Wednesday, July 13, 2005

Deloitte Ordered to Hand Over Foreign Documents

After reading this one, you might not take blowing off providing a detailed privilege log so lightly next time. You see, in connection with the Parmalat securities litigation, Deloitte Touche Tohmatsu ("DTT") (known since 2003 simply as the brand "Deloitte") will be required to "produce documents located in Switzerland that were provided to it by member firms of the Deloitte organization, allegedly for the purpose of obtaining legal advice in connection with an investigation into the Parmalat scandal by the S.D.N.Y. U. S. Attorney."

First, an understanding of how major international accounting firms are structured is helpful. Basically, "Deloitte and other such organizations consist of individual firms organized under the laws of each of the countries in which business is done, as well as an umbrella entity with which the individual, country-specific firms are affiliated. In Deloitte's case, DTT is the umbrella organization, and it is organized as a verein under Swiss law, a form of business organization that DTT asserts is analogous to an incorporated membership association. According to DTT, it ‘does not control its member firms’ and performs no accounting or auditing services."

Well, "when it became apparent that there would be litigation relating to Parmalat, DTT engaged a U.S. law firm to provide legal advice to DTT and on behalf of certain member firms that conducted the Parmalat Audits and which it coordinated. Some member firms provided DTT in Switzerland with documents concerning the Parmalat audits for review by that law firm. Others allowed the law firm to go to their offices in their respective home countries to review documents. To whatever extent DTT possesses or controls documents relating to the Parmalat audits, it asserts, it does so only by virtue of the foregoing. These documents would have been unobtainable by subpoena prior to their transfer to DTT, it contends, and they therefore should be unobtainable now by virtue of the attorney-client privilege."

Unfortunately for Deloitte, this wasn’t good enough to keep Judge Lewis A. Kaplan (S.D.N.Y.) from telling it to fork the documents over. He began by posing the "threshold question" of "whether these documents would have been obtainable by subpoena in the hands of the DTT member firms." To that he answered: "there simply is no way to tell on this record."

Why? Well, first he noticed that "there is no privilege log." Oops. Nor had DTT disclosed the "identities of the producing firms, the documents as to which DTT asserts privilege, nor the identities of the firms that also retained DTT's U.S. law firm." Double oops. Judge Kaplan held that "these are not irrelevant details," noting that the rules require that any party objecting to disclosure on grounds of privilege produce a privilege log, and that DTT's failure to provide one is by itself sufficient basis to overrule their objection.

Secondly, "and independent of the prior point, the vagueness and opacity of Deloitte's presentation prevents anything other than an ill-informed guess as to whether the documents sent to Switzerland by member firms could have been obtained by compulsory process directly from the member firms. It may well be that some or, indeed, all of the producing firms are subject to U.S. compulsory process and perhaps even more likely that the materials could be obtained pursuant to the Hague Convention on Taking Evidence in Civil or Commercial Matters."

Better fire up that Xerox. What’s the moral? You be the judge. But a good start would sure seem to be providing that privilege log, and perhaps easing up a bit on that perennial favorite two-step called the "overbroad and unduly burdensome" routine.

You can read the decision at 2005 U.S. Dist. LEXIS 12554.

Nugget: "Documents held by an attorney in the United States on behalf of a foreign client, absent privilege, are as susceptible to subpoena as those stored in a warehouse within the district court's jurisdiction."

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