meet and confer in good faith with KLA over the appropriate terms of a confidentiality agreement and protective order. Schroeder’s rejection of KLA’s offer to allow him to conduct the discovery he purportedly requires constitutes gamesmanship of the worst kind. KLA’s proposal would significantly minimize the remaining issues for this Court to decide. In fact, with respect to KLA, there would be no remaining issue for this Court to decide. Indeed, obtaining access to the documents at issue does not appear to be the objective of Schroeder’s motion. Rather, Schroeder appears to be holding out hope that this Court will deny him the documents so that he can renew his motion to dismiss. This Court should not reward Schroeder’s gamesmanship by ruling on the discovery requests that KLA has already agreed to provide. C. AS A FORMER OFFICER AND DIRECTOR OF KLA SCHROEDER CAN OBTAIN PRIVILEGED AND CONFIDENTIAL COMMUNICATIONS. Even were KLA not willing to provide Schroeder with the discovery he seeks, and the Court needed to determine whether or not he should be permitted to conduct the requested discovery, the Court need not, and should not, reach the waiver issue Schroeder raises in his Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 21 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 16 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW motion. The court should not rule on the waiver issue because the complex circumstances of this case, where KLA produced documents under the terms of confidentiality agreements to two government agencies when faced with being labeled “uncooperative” under then USAO and SEC policy if it chose not to selectively waive the privilege, do not merit consideration of the waiver issue where it is not necessary. The court need not rule on the waiver issue because an alternative basis exists to provide Schroeder with his requested discovery. Schroeder has argued forcefully, and persuasively, that he has a due process right and need to access KLA’s privileged communications to prepare his defense in this action. As someone who served as an officer and director at the time the privileged communications were made, and in many cases participated in such communications, Schroeder has a unique ability, and some courts have held, authority, to obtain the communications he seeks. The “joint client exception” operates to allow former directors to continue to access privilege communications that transpired under their watch. See, e.g. Gottlieb, 143 F.R.D. at 247. This is particularly the case where, as is the case here, a former director needs the discovery to aid in his defense. In People ex. rel. Spitzer v. Greenberg, former officers and directors of insurer American International Group (“AIG”) moved to compel the discovery of privileged communications made during their tenure. People ex. rel. Spitzer v. Greenberg, 851 N.Y.S.2d at 198. The former directors faced claims by the New York Attorney General that they had defrauded investors by painting an unduly positive picture of AIG’s underwriting performance. Id. The trial court denied the former directors’ motion, which argued unsuccessfully that the former directors should be granted access to the privileged communications to prepare an effective defense. Id. at 198. The appellate court reversed. Importantly, it neglected to rule on the directors’ argument that AIG had waived the privilege by producing the privileged documents to the SEC without even requesting that the documents be treated as confidential at the time of the production. Id. at 201-202. Instead, the appellate court overruled the trial court on the basis that the former directors, as persons who had access to the documents while serving at AIG, should be permitted to use the documents to prepare their defense, holding: Nevertheless, whether or not it is determined that AIG waived its Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 22 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 17 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW privilege, we hold that on the facts of this case, Greenberg and Smith have the unequivocal right to review relevant materials generated by or for AIG counsel while serving as AIG’s directors and officers. Id. at 202. Schroeder sits in the same place as Greenberg and Smith, facing allegations of defrauding investors and needing to access privileged communications, many of which he participated in, to conduct his defense. Judge Ware has already ruled that Schroeder’s inability to discover the privileged communications “may prevent Defendant from asserting potentially viable defenses.” May 22 Order at 6. As such, the circumstances