Opposition Brief — Cadwalader v. United States District Court for the Central District of California
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BILLED
MAY 21 W967
) BOSEPH F. SPANOR, UR,
CLERK
No. 86-1636
In the Supreme Court
OF THE
United States
OCTOBER TERM, 1986
CADWALADER, WICKERSHAM & TAFT,
Petitioner,
VS.
UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA,
Nominal Respondent,
AND
DANIEL M. GOTTLIEB,
Real Party in Interest.
BRIEF OF ALLAN CARR AND DANIEL M.
GOTTLIEB IN OPPOSITION TO PETITION FOR A
WRIT OF CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE NINTH CIRCUIT
RICHARD B. CUTLER
ROBERT A. MERRING
(Counsel of Record)
CUTLER and CUTLER
A Professional Law Corporation
700 South Flower Street, Suite 3222
Los Angeles, California 90017
(213) 622-2117
Attorneys for Plaintiff Allan Carr
and Real Party in Interest
Daniel M. Gottlieb
Bowne of Los Angeles, Inc., Law Printers (213) BOWNE CO
TABLE OF CONTENTS
Page
ns ce eek a see idee male eis 2
The Statutes, Rules And Regulations The Case
. «ss PUPS err er ee eer iy Pere eee 2
ee Ee si ae enna cne ees 3
A. Nature Of The Present Proceeding ......... 3
ea ree ee eee eee 6
SPT Hie OOO. 5.5 5 nck ac ce cisesloeesaves 10
RT Pe Ore Pee ee Pe eee ee eee ee See 11
The Seope Of Review: Cadwalader Must Show That
Its Right To Issuance Of A Writ Is Clear And
PTET eC rT TT eee Te TT Te Tere 11
A. A Claim Of Privilege Does Not Enjoy Special
Status In Considering Whether The Drastie
Remedy Of Mandamus Should Have Been
P35 Fis Ke abebeeRkens o eeaw een bear’ 11
B. The Order Must Be Affirmed If There Is More
Than One Permissible View Of The Evidence
And There Is Any Legal Theory Which Could
en ee 13
If.
Substantial Evidence Supports The Respondent
Court’s Determination That A Prima Facie Show-
ing Had Been Made Under The Crime-Fraud
IR al vd 04400 0d beth whaws Pe ey eee 15
Il.
The Attorney Client Privilege Is Inapplicable When
Suit Is Brought Against A Fiduciary Or Between
a SR re er er ee rn ee 18
ii
TABLE OF CONTENTS
IV.
The Respondent Court’s Order Requiring Disclosure
Of “Work Product” Was Not Clearly Erroneous
As & Mattet OF OG oi. obs ede eee
A. The Requested Documents Are Not Work
Product Since They Were Not “Prepared In
Anticipation Of Litigation Or For Trial” ....
B. The Work Product Doctrine Does Not Apply
When An Attorney Is Consulted As Part Of A
Continuing Plan To Commit A Crime Or
Fraud Or When The Activities Of Counsel Are
At leone In The LQWOUE 3.4 cs. sescaxsentes.
VI.
The “Failure” Of The Respondent Court To Conduct
An In Camera Inspection Is Not Properly Before
This Court And, In Any Event, Does Not Consti-
tute An Abuse Of Discretion ..................
sree ret Se
Appendices
Appendix A Order Of The Ninth Cireuit Court Of
Appeals Requiring Gottlieb To Answer Cadwala-
der’s Petition For A Writ Of Mandamus........
Appendix B- Extract From Declaration Of Pamela
M. Woods Filed In The United States District
Court, Being A Transcription Of The Hearing
Before Magistrate Penne On September 30, 1985
z
20
20
21
22
25
la
2a
ili
TABLE OF CONTENTS
ie
Appendix C Order Of The District Court Granting
In Part And Denying In Part Defendants’ Motions
To Dismiss, Denying Defendant Cadwalader,
Wickersham & Taft’s Motions For Change Of
Venue And For Sanctions And Discovery ....... 4a
Appendix D Order Of The Second Cireuit Court Of
Appeals Affirming The Criminal Convictions Of
Michael M. Senft And Others ..............--. l4a
Appendix E The Statutes, Rules And Regulations
I ocr wens esaresecccscvesees 22a
iv
TABLE OF AUTHORITIES CITED
Cases
Page
A.M. Int’l, Inc. v. Eastman Kodak Co., 35 Fed. R.
Serv. Sa Sil C.D. Bl. IOGE) 2... cc cccccccces 22
A.M. Int'l, Inc. v. Eastman Kodak Co., 100 F.R.D.
Se Ch EE beak ck erase epee bee Oecaen 23
Allied Chemical Corp. v. Daiflon, Inc., 449 U.S. 33
GE bie Natsu a het eCee cond bere kemsene ears 15, 25
American Express Warehousing, Ltd. v. Transamer-
ica Ins. Co., 380 F.2d 277 (2d Cir. 1967) ...... 12
Anderson v. City of Bessemer City, 470 U.S. 564
CRE xa ie eee ee 56 Sake Ree Ke or sea 14
Bailey v. Meister Brau, Inc., 55 F.R.D. 211 (N.D.
RE So a ob bo Sache. 40k EMER NR eed a's 19
Banker’s Trust Co., In re, 775 F.2d 545 (3d Cir.
Sly 6.5 On wie bh ne Wis acedve edged ers 12, 25
Barclaysamerican Corp. v. Kane, 746 F.2d 653
Rr re ee ead ee oe ere 12,13
Broad v. Rockwell Int'l Corp., 1976-77 Fed. See. L.
Rep. (CCH) § 95,894 (N.D. Tex. 1977) ....... 19
Central Soya Co. v. Geo. A. Hormel & Co., 581 F.
SP es | ere ree -
City of Los Angeles v. Williams, 438 F.2d 522 (9th
Se EE Se hoes ork c a cade UE Eee cakes 12
Coastal Corp. v. Duncan, 86 F.R.D. 514 (D. Del.
