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Keywords

contractlawsuitplaintiffdefendantlitigationattorneysubpoenadepositiondiscoveryappealcorporationattorney-client privilege
contractplaintiffdefendantappealfiduciarycorporation

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In re International Systems and Controls Corp. Securities Litigation, 693 F.2d 1235, 35 Fed.R.Serv.2d 732, Fed. Sec. L. Rep. P 99,036

Facts

Defendant International Systems and Control Corporation (I.S.C.) was involved in business practices that allegedly included paying bribes to foreign nationals to secure contracts. Following an SEC inquiry into these practices, I.S.C. formed a special audit committee to investigate the payments, which included hiring legal and accounting firms. The SEC later issued a subpoena, leading to multiple lawsuits against I.S.C., including derivative actions by shareholders Lewis and Koenig, who sought to compel the production of documents related to the audit committee's findings. I.S.C. claimed attorney-client privilege and work product immunity over these documents, which led to the district court's order for their production.

Defendant International Systems and Control Corporation (“I.S.C.”) is a far flung organization that conducts business throughout the Middle East. As part of this business, plaintiffs allege, I.S.C. engaged regularly in paying 'commissions' or 'bribes' to foreign nationals in order to secure contracts.

Issue

The main legal issues were whether the work product immunity applies to documents sought by shareholders in a derivative suit and whether the ongoing crime-fraud exception to attorney-client privilege applies to work product.

First, should Garner be extended to the work product immunity. Second, should the ongoing crime-fraud exception apply to work product.

Rule

The court ruled that once there is sufficient anticipation of litigation, the mutuality of interest between shareholders and management is destroyed, and work product is not discoverable without a showing of substantial need and undue hardship. Additionally, the ongoing crime-fraud exception applies to work product.

The work product privilege is based on the existence of an adversarial relationship, not the quasi-fiduciary relationship analogized to in Garner.

Analysis

The court analyzed the application of work product immunity and determined that the district court had not properly assessed the substantial need and undue hardship required for the production of work product. The court emphasized that the plaintiffs must demonstrate a more particularized showing than merely taking one deposition to justify the discovery of work product. Furthermore, the court noted that the ongoing crime-fraud exception could apply, but the plaintiffs needed to establish a prima facie case of fraud.

The court's reasoning was based on the nature of the corporation. Management operates the corporation for the shareholders. There is a 'mutuality of interest' between shareholders and management.

Conclusion

The court vacated the district court's order requiring the production of documents, stating that the lower court must reconsider the discovery request in light of the proper legal standards regarding work product immunity and the crime-fraud exception.

The order is VACATED.

Who won?

The prevailing party in this appeal was International Systems and Control Corporation (I.S.C.), as the court vacated the order requiring the production of documents based on work product immunity.

The prevailing party in this appeal was International Systems and Control Corporation (I.S.C.), as the court vacated the order requiring the production of documents based on work product immunity.

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