Fw: Dow Corning's Counsel Faces Deposition in Shareholder Suit

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Subject: Dow Corning's Counsel Faces Deposition in Shareholder Suit

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Dow Corning's Counsel Faces Deposition in Shareholder Suit

Bruce Balestier

New York Law Journal

08-08-2001

A divided panel of the 2nd U.S. Circuit Court of Appeals has refused

to block a lower court order that compelled the deposition of the

general counsel of the Michigan-based Dow Corning Corp. in a

shareholder suit against the company.

But in remanding the matter, In Re: Dow Corning Corp., 00-3036, to the

district court, the 2nd Circuit was deeply skeptical of the decision

by federal Judge P. Griesa of the U.S. District Court for the

Southern District of New York, which found that the general counsel

could be forced to testify on communications with Dow Corning's board

of directors, notwithstanding the company's valid assertion of

attorney-client privilege.

The two-judge majority of 2nd Circuit Judge A. Katzmann and

Southern District federal Judge L. Brieant, sitting by

designation, criticized at length Griesa's reasoning and the slim

record in the case. But they found that Dow Corning had not

demonstrated the "clear entitlement" required to justify the

extraordinary relief of a writ of mandamus.

Dow Corning, which is jointly and equally owned by The Dow Chemical

Company and Corning Inc., filed for Chapter 11 bankruptcy in the wake

of an avalanche of product liability suits in the 1980s related to its

manufacture of silicone gel-filled breast implants.

In the instant class action, the shareholder plaintiffs argued that

the directors of Dow Chemical and Corning violated federal securities

law by failing to warn their respective shareholders that Dow Corning

faced the threat of extensive silicone implant litigation. The

shareholders first moved to compel unredacted minutes from Dow

Corning's board of directors' meetings from 1984 to 1992, at which the

company's general counsel, R. , advised the board about

the pending litigation.

Although recognizing that Dow Corning's attorney-client privilege and

work-product doctrine covered the board meeting minutes, Judge Griesa

granted the motion last year. He ordered the minutes produced under a

protective order intended both to shield Dow Corning's privileges and

to prevent additional dissemination.

The order held that the minutes would be shown only to lead counsel

and other "Authorized Persons," used only in the instant litigation

and returned after a judgment was entered. It also stipulated that

production of the minutes would not constitute a waiver of the

attorney-client or work-product privileges.

Part of the rationale for Griesa's order was that the production of

the minutes was vital to resolving summary judgment motions filed by

Dow Chemical and Corning. Heeding the order, those companies -- but

not Dow Corning -- produced the unredacted board minutes.

The shareholder plaintiffs also moved to depose about his

communications with the Dow Corning board. That motion was opposed by

Dow Chemical and Corning, which argued that the facts of Dow Corning's

1980s-era litigation exposure had already been produced to the

plaintiffs.

Dow Corning also objected, asserting its attorney-client privilege and

attorney work-product doctrine in connection with ' testimony.

Judge Griesa again acknowledged Dow Corning's privilege with respect

to ' communications with the board, but he nevertheless granted

the motion to compel, under the auspices of a protective order

essentially the same as the one issued for the minutes. The judge

argued that since Dow Corning was entitled to assert the privilege but

Dow Chemical and Corning were not, the protective order struck a

balance between the plaintiff shareholders' right to discovery and Dow

Corning's valid privilege.

MOTION TO VACATE Dow Corning then filed the instant petition for a writ of mandamus to

vacate Griesa's order, arguing that the judge was mistaken in his

conclusion that the privileged communications were relevant to the

shareholders' claims, and in his finding that the protective order

adequately protected Dow Corning's interests.

The company's argument before the 2nd Circuit was largely persuasive

but still ultimately unsuccessful. The panel, noting the bedrock

sanctity of the attorney-client privilege, found that Griesa might

well have erred in ordering the disclosure of the communications. And

it found no authority to refute "the common sense observation that

such a protective order is an inadequate surrogate for the privilege."

"The district court, once it found that the privilege applies, should

not then have ordered the deposition of without a prior

finding that Dow Corning had waived the privilege or that an exception

applied to withdraw the communications at issue from the purview of

the privilege," the majority wrote. "However, the district court's

ruling does not necessarily lead us to conclude that a writ of

mandamus should issue."

Noting that the standard for mandamus requires a showing of clear and

indisputable relief from the petitioner, the 2nd Circuit majority

concluded that "the scanty record" in the case (which did not include

the board meeting minutes at issue) left the judges unable to

determine the proper scope of the attorney-client privilege for

statements by , and therefore unable to issue a writ of

mandamus.

But the majority made clear that Judge Griesa should tread lightly

with respect to attorney-client privilege on remand. "We leave it to

the district court in the first instance to address and resolve these

difficulties," the judges wrote. "The district court should consider,

however, that relevance without more does not override the privilege,

and that a protective order will not adequately safeguard the

privilege holder's interests such that the attorney-client privilege

may be neglected."

Second Circuit Judge Fred I. dissented on the question of

relief, finding that the case -- as "an issue of critical importance

to the preservation of the privilege and an issue of first impression

in this Circuit" -- did meet the admittedly strict standard for

mandamus relief. "Accordingly, I would issue the writ of mandamus and

vacate the discovery order at issue, while making it clear that the

district court could revisit the issue on remand."

Hugh R. Whiting and I. Werder Jr. of Cleveland's , Day,

Reavis & Pogue represented Dow Corning.

A. Klafter of Manhattan's Bernstein Litowitz Berger & Grossman

represented the Corning investor plaintiffs. M. Komins of

Philadelphia's Barrack, Rodos & Bacine represented the Dow Chemical

investor plaintiffs. G. Epstein and Alice D. Keane of

Manhattan's Shearman & Sterling and Herbert L. Zarov and W.

Lasko of Chicago's Mayer, Brown & Platt filed a brief in support of

Dow Corning on behalf of Corning and Dow Chemical.

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