ME 6 sae aA oe RS Sw Rae ace eee ee 24
Coastal States Gas Corp. v. Department of Energy,
Gl Fe Gee (ERO. Cle TOG) Ww nc ce ivcdccs 20
Colonial Times, Inc. v. Gasch, 509 F.2d 517 (D.C.
EE. ys G kon oe eae ere see thas kee ce 12
v
TABLE OF AUTHORITIES CITED
CASES
Page
Compagnie Francaise d’Assurance pour le Commerce
Exterieur v. Phillips Petroleum Co., 105 F.R.D. 16
ok | ee eer ere peer ere Teese 20
Country Fairways, Inc. v. Mottaz, 539 F.2d 637 (7th
ee EWE ibs TOGA SENOS ew ne oes eens 25
De Beers Consol. Mines, Ltd. v. United States, 325
Se ee RED bv cb neds 04 ds occa os eee 13
Diamond v. Stratton, 95 F.R.D. 503 (S.D.N.Y.
| A AME ner yr ear rer ten hat ean ee 22
FTC v. Shaffner, 626 F.2d 32 (7th Cir. 1980) .... 23
Garfinkle v. Arcata Nat'l Corp., 64 F.R.D. 688
CO AR | Re ee eer or ere 20, 22
Garner v. Wolfinbarger, 4380 F.2d 1093 (5th Cir.
1970), cert. denied sub nom. Garner v. First Am.
Life Ins. Co., 401 U.S. 974 (1971) ............ 19
Grand Jury Investigation of Hugle, In re, 754 F.2d
ft SD Re ee ee eee 25
Grand Jury Subpoenas Addressed to Sentinel Fin.
Instruments, In re, 553 F. Supp. 71 (S.D.N.Y.)
aff'd mem., 714 F.2d 113 (2d Cir. 1982), cert.
denied, 459 U.S. 1208 (1983) ................ 16, 17
Grand Jury Subpoenas Dated December 18, 1981 &
January 4, 1982, In re, 561 F. Supp. 1247
(TARE BOUD) ou Cictxwess che tipeweaete c 18
Grand Jury Subpoena Duces Tecum (Marc Rich &
Co.), In re, 731 F.2d 1032 (2d Cir. 1984) ...... 16
Handgards, Inc. v. Johnson & Johnson, 413 F. Supp.
gt Re 8 penis bee ee ee eh oi 22
vi
TABLE OF AUTHORITIES CITED
CASES
Page
Hayden v. Maldonado, 110 F.R.D. 157 (N.D.N.Y.
ee SE Le eee eee re Tet ee are ier 25
Hickman v. Taylor, 329 U.S. 495 (1947) ......... 21
International Paper Co. v. Fibreboard Corp., 63
Fees ee Cars ORs BPO 6 en Kawa rewe codes tes 24
International Sys. & Controls Corp. Sec. Litig., In re,
693 F.2d 1235 (Sth Cir. 1982) ............... 16, 21
John Doe Corp., In re, 675 F.2d 482 (2d Cir. 1982) 21
Kerr v. United States District Court, 426 U.S. 394
(1976), aff’g 511 F.2d 192 (9th Cir. 1975) ..11, 23, 25
Kirkland v. Morton Salt Co., 46 F.R.D. 28 (N.D. Ga.
er reer eee Peer rT ees reer Rod Perr ee 21
McCune v. F. Alioto Fish Co., 597 F.2d 1244 (9th
Rs xin &-4 vice 5b ok kw ee ee ee 14
Mid-America’s Process Serv. v. Ellison, 767 F.2d 684
Ce SN. WE on kek bkc eed euse uae eee eae 13
Murphy, In re, 560 F.2d 326 (8th Cir. 1977) ..... 16
Northrop Corp. v. McDonnell Douglas Corp., 751
if PF Re Ce | ee eee 25
Panter v. Marshall Field & Co., 80 F.R.D. 718 (N.D.
| Peer rey feet ere ry ere re er ee 19
People v. Graham, 163 Cal. App. 3d 1159, 210 Cal.
ma OSS 18
Renfield Corp. v. E. Remy Martin & Co., 98 F.R.D.
— et SN rs rr eee 25
Roche v. Evaporated Milk Ass’n, 319 U.S. 21 (1943) 11
SEC v. Chenery Corp., 318 U.S. 80 (1943) ....... 15
Vil
TABLE OF AUTHORITIES CITED
CASES
SEC v. Dresser Indus., Inc., 453 F. Supp. 573
(D.D.C. 1978), aff'd, 628 F.2d 1368 (D.C. Cir.)
cert. denied, 449 U.S. 993 (1980) .............
SEC v. National Student Mktg. Corp., 18 Fed. R.
Serv. 34 1902 €D.D.C.. 19T4) 2... ccc cccsscees
Sentinel Gov't Sec., In re, 530 F. Supp. 793
(S.D.N.Y.), petition for mandamus denied, 697
F.2d 297 (2d Cir.), cert. denied, 456 U.S. 977
EE bbs ia ne AES EAA eR Re Ke Ds
Shopping Carts Antitrust Litig., In re, 95 F.R.D. 299
Se MN ks oe ed be eed ewkns whee ee
Singleton v. Wulff, 428 U.S. 106 (1976)..........
Special September 1978 Grand Jury (II), In re, 640
of eg Fe, Eee | ee re ree res re
Transocean Tender Offer Sec. Litig., In re, 78 F.R.D.
ee ee i I so ve ek 6455s eben Reeees
United States (Peck), In re, 680 F.2d 9 (2d Cir.
IS ah ole aan Cee e Wh ae oe. ae ieee ENS
United States Dept. of Energy v. Crocker, 629 F.2d
1341 (Temp. Em. Ct. App. 1980) .............
United States v. De Stefano, 464 F.2d 845 (2d Cir.
PE a oo SARIN LEC CUSERAK MORRO ERO ee se
United States v. Hodge & Zweig, 548 F.2d 1347 (9th
SEE Vincennes ewe ease nes Reka wes
United States v. Horvath, 731 F.2d 557 (8th Cir.
| RP ee er rn ee ig eee Pe
United States v. Kane, 646 F.2d 4 (1st Cir. 1981)
Valente v. Pepsico, Inc., 68 F.R.D. 361 (D. Del.
gd, PEEP OPP EE Ter eT ee ee CERT Terre
é
23
21
Vili
TABLE OF AUTHORITIES CITED
CASES
Page
Washington Baltimore Newspaper Guild Local 35 v.
