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In re HealthSouth Corp. Securities Litig.

April 29, 2008


The opinion of the court was delivered by: John D. Bates United States District Judge


On February 21, 2008, UBS AG, UBS Securities LLC, Benjamin D. Lorello, William McGahan, and Howard Capek (collectively, "UBS") issued a third-party subpoena to Steptoe & Johnson LLP ("Steptoe"). In relevant part, UBS seeks production of sections of attorney memoranda summarizing the Federal Bureau of Investigation ("FBI") interviews of Michael D. Martin, Steptoe's former client, on May 2, 2003, and February 9, 2004. Steptoe has now moved to quash the subpoena, and UBS has moved to compel a response. Upon careful consideration of the motion and the parties' memoranda, the applicable law, the entire record, and an in camera review of the relevant materials, the Court will deny Steptoe's motion to quash and will grant UBS's motion to compel a response.


Steptoe began representing Michael D. Martin, a former Chief Financial Officer of HealthSouth Corporation, in March 2003. Steptoe Mot. to Quash at 2. At that time, the United States was pursuing criminal and civil investigations into an accounting fraud at HealthSouth that artificially inflated corporate earnings. Id. Shortly after federal agents raided HealthSouth's headquarters, Martin entered a guilty plea for participating in the conspiracy, in connection with which he entered into a cooperation agreement with the government "under which he agreed to assist the government's investigation and prosecution in connection with the HealthSouth matter." Id. (citing Decl. of John J. Kavanagh III ("Kavanagh Decl.") ¶5). Steptoe thereafter represented Martin at several debriefing interviews that were conducted by federal agents.

Of particular importance here are two debriefing sessions held on May 2, 2003, and February 9, 2004. Martin, four FBI agents, three Department of Justice representatives, and Martin's attorneys from Steptoe attended these interviews, and an FBI agent and a Steptoe attorney each separately took notes of the questions and answers. See id. at 2, 9; Steptoe Reply at 20. The FBI later translated its notes into interview reports called "FBI 302s," and the Steptoe attorney translated his notes into two memoranda summarizing the interviews.

UBS argues that "the participants in the HealthSouth fraud have repeatedly acknowledged" that "a major goal of their conspiracy was to prevent outsiders -- such as banks like UBS -- from discovering the fraud." UBS Response at 2. Nevertheless, HealthSouth bondholders and shareholders ("plaintiffs") have filed securities class actions against UBS, seeking what UBS claims to be "billions of dollars in damages." Id. Although Martin was originally named as a defendant in the civil suit, he cooperated with the plaintiffs and informed them that he had disclosed aspects of the accounting fraud to two UBS employees in 1999 and 2001. Id. at 3. When the plaintiffs amended their complaint to incorporate these allegations, Martin was voluntarily dismissed from the lawsuit. Id. UBS argues that the civil litigation claims rest on Martin's testimony, and that he is "the only witness who has testified to personal knowledge that anyone from UBS was aware of any aspect of the HealthSouth accounting fraud." UBS Reply at 16. Even the magistrate judge handling discovery issues in the civil litigation has stated that "Martin is a critical witness . . . with respect to UBS's potential liability." March 4, 2008 Discovery Order No. 9 at 2.

At a recent deposition of Martin held on February 11-15, 2008, UBS challenged Martin's testimony regarding the knowledge of UBS employees about the accounting fraud at HealthSouth. In questioning Martin on this topic, UBS relied on the FBI 302s from May 2, 2003, and February 9, 2004. When Martin was confronted with these questions, he continually denied having made several statements that were recorded in the FBI's reports, and he openly doubted the accuracy of the FBI 302s. See Feb. 14, 2008 Dep. of Michael Martin at 1053-56, 1079-80, 1114-15; Feb. 15, 2008 Dep. of Michael Martin at 1507-10. Specifically, he denied having made certain statements relating to three UBS employees -- McGahan, Lorello, and Capek. When UBS asked Martin if he had reviewed Steptoe's memoranda from these same debriefing sessions, Martin said he had reviewed the memorandum from the May 2, 2003 meeting in the summer of 2003 and had found it accurately recorded what he said. See Feb. 14, 2008 Dep. of Michael Martin at 1085-89. He also stated that he had looked at other Steptoe notes, but he could not recall which interviews they recorded. See id. at 1090. On numerous occasions throughout his deposition, Martin expressed confidence in Steptoe's interview notes as being accurate with his testimony -- in contrast to portions of the FBI 302s, which he asserted were inaccurate.

