DOJ and Davis Polk Take off the Gloves in Recent Discovery Dispute Involving GE’s $660 Million Tax Refund Suit

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A recent district court order highlights a discovery dispute between DOJ litigators and GE counsel Davis Polk. (8.4.15 Update: A link to the district court order can be found here). The underlying case involves GE’s $660 million dollar refund suit that “stems from a series of complex corporate restructuring/sale transactions that occurred more than ten years ago.” The litigation has gotten quite testy. The government alleged that GE’s counsel engaged in abusive and obstructive discovery tactics. In the order, however, the judge disagreed with the DOJ’s description and instead said that counsel’s conduct “bespeaks good lawyering.”

The court discussed the precise issue in the order as having not been addressed in any published decision.

What is the issue?

The government served subpoenas on two non-parties, Westport Insurance, a former subsidiary of GE, and on law firm Cahill Gordon & Reindel, which advised GE on some of the transactions relevant to the merits dispute back in 2002 and 2003.

Complying with the subpoenas is no small task, as one might expect with what I am sure is a mind-numbingly complex series of transactions that led to the dispute [Full disclosure: I started my legal career at Davis Polk (well before the dispute at issue in this case)].

The nonparties Westport and Cahill wanted to outsource screening the documents requested in the subpoena to Davis Polk. The district court frames the issue as follows:

The issue here supposes a lawsuit between Party A and Party B and that Party A issues a subpoena to a non-party seeking documents that may be subject to a claim of privilege by opposing Party B. It further supposes the right of Party B to conduct a privilege review of the subpoenaed documents before they are produced by the non-party to Party A to ensure that the document production does not include documents subject to a claim of attorney-client privilege.

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The order goes on to narrow the question:

The question, then, is whether Party B (or, more precisely, its counsel) may also—at the non-party’s request—conduct a responsiveness review of the documents before they are produced to Party A. In short, is it proper for a non-party recipient of a document subpoena from Party A to delegate or outsource a portion of its compliance obligations to the opposing Party B and its counsel in the litigation?

(bold emphasis added, as is the case with the rest of the post).

Why did Cahill and Westport wish to outsource the screening? The order gives us some context that the nonparties may not have been up to the task, understandably given that there were tens of thousands of pages (electronic and paper), some of which likely was relevant or privileged but others which were not relevant to the request. Simply put, the non-parties felt that “due to the passage of time and their lack of familiarity with this litigation…they have stated that Davis Polk would be better positioned to conduct this review.”

What was the government’s beef with this? DOJ argued that it was improper for GE’s counsel to be the arbiter of responsiveness and privilege:

According to the United States, this involvement amounts to no less than “obstruct[ion],” “interference” and “abusive discovery tactics.”. And it further contends that “[e]ven assuming it is proper to outsource responsiveness review to an entity not authorized to provide legal representation, and without first-hand knowledge of the subject of the request—it is certainly improper to outsource those responsibilities to the opposing party in the litigation.”

Underlying the government’s beef was its belief that it was ethically improper for Davis Polk, as opposing counsel, to conduct the review. No doubt the litigation has been heated, because it seems to me (and the district court judge) that the DOJ’s perspective is tainted by its narrow view of the Davis Polk attorneys’ ethical obligations:

The Government contends that it would be ethically improper for Davis Polk attorneys to conduct a responsiveness review of documents of a non-party who is not their own client. That is incorrect. GE is the law firm’s client, and a lawyer may generally pursue any lawful activities that serve the interest of his or her client. As the commentary to the ABA’s rules of professional conduct make clear, “[a] lawyer should pursue a matter on behalf of a client despite opposition, obstruction or personal inconvenience to the lawyer, and take whatever lawful and ethical measures are required to vindicate a client’s cause or endeavor,” and “[a] lawyer must also act with commitment and dedication to the interests of the client and with zeal in advocacy upon the client’s behalf.” ABA Model Rules of Prof. Conduct, Rule 1.3 cmt. 1. Nothing in the ethical rules bars a lawyer from reviewing documents that do not belong to his or her client. If it serves the interest of a law firm’s client for the law firm to review the documents of a non-party to the litigation (and who in turn is willing to have the law firm conduct this review), then this review bespeaks good lawyering rather than a cause for complaint to the Court.

The order explains that the judge was not “persuaded by the Government’s myopic view of the scope of the ethical rules that otherwise govern Davis Polk’s conduct.”

In language that will warm the heart of Professional Responsibilities professors, the court reminds the DOJ what those other obligations entail:

The ethical obligations of counsel do not run solely to a client. Quite to the contrary, counsel have multiple ethical obligations to third parties and to the Court that foreclose them from lying, from concealing or altering evidence, or from otherwise engaging in conduct inimical to the due administration of justice. [footnote omitted, but here the order cites a laundry list of ABA Model rules to prove the point]. I decline to conclude that Davis Polk attorneys are free from ethical constraints with respect to their review of Westport and Cahill documents or to presume that Davis Polk attorneys will fail to disclose non-privileged, responsive documents in breach of their ethical obligations.

Beyond the ethics lesson, there is not much law in the order, save the court’s distinguishing a case that the government relied on where there was improper coaching of the non-party subpoena recipients.

The order discusses as well that DOJ apparently felt that Davis Polk was perhaps not being as complete in turning over documents, based I guess on DOJ expectations:

Here, apart from the Government’s complaints about the role of GE and its counsel, the Government argues that there has been an inadequate response to the Westport subpoena.

The judge felt that the government failed to make its case:

I am not (yet) convinced. GE represents that it received about 84,000 electronic documents from Westport, that its search-term queries yielded approximately 40,000 potentially responsive documents, and that each of these 40,000 documents were reviewed “by eye” by Davis Polk counsel. GE also received and reviewed approximately 12,000 documents in paper form. The parties estimate that between 9,000 to 10,000 of the combined total of these electronic and paper documents have been produced as responsive. Standing alone, the low but sizeable percentage of documents that have been determined to be responsive does not convince me that GE or its counsel has likely or necessarily failed to produce responsive documents.

In the order the judge suggests, however, if there were something other than a numbers issue the court might have been willing to give the DOJ attorneys a chance to take a peak at some of the not-provided documents:

The Government does not identify any type or class of document that it has not received and that it would reasonably expect to have been produced from Westport’s files. It does not make any other showing of inadequacy except for its reliance on numerical disparity. For lack of a sufficient showing that responsive documents have not been produced, I decline to consider the Government’s requests for GE to disclose its electronic search terms or to allow the Government a “quick peek” of allegedly non-responsive documents.

Conclusion

The order is a telling rebuke to the DOJ’s blanket assertion that opposing counsel could not screen the documents. It suggests that, absent some plausible reason, when there are sophisticated non-parties and reputable counsel in the case, a court should have reason to accept that parties will behave according to their ethical obligations. The order reminds us sometimes that even in the rarified world of tax litigation, and in the even rarer air of white-shoe law firms and Fortune 500 clients, the gloves sometimes come off and litigation gets heated, even before one gets to the merits. I suspect that that there will be many more chapters in this high-stakes litigation.

 

Leslie Book About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.

Comments

  1. Great post; I will be following this matter.

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