are ripe to rule that KLA should be permitted to produce the requested discovery without waiving its privilege. The flip side of the coin of course, is that Schroeder, as a former officer of KLA, has an ongoing duty to protect the confidentiality of KLA’s privileged and confidential communications. In re Mortgage & Realty Trust, 195 B.R. 740, 750 n.9 (Bankr. C.D. Cal. 1996) (“The rule [that the fiduciary duty of loyalty of a corporate director includes a duty to preserve the confidentiality of confidential information received from the corporation during service as a director] is not limited to the protection of information subject to the attorney-client privilege.”); see also United States v. O’Hagan, 521 U.S. 642, 654 (1997) (“A company’s confidential information ... qualifies as property to which the company has a right of exclusive use. The undisclosed misappropriation of such information, in violation of a fiduciary duty ... constitutes fraud akin to embezzlement-the fraudulent appropriation to one’s own use of the money or goods entrusted to one’s care by another.”). It is contrary to Schroeder’s ongoing duties to KLA for him to argue, and the court to rule, that there has been a subject-matter waiver, especially when KLA has offered to permit the discovery in question. D. NINTH CIRCUIT LAW DOES NOT SUPPORT FINDING WAIVER OF THE ATTORNEY CLIENT PRIVILEGE UNDER THE CIRCUMSTANCES OF THIS CASE. For the many reasons argued above, the Court should not even reach Schroeder’s argument that KLA waived the privilege when it produced certain privileged documents to the USAO and the SEC under the confidentiality agreements KLA negotiated with the two Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 23 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 18 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW investigating bodies.6 But even if the Court were to reach the merits of Schroeder’s waiver argument, the Court should deny his motion. Only two days ago, a California appellate court seemingly became the first court to rule on the issue of whether the production of privileged documents to the government under the coercive threat of DOJ policy under the Thompson Memorandum constitutes a voluntary waiver of the privilege. The appellate court denied the motion to compel, holding that the Thompson Memorandum did not provide any meaningful choice, that the production to the government had been coerced, and that the privilege had not been waived. And contrary to Schroeder’s contention that courts have “almost universally rejected” the common interest exception and selective waiver doctrine, a review of case law reveals a very mixed bag, with some cases finding no waiver upon producing documents to the government, and some cases holding the opposite. The range of results only emphasizes the unsettled nature of the law in this area and buttresses the notion that courts should tread lightly before finding a waiver of the privilege. 1. KLA Did Not Voluntarily Waive the Privilege Because It Had No Choice But to Cooperate and Produce Privileged Documents to the Government. When the SEC and USAO began their investigations into possible backdating at KLA, the Company knew that it would soon face a “choice” of either cooperating with federal investi- gators, by producing privileged documents, or risk criminal indictment as a non-cooperator. Hemann Decl. ¶ 5. With criminal indictment a potential death sentence for a public company,7 KLA “chose” to cooperate. Id. 6 Schroeder concedes that KLA’s historical attorney client communications, “such as those of Mr. Nichols, Ms. Berry and WSGR,” were at one time privileged, and instead merely argues that KLA waived the privilege with respect to its historical communications. See Motion at 24-25 (arguing that Special Committee documents alone were not privileged upon creation and admitting that “historical attorney-client communications . . . may at some point had an attorney client privilege”). Yet many of the cases he relies upon in support of his waiver argument, including United States v. Bergonzi, 216 F.R.D. 487, 492 (N.D. Cal 2003) and In re Syncor Erisa Litig., 229 F.R.D. 636 (C.D. Cal. 2005), among others, are predicted in large part on a finding that no privilege ever attached to the documents in the first place because they were created by a special committee with the original intention of producing the committee documents to the government. 