Washington Star Co., 548 F. Supp. 906 (D.D.C.
eh TESS Ks k's Rea Es ee eek 19
Weil v. Investment/Indicators, Research & Manage-
ment, Inc., 647 F.2d 18 (9th Cir. 1981)........ 22
Wiener v. United States, 357 U.S. 349 (1958) ..... 22
Western Fed. Corp. v. Erickson, 739 F.2d 1439 (9th
| AO re ee Pre oo ree eae 18
Will v. Calvert Fire Ins. Co., 487 U.S. 655 (1978) 11,13
Will v. United States, 389 U.S. 90 (1967) ........ 13, 25
Rules
Federal Rules of Appellate Procedure, Rule 21(b) 2,6
Federal Rules of Civil Procedure, Rule 26(b) (3)
PO NENT Pee et fh tins te ere 2, 5, 11, 20
Federal Rules of Evidence, Rule 501............ 2
United States Supreme Court Rules, Rule 49.2... 26
Statutes
California Administrative Code, Title 10, See.
260.102.2 (1980) (amended effective Nov. 1,
ND ie akin bie nak kc ww es CRO RAN Gk 2,18
California Corporations Code, See. 25102(f) (West
1977), amended by 1981 Cal. Stat., ch. 1120, $1
fe A Bey SRG eeeerores 2,18
ix
TABLE OF AUTHORITIES CITED
STATUTES
California Corporations Code, See. 25110 (West
EE ns Lay bk eae ee ee ea NaS Sees
a SRT rs seer ee eke ery genet eae
California Corporations Code, See. 25504.1 (West
PERSE a op a ee oe ae
United States Code, Title 28, Sec. 1927 .........
Page
26
No. 86-1636
In the Supreme Court
OF THE
United States
OCTOBER TERM, 1986
CADWALADER, WICKERSHAM & TAFT,
Petitioner,
VS.
UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA,
Nominal Respondent,
AND
DANIEL M. GOTTLIEB,
Real Party in Interest.
BRIEF OF ALLAN CARR AND DANIEL M.
GOTTLIEB IN OPPOSITION TO PETITION FOR A
WRIT OF CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE NINTH CIRCUIT
Plaintiff Allan Carr (“Carr”) and Third Party Defen-
dant and Real Party in Interest Daniel M. Gottlieb
(“Gottlieb”) respectfully submit this Brief in opposition
to the Petition of Cadwalader, Wickersham & Taft (“Cad-
walader”) that a writ of certiorari issue to review the
order of the United States Court of Appeais for the Ninth
Circuit denying a petition for a writ of mandamus, en-
tered October 24, 1986.
For the reasons more fully stated below, the order
entered March 7, 1986 by the United States District
2
Court for the Central District of California (the ““Respon-
dent Court”) is not clearly erroneous as a matter of law.
Of equal importance, Cadwalader fails to show any excep-
tional circumstances sufficient to invoke this Court’s ju-
risdiction over an interlocutory discovery order or that its
right to issuance of a writ of mandamus is “clear and
indisputable.’ The Petition should therefore be denied.
OPINIONS BELOW
Supplementing the orders set forth in the Appendix to
the Petition, the order of the court of appeals under Fed.
R. App. P. 21(b) requiring Gottlieb to answer Cadwala-
der’s petition for a writ of mandamus appears in Apnen-
dix A, infra, p. la. The district court’s “Order Granting in
Part and Denying in Part Defendants’ Motions to Dis-
miss, Denying Defendant Cadwalader, Wickersham &
Taft’s Motions for Change of Venue and for Sanctions
and Discovery,” entered September 26, 1984, is set forth
in Appendix C, infra, pp. 4a-13a.
THE STATUTES, RULES AND
REGULATIONS THE CASE INVOLVES
The following statutes, rules and regulations are of
particular relevance to this proceeding and aré set forth
in Appendix E hereto: Federal Rule of Civil Procedure
26(b) (3); Federal Rule of Evidence 501; California Cor-
porations Code § 25102(f) (West 1977), amended by 1981
Cal. Stat., ch. 1120, § 1 (effective Nov. 1, 1981); California
Corporations Code $§ 25110, 25504 & 25504.1 (West
1977 & Supp. 1987); California Administrative Code, title
10, § 260.102.2 (1980) (amended effective Nov. 1, 1981).
3
STATEMENT OF THE CASE
A. NATURE OF THE PRESENT PROCEEDING
Over two years ago, on May 17, 1985, Daniel M. Got-
tlieb, Carr’s attorney-in-fact and business manager, per-
sonally served on Cadwalader a request for production of
documents. Among other things, that request demanded
the production of documents Cadwalader had used in
preparing two purported private placement memoranda
on behalf of Defendant Sentinel Government Securities
(the Partnership”); all correspondence which Cadwala-
der had received from or transmitted to the Sentinel
Defendants; ' and the records of any due diligence inves-
tigations it had conducted in connection with the two
securities offerings made by the Partnership.
On June 27, 1985, Cadwalader served a response in
which it objected, both generally and specifically, to each
of Gottlieb’s document requests on a number of different
grounds. Notwithstanding these objections, on July 15,
1985 — a total of fifty-eight days after Gottlieb’s request
had been personally served on its counsel — Cadwalader
produced documents in response to nine of Gottlieb’s
requests. With respect to the remaining document re-
quests, however, Cadwalader categorically refused to pro-
duce or even identify any documents responsive thereto.
As a result, on September 11, 1985, Gottlieb filed a
motion to compel production of documents.
‘At all material times herein, the general partners of the Partner-
ship were Defendants Sentinel Financial Instruments, a New York
general partnership (“SFI’’); SGS, Ine., a Connecticut corporation;
and Michael M. Senft (“Senft”). The Partnership and its general
partners are collectively referred to herein as “Sentinel” and the
“Sentinel Defendants.”