Because Martin indicated Steptoe's notes contained information that was contradictory to the FBI 302s but consistent with his testimony, UBS asked that Steptoe's interview notes be turned over. On February 21, 2008, UBS issued a third-party subpoena to Steptoe requesting any documents from the May 2, 2003 and the February 9, 2004 interviews of Martin by the FBI, including any Steptoe notes concerning statements relating to any of the UBS defendants. The instructions state that "the personal thoughts or impressions of an attorney" and any "information that does not relate to UBS" may be redacted. Schedule A Instructions ¶¶ 15-16. UBS therefore argues that its subpoena is "an exceedingly narrow information request seeking precisely these critical documents that Martin himself says [are] the only accurate documentary record of his statements to the FBI more than four years ago, when under a legal duty to be truthful and accurate." UBS Response at 3. In response, Steptoe argues that the responsive attorney memoranda, in their entirety, are protected opinion work product. Steptoe Mot. to Quash at 4. Steptoe further argues that even if the memoranda were fact work product, UBS has not made a sufficient showing to overcome that privilege and require production.


At the heart of the parties' dispute lies the work-product doctrine, which protects from discovery written material prepared in anticipation of litigation or for trial. The protection for attorney work product was first articulated in Hickman v. Taylor, 329 U.S. 495 (1947), and has been codified in Fed. R. Civ. P. 26(b)(3). Under Rule 26(b)(3), "a party may not discover documents and tangible things that are prepared in anticipation of litigation or for trial" unless "the party shows that it has substantial need for the materials to prepare its case and cannot, without undue hardship, obtain their substantial equivalent by other means." If the relevant work product contains only non-privileged facts and a party satisfies the substantial need and undue hardship elements, a court may order discovery of the relevant materials, known as fact work product.

But a court must "protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of a party's attorney or other representative concerning the litigation." Fed. R. Civ. P. 26(b)(3)(B). Such mental impressions, judgments, and thought processes of counsel constitute opinion work product, which "receives almost absolute protection from discovery." In re Vitamins Antitrust Litig., 211 F.R.D. 1, 4 (D.D.C. 2002). To obtain discovery of opinion work product, a party must show "extraordinary justification." In re Sealed Case, 676 F.2d 793, 810 (D.C. Cir. 1982) (citing Hickman, 329 U.S. at 513, and Upjohn Co. v. United States, 449 U.S. 383, 401 (1981) ("such work product cannot be disclosed simply on a showing of substantial need and inability to obtain the equivalent without undue hardship")). The law of work-product privilege is therefore a "two-tiered structure -- qualified protection for 'fact' work product and more absolute protection for 'opinion' work product." Id. at 811.


I. Attorney Memoranda of Witness Statements May Contain Fact Work Product

Primarily relying on Hickman and Upjohn, Steptoe argues that all attorney memoranda of a witness's oral statements are opinion work product deserving of the utmost protection from discovery. In Hickman, the foundational case for the work-product doctrine, the plaintiff sought to discover memoranda prepared by defense counsel regarding defense interviews of numerous witnesses. 329 U.S. at 497-499. Explaining the importance of privacy in preparing a client's case, the Supreme Court stated that an attorney should be free to "assemble information, sift what he considers to be the relevant from the irrelevant facts, prepare his legal theories and plan his strategy without undue and needless interference." Id. at 510-11. In Upjohn, the IRS also sought to discover memoranda prepared by a company's general counsel regarding interviews the company conducted of its officers and employees. See 449 U.S. at 400 n.8 (noting that the attorney described his notes as containing "what [he] considered to be the important questions, the substance of the responses to them, [his] beliefs as to the importance of these, [his] beliefs as to how they related to the inquiry, [his] thoughts as to how they related to other questions," and in some instances "other ...

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