7 As the DOJ investigation into Arthur Anderson demonstrated, even overturning a conviction cannot erase the stigma and cost of an “uncooperative” branding. See Brian W. Walsh, What We Have Here Is Failure to Cooperate: The Thompson Memorandum and Federal Prosecution of White-Collar Crime, LEGAL MEMORANDUM, Nov. 6, 2006, 1, 2-3 (noting in the wake of the Arthur Anderson scandal that “every business leader and business attorney knows that the mere decision to prosecute can destroy the company.”). Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 24 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 19 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW The Ninth Circuit has long recognized the “general principle” that an involuntary or compelled disclosure of protected communications does not constitute a waiver of the attorney- client privilege. See Transamerica Computer Co., Inc. v. Int’l Bus. Mach. Corp., 573 F.2d 646, 650-52 (9th Cir. 1978) (recognizing that a “disclosure of confidential material constitutes a waiver of the attorney-client privilege only if it is voluntary and not compelled.”); see also 32 AM. JUR. PROOF OF FACTS 3D 189 Proof of Waiver of Attorney-Client Privilege, 1, 20 (July 2008) (noting that “to constitute a waiver of the attorney-client privilege, a client’s disclosure of protected communications usually must be voluntary; a compelled disclosure generally is not deemed a waiver of the privilege.”). Documents produced under the pressure of the Thompson Memorandum constitute just such an involuntary disclosure. In a recently minted California Court of Appeals opinion, the Fourth District specifically held that a group of corporate defendants’ production of privileged material to federal investigators operating under the Thompson Memorandum constituted coercion under California law, and thus did not waive the attorney-client privilege. See Regents of the Univ. of Cal. v. Sup. Ct., 2008 WL 2908123, No. D051364, at *1, 7 (Cal. Ct. App. July 30, 2008). In Regents, plaintiffs argued that defendants had waived their attorney-client privilege by producing documents to the DOJ as part of a government investigation. Id. at *2 The Fourth District disagreed, and upheld the trial court’s decision that the production was “coerced” and not voluntarily produced. Id. at *7. As the court observed: If Government agents come into a place of business and ask or demand to see files and records, and in a spirit of cooperation, the files and records are turned over to the agents by the business, it does not, in the opinion of this Court, constitute a voluntary turning over of records which can be claimed by the Government as a waiver. There is at least an implied coercion in that request or demand made by government agents. Id. at *4 (quoting United States v. New Wrinkle, Inc., Trade Case P67,833 (S.D. Ohio 1954)). The Regents court also distinguished the authorities Schroeder will rely upon to argue that KLA’s production was voluntary. Id. at *7 (noting “the coercion exerted by the federal government’s policies takes this case well outside [their] holdings…”). In particular, the Tenth Circuit’s decision in Qwest is distinguishable on three grounds. See In re Qwest Commc’ns Int’l Sec. Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 25 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 20 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW Litig., 450 F.3d 1179, 1199 (10th Cir. 2006). First, unlike here, the Thompson Memorandum, issued in January 2003, was not in effect at the time Qwest produced its privileged material to the DOJ in the summer of 2002. Id. at 1181. Second, the Tenth Circuit dismissed Qwest’s claim that it should recognize a doctrine of selective waiver to help curb “the culture of waiver” primarily because the “anecdotal material” Qwest and amici provided as evidence was not supported by the record. Id. at 1199. In contrast, the record here demonstrates that KLA felt it had no choice but to play the game according to the rules imposed by the Thompson Memorandum. See Hemann Decl., ¶¶ 2-7. Third, at oral argument Qwest disclaimed any argument that its production of privileged documents to the federal investigators was involuntary, relying exclusively on a selective waiver argument. Qwest, 450 F.3d at 1181 n.1. Indeed, the Tenth Circuit has since clarified that its decision in Qwest did not address involuntary production. United States v. Ary, 518 F.3d 775, 783 n.5 (10th Cir. 2008). The Regents decision reflects what is now widely recognized – the DOJ Thompson Memorandum and SEC Seaboard Report coerced companies under federal investigation into turning over privileged material.8 In a hearing before the Senate Judiciary Committee in September 2006, called specifically to address concerns posed by the Thompson Memorandum, former ABA President Karen Mathis summarized the problem, noting: From a practical standpoint, companies have no choice but to waive when requested to do so, as the government’s threat to label them as “uncooperative” will have a profound effect not just on charging and sentencing decisions, but on each company’s public image, stock price, and credit worthiness as well.9 Facing increasing pressure from a coalition of prominent legal organizations, legislators and former prosecutors, the DOJ replaced the Thompson Memorandum with the McNulty Memorandum in December 2006, only weeks after KLA had produced its documents under the Thompson policies. Memorandum from Paul J. McNulty, Deputy Attorney General, U.S. Dep’t of Justice to of Dep’t Components, U.S. Attorneys, Principles of Federal Prosecution of Business 8 See, e.g., William R. McLucas et al., The Decline of the Attorney-Client Privilege in the Corporate Setting, 96 J. CRIM. L. & CRIMINOLOGY, no. 2, 621, 631 (2006). 9 The Thompson Memorandum’s Effect on the Right to Counsel in Corporate Investigations: Hearing Before the S. Comm. on the Judiciary, 109th Cong. (2006) (statement of Karen J. Mathis, President of the Am. Bar Ass’n at 4). Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 26 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 21 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW Organizations Dated December 12, 2006; Hemann Decl., ¶ 8, Ex. 5. The McNulty Memorandum significantly reduces the pressure on a company to produce privileged materials.10 Hemann Decl., ¶ 8. It implemented the following changes to reduce the pressure on corporations to produce privileged communication: (1) it deleted the reference to the waiver of the attorney client privilege in the list of nine factors a prosecutor should consider in making a charging decision; (2) it affirmatively described the “extremely important function” of the attorney client privilege and work product protections “in the observance of law and administration of justice”; (3) it affirmatively stated that: “Waiver of attorney-client privilege and work product protection is not a prerequisite to a finding that a company has cooperated in the government’s investigation; and (4) it required all local prosecutors to obtain written permission from the United States Attorney to even seek the production of privileged materials, with the United States Attorney unable to provide written authorization until after consulting with the Assistant Attorney General for the Criminal Division. Id. Recognizing that the McNulty policy still did not go far enough, the DOJ is now on the verge of rewriting its policy again. A July 9, 2008 letter from Deputy Attorney General Mark Filip recently informed the Senate Judiciary Committee that the DOJ expects to revise its policy and make it explicit that the DOJ may not even request a corporation to produce privileged material. Letter from Deputy Attorney General Mark Filip to Patrick J. Leahy et al. Dated July 9, 2008; Hemann Decl., ¶ 9, Ex. 6. If the DOJ does not promptly change its policy, Congress may beat the DOJ to the punch. On June 27, 2008, Senator Arlen Specter (R-Pa.) reintroduced in the Senate the Attorney-Client Privilege Protection Act, which passed the House before the close of term in 2007.11 The Act would prevent federal agencies, as they did under the Thompson/Seaboard policies, from either 10 The McNulty Memorandum also notes that effective November 2006 the United States Sentencing Guidelines no longer contain a reference to considering a corporation’s waiver of attorney-client privilege and work product protections in reducing a corporation’s culpability score. See McNulty Memorandum, Hemann Decl., Ex. 5. 11 Attorney-Client Protection Act of 2007, H.R. 3013, 110th Cong. (2007). Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 27 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 22 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW seeking privilege waivers or considering the assertion of privilege in charging decisions.12 In addition to the Regents court, at least one district court has recognized the coercive effect of the Thompson Memorandum. In a couple of related opinions, the Southern District of New York blasted the DOJ for its coercive cooperation policy.13 The controversy arose after KPMG, out of fear of being labeled “uncooperative,” only partially covered attorney’s fees for employees facing prosecution. The court held that the Thompson Memorandum, coupled with specific conduct of the federal prosecutors, violated the Fifth and Sixth Amendment rights of the former KPMG employees. As Judge Kaplan put it, KPMG abided by the cooperation factor, in this case refusing to pay employees’ legal