+
The motion was heard on September 30, 1985 before the
Honorable James J. Penne, United States Magistrate.
Contrary to the Petitioner’s repeated inferences that the
Respondent Court wholly abrogated the attorney-client
privilege and ordered disclosure of all documents re-
quested, the magistrate in fact denied a number of Got-
tlieb’s requests. The requests that were denied included
each of those set forth in the application Cadwalader filed
with this Court on March 2, 1987" and which collectively
ealled upon Cadwalader to produce “any and all” docu-
ments it received from or transmitted to Sentinel. Rather,
as exemplified in Cadwalader’s own transcription of the
September 30, 1985 hearing, Magistrate Penne refused to
compel production on those three requests on the ground
that “[t]hey’re too broad [and]... not limited to this
particular transaction that is involved at issue in this
ease.” (App. B, infra, p. 2a).
On the other hand, during the hearing the magistrate
chastised Cadwalader for its complete failure to identify
the documents which it claimed were privileged.
You can’t expect to stand behind a blanket authority,
a blanket élaim, and not give opposing counsel and
the court an opportunity to evaluate your claim. You
don’t have to reveal anything that’s privileged but
you at least ought to tell, state enough of the general
nature of the document to enable someone to decide
whether or not there’s a basis for challenge.
Id. at 2a-3a.
Adopting the form of order submitted by Cadwalader,
on November 12, 1985, the magistrate entered an order
“Application for Extension of Time to File a Petition for Writ of
Certiorari to the United States Court of Appeals for the Ninth
Cireuit, dated March 2, 1987, 4 5.
5
granting in part and denying in part Gottlieb’s motion to
compel production of documents. (Pet' m, App. A).
Cadwalader timely objected to that order on a number of
different grounds. However, the principal thrust of its
argument before the Honorable William D. Keller, United
States District Judge, was that “Magistrate Penne’s sole
rationale for overruling {Cadwalader’s] objections was
that the documents requested were ‘at issue in a lawsuit’
and that ‘the need for the information’ outweighs ‘the
policy behind the attorney-client privilege.’’’ Cf. Petition
at 5 (“the magistrate based his ruling solely on the
grounds of relevance and need”).
In the “Order re Objections to Magistrate’s Order,”
entered March 7, 1986 (the “Order’’) (Petition, App. C),
the Respondent Court affirmed Magistrate Penne’s order
in its entirety and overruled each of Cadwalader’s objec-
tions. Although noting the validity under Federal Rule of
Civil Procedure 26(b)(3) of “the balancing approach
referenced by Magistrate Penne at the oral hearing on the
Motion to Compel,” clearly, in drafting the Order Judge
Keller also relied heavily upon the factual showing and
legal reasoning set forth in Gottlieb’s original moving
papers and the declarations and exhibits filed in support
thereof. Thus, for example, the Respondent Court’s find-
ings that “defendant Michael M. Senft was convicted of a
single conspiracy that included both Sentinel Govern-
ment Securities (‘SGS’) and Sentinel Financial Instru-
ments (‘SFI’)... [and] the activities of SFI and SGI
[sic] were apparently intertwined” (Petition, App. C at
6a) are copied almost verbatim from language used by the
Second Circuit Court of Appeals in its decision affirming
Senft’s criminal convictions of tax fraud. (App. D, infra,
pp. 14a-21a).
6
On June 17, 1986, Cadwalader filed a petition request-
ing the Ninth Cireuit to vacate the Order or, in the
alternative, to direct the Respondent Court “to conduct
an im camera review of the documents prior to any
disclosure ....” ? Pursuant to Fed. R. App. P. 21(b), on
August 4, 1986, the court of appeals entered an order
requiring Gottlieb to answer the petition. (App. A, infra,
p. la). Colleetively, the parties herein placed before that
court literally hundreds of pages of relevant declarations,
exhibits and other evidence. After due consideration
thereof, on October 24, 1986, a three-member panel of the
Ninth Cireuit denied the petition finding that Cadwalader
“has not demonstrated that the district court had clearly
erred in compelling the production of documents.” (Peti-
tion, App. D at 9a). On December 18, 1986, the Ninth
Cireuit denied Cadwalader’s petition for a rehearing en
banc.
B. STATEMENT OF FACTS
Defendant Sentine! Government Securities was organ-
ized on June 16, 1980. That autumn, the Partnership
retained Cadwalader, its general counsel, to prepare a
purported “Private Placement Memorandum” (the “Of-
fering Memorandum”’) in connection with the offer for
sale of 150 limited partnership interests.
%As discussed more fully at pp. 24-25, infra, Cadwalader’s claim
that it “specifically offer[ed] the documents for ‘n camera inspec-
tion” (Petition at 5) is as factually unsupported, as it is unsupport-
able. To the contrary, except for one fleeting reference buried within
its 35-page memorandum in support of its objections to Magistrate
Penne’s order (id. at 5 n.2), before the Respondent Court Cadwala-
der steadfastly refused to produce or even identify any of the
documents it asserts are privileged, and it never offered to disclose
any of its work product for in camera inspection.
The Offering Memorandum was intended to be and was
in fact distributed within the State of California and
circulated among broker-dealers, investment advisers and
other members of the public. Ultimately, over thirty Cali-
fornia residents purchased limited partnership interests
in the Partnership — more than any other state in which
the securities were offered.
An integral part of the Offering Memorandum was a
draft opinion letter prepared over Cadwalader’s signature
and partially dated October —_, 1980 (the “opinion let-
ter’). The opinion letter discussed in detail the probable
tax consequences of the Partnership’s operations, and
Cadwalader knew that it would be relied upon by poten-
tial investors in their tax planning.
Relying upon the representations contained in the Of-
fering Memorandum, Gottlieb purchased three “Units” in
the Partnership on Carr’s behalf on November 12, 1980.
However, the Offering Memorandum and opinion letter
omitted to state certain material facts — most notably,
that Sentinel intended to engage in billions of dollars in
false and arranged trading transactions between the
Partnership and affiliated entities (including defendant
SFI) as part of a fraudulent scheme to create fake tax
write-offs.
To be accepted as a limited partner, each of the poten-
tial investors in the Partnership was required to execute a
Subscription Agreement stating that he understood that
“the offering and sale of the Units are intended to be
exempt from registration under the Securities Act of 1933
... and from registration and/or qualification under any
applicable state securities laws...” In truth, however, at
the time of the offer for sale and sale of the Units to Carr,
the Units were not, and still are not, qualified (nor
8
exempt from qualification) with the California Depart-
ment of Corporations.
Subsequently, Cadwalader prepared another purported
“Private Placement Memorandum,” dated October 28,
1981, in connection with a second offering of securities in
the Partnership. Less than three weeks later, however,
that offering was abruptly withdrawn when the Internal
Revenue Service seized books and records of the Partner-
ship and of SFI and commenced an investigation into the
trading activities of those two entities. That investigation
resulted in an indictment filed two years later charging
Senft and four other managers of the Partnership and
SFI with perpetrating the then largest criminal tax fraud
in United States history.
Following a four-week trial and six days of delibera-
tions, the jury in the criminal action against Senft and the
four other Sentinel managers was deadlocked. Conse-
quently, the trial judge accepted a partial verdict convict-
ing Senft of fourteen counts of tax fraud and declared a
mistrial as to each of the other counts against him. Senft
was sentenced to fifteen consecutive years imprisonment
and total fines of $80,000 and is currently incarcerated at
the federal correctional facility in Danbury, Connecticut.
On March 29, 1985, the Second Cireuit upheld Senft’s
convictions (App. D, infra, pp. 14a-21la), and, on Novem-
ber 4, 1985, this Court denied his petition for a writ of
certiorari.
Eleven days before Senft was indicted by the Govern-
ment, Carr commenced his lawsuit in the Respondent
Court. In his Second Amended and Supplemental Com-
plaint, Carr sets forth eight separate claims for relief
against Cadwalader arising under federal and California
securities laws, and for common law fraud, negligent
misrepresentation and legal malpractice. In sum, the
9
complaint charges that Cadwalader intentionally or with
a reckless disregard for the truth participated in and/or
materially aided and abetted Sentinel’s scheme and
course of conduct to sel! unqualified securities within the
State of California and to defraud the limited partners of
the Partnership. Carr further alleges that, in violation of
its professional responsibility and the duty it owed to
Plaintiff and other investors, Cadwalader failed to exer-
cise reasonable care and due diligence in the preparation
of the Offering Memorandum and opinion letter.
In answering the complaint, Cadwalader candidly ad-
mits that the Offering Memorandum offered for sale
within the State of California 150 limited partnership
interests in the Partnership and that these securities
were not qualified with the California Department of
Corporations. However, it also affirmatively alleges that:
(1) The Units were not required to be qualified under the
California Corporate Securities Law of 1968; and (2) “If,
as plaintiff alleges, he was the victim of any fraud,
Cadwalader was the victim of the same fraud” and is
therefore entitled to indemnification or contribution.
On October 15, 1984, Cadwalader filed a Cross-Claim
and Third-Party Complaint against Sentinel and Gottlieb,
respectively, for indemnity and contribution. Cadwala-
der’s Third-Party Complaint alleges that Gottlieb failed
to conduct a diligent investigation regarding the Partner-
ship and California blue sky law before purchasing the
Units on Carr’s behalf and, in effect, charges that he had
no right to rely upon the opinion letter and Private
Placement Memorandum that Cadwalader itself had
prepared.
On February 8, 1985, the Respondent Court entered a
“Stipulation and Order re Preservation of Confidential
Information.” In essence, that order provides that any
10
information designated as ‘confidential material” by the
producing party shall be used solely for the purpose of
the action and may be disclosed only to attorneys of
record, third-party experts and parties and to the court
under seal.
SUMMARY OF ARGUMENT
I. The remedy of mandamus is a drastic one, to be
invoked only in extraordinary situations. Claims of privi-
lege do not enjoy a special status in considering a petition
for an extraordinary writ, and the party seeking manda-
mus has the burden of showing that its right to issuance
of the writ is “clear and indisputable.” Mere error, even
gross error, is insufficient. If there is any legal theory
which could support the Respondent Court’s ruling, it
must be affirmed.
II. To overcome a claim of privilege using the crime-
fraud exception, the proponent must mere.y make a prima
facie showing that the legal advice has been obtained in
furtherance of an illegal or fraudulent activity and need
not actually prove the disputed fact. In light of the
criminal tax fraud convictions of Michael M. Senft and
the defendants’ admissions that Sentinel Government
Securities offered for sale within California 150 limited
partnership interests without qualifying these securities,
there was substantial evidence to support the Respondent
Court’s factual conclusions.
III. The fiduciary obligations among partners are
stronger than the policy favoring privileged communica-
tions. A partner charged with acting inimically to the
partnership’s interest is thus not entitled to claim the
attorney-client privilege against his own partners in an
action to determine the proper functioning of his actions.
+a
1]
IV. By definition, the work product doctrine only
applies to documents “prepared in anticipation of litiga-
tion or for trial.” Fed. R. Civ. P. 26(b) (3). Every court of
appeals that has addressed the application of the crime-
fraud exception to work product has coneluded that it
does apply. The work product doctrine is also abrogated
when it is the very activities of counsel of which plaintiff
complains or when necessity and good cause is shown.
V. Cadwalader’s untimely request for an in camera
review is not properly before this Court. In any event, a
“failure” to review assertedly privileged documents in
camera does not constitute an abuse of discretion.
ARGUMENT
I.
THE SCOPE OF REVIEW: CADWALADER MUST
SHOW THAT ITS RIGHT TO ISSUANCE OF A
WRIT IS CLEAR AND INDISPUTABLE
A. A Claim of Privilege Does Not Enjoy Special Status
in Considering Whether the Drastic Remedy of
Mandamus Should Have Been Granted.