fees, “because the government held the proverbial gun to its head.”14 Here, the record demonstrates that KLA, like the defendants in Regents, produced privileged documents to the government because it “believed there would be severe regulatory or criminal consequences if it was labeled uncooperative by the government.”15 Specifically, in view of the requirements of the Thompson Memorandum and Seaboard Report, the KLA determined that it was required to produce documents protected by the attorney-client privilege and attorney work product doctrine, or be deemed not to be cooperating with the SEC and USAO investigations. Hemann Decl., ¶ 5. Having produced privileged documents with the proverbial gun to its head, KLA’s production to the government should be recognized as the involuntary production that it was. As such, KLA never waived the privilege. 2. KLA and the Federal Investigators Shared a Common Interest in Uncovering Any Stock Option Improprieties. If two parties share a common interest, a party does not waive the privilege by disclosing documents. United States v. Am. Tel. & Tel. Co., 642 F.2d 1285, 1300 (D.C. Cir. 1980) (finding 12 Attorney-Client Privilege Protection Act of 2008, S. 3217, § 3, 110th Cong. (2008); see also Statement of The H. Arlen Specter (June 26, 2008) available at http://www.acc.com/public/attyclntprvlg/specteraccpa2008floorstmnt.pdf 13 United States v. Stein, 435 F. Supp. 2d 330 (S.D.N.Y. 2006) (Stein I); United States v. Stein, No. S1 05 Crim. 0888, 2006 WL 2060430 (S.D.N.Y, July 25, 2006) (Stein II). 14 Stein I, 435 F. Supp. 2d at 336 (emphasis added). 15 Regents, 2008 WL 2908123 at *7; Hemann Decl.¶ 5. Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 28 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 23 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW that, since “MCI shares common interests with the United States,” MCI did not waive the work product privilege by sharing documents with the government). Schroeder argues that the “adversarial nature of the relationship between KLA and the SEC while KLA was providing cooperation was clear and forecloses any claim of common interest.” Motion at 32. However, a common interest can occur even where parties’ interests are adverse in “substantial respects.” See, e.g. Modesto Irrigation District v. Gutierrez, No. 1:06-cv-00453 OWW DLB, 2007 WL 763370 (E.D. Cal. March 9, 2007) (“The [common interest] privilege does not require a complete unity of interests among the participants, and it may apply where the parties’ interests are adverse in substantial respects.”). Here, KLA and the government shared a common interest in locating any wrongdoers in connection with the “backdating” that had occurred at the Company. See In re Cardinal Health, Inc. Sec. Litig., No. 04 Civ. 575, 2007 WL 495150, at *9 (S.D.N.Y. Jan. 26, 2007) (holding there was no waiver due to disclosure because of a “common interest in developing legal theories and analyzing information concerning potential financial irregularities at Cardinal”). Even Schroeder seems convinced that KLA and the federal agencies shared an interest in analyzing information and identifying any potential wrongdoers, stating, among other things, that “KLA cooperated with the SEC by essentially preparing the SEC’s case for it,” and that “KLA stands to be a direct beneficiary of a portion of the SEC’s recovery in this case.” Motion at 3:18-19 and 9:13-23. In fact, it is Schroeder’s theory of the case that the SEC “outsourced” its investigation to the Company. Schroeder’s admissions in this regard distinguish the cases he relies upon when he later concludes to the contrary that KLA and the SEC lacked a common interest. 3. The Selective Waiver Doctrine Allowed KLA to Share Privileged Documents Without Waiving the Privilege as to Third Parties. The Ninth Circuit has expressly held open the possibility that a party can “selectively waive” the attorney-client privilege by “allow[ing] a corporation to disclose the results of an internal investigation to an investigating government agency without waiving attorney client privilege or work product protection as to the outside world.” US v. Bergonzi, 403 F.3d at 1050; (see also Bittaker v. Woodford, 331 F.3d 715, 720 n. 5 (9th Cir. 2003) (“[T]he law [regarding Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 29 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 24 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW selective waiver] is not ... settled.”). If ever there was a case where the selective waiver doctrine should apply, this would seem to be the case. First, no Court in this Circuit appears to have faced the circumstances