“The remedy of mandamus is a drastic one, to be
invoked only in extraordinary situations.” Kerr v. United
States District Court, 426 U.S. 394, 402 (1976), aff’g 511
F.2d 192 (9th Cir. 1975). Mandamus has traditionally
been used in the federal courts only “to confine an
inferior court to a lawful exercise of its prescribed juris-
diction or to compel it to exercise its authority when it is
its duty to do so.” Roche v. Evaporated Milk Ass’n, 319
U.S. 21, 26 (1948). This standard has been “repeatedly
reaffirmed in eases such as Kerr and Bankers Life & Cas.
Co. v. Holland, 346 U.S. 379, 382 (1953).” Will v. Calvert
Fire Ins. Co., 487 U.S. 655, 661 (1978) (citations omitted).
12
Since “[a]s a general proposition, discovery orders are
not jurisdictional [,they] thus may not be reached under
traditional concepts of mandamus except in the most
extraordinary circumstances.” Colonial Times, Inc. v.
Gasch, 509 F.2d 517, 524 (D.C. Cir. 1975). Accord, In re
Banker’s Trust Co., 775 F.2d 545, 547 (3d Cir. 1985).
Indeed, to hold otherwise invites “the obvious possibili-
ties for abuse in the typical case if a court of appeals were
to exercise intermittent supervisory power over discovery
in the district courts....” American Express Warehous-
ing, Ltd. v. Transamerica Ins. Co., 380 F.2d 277, 284 (2d
Cir. 1967).
“The contention that the claim of privilege enjoys a
special status in considering a petition for an extraordi-
nary writ has been expressly rejected by the United
States Supreme Court in Will v. United States, 389 U.S.
90, 88 S. Ct. 269, 19 L. Ed. 2d 305 (1967).” City of Los
Angeles v. Williams, 438 F.2d 522, 522-23 (9th Cir. 1971).
In Barclaysamerican Corp. v. Kane, 746 F.2d 653 (10th.
Cir. 1984), the defendants in a civil suit for alleged
federal and state securities laws violations petitioned for
a writ of mandamus or prohibition to vacate a district
court order directing the disclosure of documents which
were assertedly protected by the attorney-client privilege
or the work product doctrine. Holding that the showing of
the extraordinary circumstances required for the writ had
not been made, the Tenth Cireuit observed:
[T]he instant ease involves a discovery dispute be-
tween private litigants. We cannot say that a ques-
tion of substantial importance to the administration
of justice is at issue.
* * *
[As in Will v. United States, 389 U.S. 90 (1967) },
there is [also] no evidence that the trial judge has a
13
general policy of ordering production of information
protected by the attorney-client privilege or work
product doctrine....
Id. at 655.
Yet, even if the Court were to accept Cadwalader’s
econeclusionary statements that the decision below
“presents a serious threat to the attorney-client privilege
and the work product doctrine” (Petition at 13) and later
appeal is clearly an inadequate remedy, in addition, “[i]t
is essential that the moving party satisfy ‘the burden of
showing that its right to issuance of the writ is “clear and
indisputable.” ’” Calvert Fire Ins. Co., 437 U.S. at 662
(citations omitted). This burden Cadwalader does
not—for indeed it cannot — meet.
B. The Order Must Be Affirmed If There Is More
Than One Permissible View of the Evidence and
There Is Any Legal Theory Which Could Support
the Ruling.
Will v. United States, 389 U.S. 90 (1967) and De Beers
Consol. Mines, Ltd. v. United States, 325 U.S. 212, 217
(1945) make plain that mere error, even gross error in a
particular case, does not suffice to support issuance of a
writ of mandamus. United States v. De Stefano, 464 F.2d
845, 850 (2d Cir. 1972). Indeed, even “[i]f we assume...
that the judge is wrong on all points, his wrongness would
be the kind of error, grounded on differing perceptions of
where lines should be drawn, which would be grist for the
appellate but not for the mandamus mill.” United States v.
Kane, 646 F.2d 4, 10 (1st Cir. 1981).*
*See also Mid-America’s Process Serv. v. Ellison, 767 F.2d 684, 686
(10th Cir. 1985) (appeliate review of civil judgment could correct any
impermissible consequences of trial court’s allegedly improper ruling
on privileges); In re United States (Peck), 680 F.2d 9, 12 (2d Cir.
14
Nevertheless, Cadwalader argues that “mandamus, al-
though an exceptional remedy, should be used where
there is a clear error in the court below....” (Petition at ~
15). The “clearly erroneous” standard of review, however,
“plainly does not entitle a reviewing court to reverse the
finding of the trier of fact simply because it is convinced
that it would have decided the ease differently.’ Anderson
v. City of Bessemer City, 470 U.S. 564, 573 (1985).
If the district court’s account of the evidence is
plausible in light of the record viewed in its entirety,
the court of appeals may not reverse it even though
convinced that had it been sitting as the trier of fact,
it would have weighed the evidence differently.
Where there are two permissible views of the evi-
dence, the factfinder’s choice between them cannot be
clearly erroneous.
This is so even when the district court’s findings *
do not rest on credibility determinations, but are
based instead on physical or documentary evidence
or inferences from other facts.
Id. at 573-74 (citations omitted).
Second, under the “clearly erroneous” standard, “‘it is
well-established that if any ground exists which would
support” the Order, it must be affirmed. McCune v. F.
Alioto Fish Co., 597 F.2d 1244, 1248 (9th Cir. 1979). In
this regard, Cadwalader asserts that “the magistrate
based his ruling solely on the grounds of relevance and
need” (Petition at 5), and, subsequently, Judge Keller
“address[ed] issues which were not considered by the
magistrate” (id.) and “ignored” arguments it had raised
1982) (district court’s denial of Government’s privilege claim is
reviewable on appeal but does not constitute a “usurpation of power”
warranting mandamus).
we
F
2
15
(id. at 6). At the outset, counsel for Carr and Gottlieb do
not profess to have the same powers of telepathy as
claimed by their learned opponents and would not pre-
sume to divine all of the factors Magistrate Penne and
Judge Keller considered in reaching their respective deci-
sions. Yet, it is not critical that we delve into the psyches
of these two learned jurists for “in reviewing the decision
of a lower court, it must be affirmed if the result is correct
‘although the lower court relied upon a wrong ground or
gave a wrong reason.’” SEC v. Chenery Corp., 318 U.S.
80, 88 (1943).
When, as here, a trial judge is not required to enter
supporting findings of facts and conclusions of law and
“there could be other unarticulated bases for the...
order, it would seem all but impossible for the Court of
Appeals to hold as a matter of law that the trial court
clearly abused its discretion. ...” Allied Chemical Corp. v.
Darflon, Inc., 449 U.S. 33, 37 n.3 (1980).
Likewise, in the instant case, it simply cannot be
gainsaid that the Respondent Court’s account of the
evidence is plausible in light of the record viewed in its
entirety and that Gottlieb has advanced at least one legal
theory which would support the Order. As a result, even
under a “clearly erroneous” standard, Cadwalader’s Peti-
tion must be denied.
II.
SUBSTANTIAL EVIDENCE SUPPORTS THE RE-
SPONDENT COURT’S DETERMINATION THAT A
PRIMA FACIE SHOWING HAD BEEN MADE
UNDER THE CRIME-FRAUD EXCEPTION
“The crime or fraud exception applies even where the
attorney is completely unaware that his advice is sought
16
in furtherance of an improper purpose.” United States v.
Hodge & Zweig, 548 F.2d 1347, 1354 (9th Cir. 1977).
Accord, In re Grand Jury Subpoena Duces Tecim (Marc
Rich & Co.), 731 F.2d 1032, 1038 (2d Cir. 1984); United
States v. Horvath, 731 F.2d 557, 562 (8th Cir. 1984). The
rationale behind this rule is that “the client has no
legitimate interest in seeking legal advice in planning
future criminal activities. The crime-fraud exception
therefore comes into play if ‘the client consults an attor-
ney for advice that will assist the client in carrying out a
contemplated illegal or fraudulent scheme.” In re Inter-
national Sys. & Controls Corp. Sec. Litig., 693 F.2d 1235,
1242 (5th Cir. 1982) (quoting In re Murphy, 560 F.2d 326,
337 (8th Cir. 1977)).
Cadwalader’s charge that ‘there is no factual basis in
the record for the Respondent Court’s conelusion that
“the decision of the magistrate is supportable under the
erime/ fraud exception to the attorney-client privilege”’ is
simply without merit. First, as Cadwalader itself admits,
in the criminal proceedings before the Southern District
of New York,’ Senft was convicted on the first count of
the indictment which, among other things, charged that
the conspirators “created a new limited partnership, SGS
Significantly, in the Government’s criminal action against Senft,
the same claims of privilege Cadwalader asserts here were repeatedly
rejected by the courts. Thus, for example, in denying a motion to
quash the grand jury subpoena addressed to Senft’s criminal attor-
neys, the district court noted:
Since the records of SFI are not privileged while in the
possession of Senft, they are not privileged in the hands of
Wachtell, Lipton, and the movants may not rely on the attorney-
client privilege to prevent production of the SFI records.
In re Grand Jury Subpoenas Addressed to Sentinel Fin. Instru-
ments, 553 F. Supp. 71, 76 (S.D.N.Y.), aff'd mem., 714 F.2d 113 (2d
ms
=
&
~
N
17
[Sentinel Government Securities], of which SFI was a
general partner, to market fraudulent tax benefits. To this
end, the conspirators intentionally made false statements
and false factual representations to the law firm [Cadwal-
ader] which drafted tax opinion letters and private place-
ment memoranda for SGS in 1980 and 1981 based on
these false statements and false representations.”
Second, the Respondent Court’s finding that “Senft
was convicted of a single conspiracy that included both
Sentinel Government Securities (“‘SGS’) and Sentinel
Financial Instruments (‘SFI’)” (Petition, App. D at 6a)
is directly supported by the opinion of the Second Circuit
upholding that conviction.
The district court properly instructed and left to the
jury the question whether the evidence established a
single conspiracy. The proof, which showed a sub-
stantial intermingling of SFI and SGS operations
and employees, was sufficient to support the jury’s
determination that only a single conspiracy existed.
The jury was instructed to disregard evidence con-
eerning SGS in determining Antonucci’s guilt, and
ean be presumed to have followed those instructions
absent any showing to the contrary.
(App. D, infra, p. 19a) (citations omitted).
Further, in light of the defendants’ admissions that the
Partnership offered for sale within California 150 limited
partnership interests yet failed to qualify these securities
with the Department of Corporations, it can hardly be
denied that Gottlieb has “produce[d] enough evidence to
Cir. 1982), cert. denied, 459 U.S. 1208 (1983) (footnote omitted). See
also In re Sentinel Gov't Sec., 530 F. Supp. 793 (S.D.N.Y.), petition
for mandamus denied, 697 F.2d 297 (2d Cir.), cert. denied, 456 U.S.
977 (1982).
18
subject the attorney and the client to the ‘risk of non-
persuasion, if the evidence [of a violation of Cal. Corp.
Code § 25110] is left unrebutted.” In re Grand Jury
Subpoenas Dated December 18, 1981 & January 4, 1982,
561 F. Supp. 1247, 1254 (E.D.N.Y. 1982). See also West-
ern Fed. Corp. v. Erickson, 739 F.2d 1439, 1442 (9th Cir.
1984) (burden of proving the availability of an exemption
under the securities laws lies with the party claiming the
exemption); People v. Graham, 163 Cal. App. 3d 1159,
1169-74, 210 Cal. Rptr. 318, 325-29 (1985) (construing
Cal. Corp. Code § 25102(f) (West 1977) & 10 Cal. Admin.
Code § 260.102.2 (1980)).°
III.
THE ATTORNEY CLIENT PRIVILEGE IS INAPPLI-
CABLE WHEN SUIT IS BROUGHT AGAINST A
FIDUCIARY OR BETWEEN PARTNERS
Where “ ‘corporations and their officers are charged
with acting inimically to the stockholder’s interest, the
fiduciary obligations owed to those stockholders are
stronger than the policy favoring privileged communica-
tions, and the attorney-client privilege is not available in
such circumstances.” In re Transocean Tender Offer Sec.