and argument where the corporation’s production was compelled during the three plus year life of the Thompson Memo. Second, unlike many of the cases Schroeder relies upon in arguing that the selective waiver doctrine has been rejected,16 KLA is not attempting to apply the doctrine to documents created by a special committee with the express intent of producing the documents to the government at the time of creation. And third, KLA negotiated as strong of a confidentiality agreement as was possible with two federal agencies holding all the cards with the Thompson Memo and the Seaboard Report.17 Hemann Decl., ¶ 6. Though no case presents this combination of factors under which to consider the efficacy of the selective waiver doctrine, numerous cases have upheld a selective waiver on nothing more than the policy rationale of encouraging parties to cooperate with government entities. See, e.g. In re Grand Jury Subpoena (Dated July 13, 1979), 478 F. Supp. 368, 372-73 (E.D. Wis. 1979) (“[V]oluntary cooperation with [a government] investigation would be substantially curtailed if such cooperation were deemed to be a waiver of a corporation’s attorney-client privilege.”); Byrnes v. IDS Realty Trust, 85 F.R.D. 679, 688-89 (S.D.N.Y. 1980) (“voluntary submissions to [Government] agencies in separate, private proceedings should be a waiver only as to that proceeding”); Saito v. McKesson HBOC, Inc., Civ.A. 18553, 2002 WL 31657622, at *11 (Del. Ch. Nov. 13, 2002), aff’d, 818 A.2d 970 (Del. 2003) (adopting selective waiver rule with respect to Report and Interview Memoranda based on the “strong public interest such a rule would serve”). 16 See, e.g. U.S. v. Bergonzi, 216 F.R.D. 487, 494 n.8 (N.D. Cal. 2003); see also U.S. v. Reyes, 239 U.S. 591, 599 (N.D. Cal. 2006) (considering a privilege claim made by two law firms who had created materials in assistance with a company’s internal investigation). 17 See In re M&L Bus. Mach. Co., 161 B.R. 689, 696-97 (D. Colo. 1993) (bank’s disclosures to Government did not waive attorney-client privilege where bank took “substantial steps to ensure that its disclosures to the United States Attorney would be kept confidential”); Dellwood Farms, Inc. v. Cargill. Inc., 128 F.3d 1122, 1127 (7th Cir. 1997) (suggesting that disclosure to third party should not be deemed waiver of analogous “investigatory privilege” where disclosing party takes steps to preserve confidentiality); In re Subpoenas Duces Tecum, 738 F.2d 1367, 1375 (D.C. Cir. 1984) (finding that party could avoid waiver by “insist[ing] on a promise of confidentiality before disclosure to the SEC”); In re Sealed Case, 676 F.2d 793, 823-24 (D.C. Cir. 1982) (recognizing that explicit confidentiality agreement with SEC or other Government agency may prevent waiver). Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 30 of 31 MORGAN, LEWIS & BOCKIUS LLP ATTORNEYS AT LAW NEW YORK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DB2/20774290.6 25 KLA’S OPPOSITION TO SCHROEDER’S MTN TO COMPEL CASE NO. C-07-3798 JW At least one District Court in the Ninth Circuit has held that a corporation does not waive attorney-client privilege by disclosure to an investigating government agency. In re McKesson HBOC, Inc. Sec. Litig., No. C-99-20743 RMW, 2005 U.S. Dist. LEXIS 7098 (N.D. Cal. March 31, 2005) (“Aaronson”). In Aaronson, Judge Whyte held that the disclosure privileged materials to the government was only a “selective waiver” that did not waive privilege as to all future adversaries. Id. at *46. The court in Aaronson, “taking into consideration the benefit to the public of permitting disclosure of work product to the government,” found that disclosure to the government did not effect a broader waiver. Id. at *46-47. This rationale is stronger here because Schroeder seeks historical documents, not just an audit report created to share with the government. Schroeder attempts to distinguish Aaronson by arguing that the Company is attempting to use the privileged materials “as both a sword and a shield.” Motion at 35. No such facts are presented here, however, as KLA is a third party to the instant litigation. KLA is not asserting any affirmative claims against Schroeder in this or in any other forum. In fact, KLA and Schroeder have entered into a settlement, which mutually releases all claims. Green Decl., ¶ 5. V. CONCLUSION For the foregoing reasons, this Court should deny Schroeder’s Motion to Compel. Dated: August 1, 2008 MORGAN, LEWIS & BOCKIUS LLP JOHN H. HEMANN JOSEPH E. FLOREN THOMAS R. GREEN By /s/ Thomas R. Green Attorneys for Non Party KLA-Tencor Corporation Case 5:07-cv-03798-JW Document 84 Filed 08/01/2008 Page 31 of 31