Intig., 78 F.R.D. 692, 694-95 (N.D. Ill. 1978) (citations
omitted). Likewise,
‘In this regard, Carr and Gottlieb respectfully direct the Court's
attention to Appendix E in which the applicable California statutes
and rule governing limited private offerings in effect at the time the
limited partnership interests were offered and sold to Carr are
reproduced. It was not until nearly a full year after Gottlieb’s
purchase of the three Units on Carr’s behalf that Cal. Corp. Code
§ 25102(f) was amended to add a 35-purchaser “safe harbor’ compa-
rable to former SEC Rule 146, now Regulation D. 1981 Cal. Stat.,
ch. 1120, § 1 (eff. Nov. 1, 1981).
19
Garner v. Wolfinbarger and Bailey v. Meister Brau,
Inc. stand generally for the proposition that where a
corporation seeks advice from legal counsel, and the
information relates to the subject of a later suit by a
minority shareholder in the corporation, the corpora-
tion is not entitled to claim the privilege as against
its own shareholder, absent some special cause....
More important is the basis of those decisions, rest-
ing in each case on the understanding that a corpora-
tion is, at least in part, the association of its share-
holders, and it owes to them a fiduciary obligation
which is stronger than the societal policy favoring
privileged communications.’
It requires no citation of authority that the fiduciary
obligations of one partner to another are, if anything,
even greater than those between a corporation and its
shareholders. Thus, Cadwalader may not invoke the attor-
ney-client privilege to shield from Carr and his attorney-
in-faet, Gottlieb, their legitimate inquiries concerning the
management and operations of the Partnership. The Re-
spondent Court’s alternative reasoning under the joint-
client exception is therefore not clearly erroneous as a
matter of law.
‘Valente v. Pepsico, Ine., 68 F.R.D. 361, 367-68 (D. Del. 1975)
(examining Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970),
cert. denied sub nom. Garner v. First Am. Life Ins. Co., 401 U.S. 974
1971); Bailey v. Meister Brau, Inc., 55 F.R.D. 211 (N.D. Ill. 1972)).
‘ee also Washington Baltimore Newspaper Guild Local 35 v. Wash-
ingcon Star Co., 543 F. Supp. 906 (D.D.C. 1982); Panter v. Marshall
t eid & Co., 80 F.R.D. 718 (N.D. Ill. 1978); Broad v. Roekwell Int’]
Corp., 1976-77 Fed. See. L. Rep. (CCH) § 95,894 (N.D. Tex. 1977).
20
IV.
THE RESPONDENT COURT’S ORDER REQUIRING
DISCLOSURE OF “WORK PRODUCT” WAS NOT
CLEARLY ERRONEOUS AS A MATTER LAW
A. The Requested Documents Are Not Work Product
Since They Were Not “Prepared in Anticipation of
Litigation or for Trial.”
By definition, the work product doctrine only applies to
documents “prepared in anticipation of litigation or for
trial.” Fed. R. Civ. P. 26(b) (3). ‘““While the issuance of
opinion letters on the registration of shares might result
in liability for the parties involved, this is a routine
procedure necessary in the securities field and is not done
with litigation in mind.” Garfinkle v. Arcata Nat'l Corp., 64
F.R.D. 688, 690 (S.D.N.Y. 1974).”
“The purpose of the [work product doctrine] ...is not
to protect any interest of the attorney, who is no more
entitled to privacy or protection than any other person,
but to protect the adversary trial process itself.’ Coastal
States Gas Corp. v. Department of Energy, 617 F.2d 854,
864 (D.C. Cir. 1980). As a result, “the burden of showing
that the materials were prepared in anticipation of litiga-
tion is on the party asserting the privilege.” Compagnie
Francaise d’Assurance pour le Commerce Exterieur v.
Phillips Petroleum Co., 105 F.R.D. 16, 41 (S.D.N.Y.
1984). That burden Cadwalader failed to meet in the
proceedings before Magistrate Penne, and “[i]t certainly
is not clearly erroneous or contrary to law to conelude
"Cf. Fed. R. Civ. P. 26(b) (3) advisory committee’s note: “Materials
assembled in the ordinary course of business, or pursuant to publie
requirements unrelated to litigation, or for other nonlitigation pur-
poses are not under the qualified immunity provided by this
subdivision.”
21
that the documents requested in the present case do not
fit this description.” Order § 3 (Petition, App. C at 6a).
B. The Work Product Doctrine Does Not Apply When
an Attorney Is Consulted as Part of a Continuing
Plan to Commit a Crime or Fraud or When the
Activities of Counsel Are at Issue in the Lawsuit.
“Every court of appeals that has addressed the crime-
fraud exception’s application to work product has con-
cluded that it does apply.” In re Int'l Sys. & Controls Corp.
Sec. Litig., 693 F.2d 1235, 1242 (5th Cir. 1982). The work
product doctrine is waived for client fraud even when
asserted by the attorney. In re Special September 1978
Grand Jury (II), 640 F.2d 49, 63 (7th Cir. 1980). Indeed,
particularly where, as here, “the work-product itself may
be part of a criminal scheme... all reason for protecting
it from judicial examination evaporates.” In re John Doe
Corp., 675 F.2d 482, 492 (2d Cir. 1982).
Second, to the extent that any of the documents re-
quested do constitute work product, the doctrine is abro-
gated when it is the very activities of counsel of which
plaintiff complains. Kirkland v. Morton Salt Co., 46 F.R.D.
28, 30 (N.D. Ga. 1968). Accord, SEC v. National Student
Mktg. Corp., 18 Fed. R. Serv. 2d 1302, 1305-06 (D.D.C.
1974).
Third, under Hickman v. Taylor, 329 U.S. 495, 511
(1947), “[w]here relevant and non-privileged facts re-
main hidden in an attorney’s file and where production of
those facts is essential to the preparation of one’s case,
discovery may properly be had.” In other words, “[a]s to
an attorney's work product, its immunity retreats as
necessity and good cause is shown for its production in a
balance of competing interests.” Kirkland, 46 F.R.D. at
30. In light of then District Judge Hall’s September 25,
22
1984 order in this action that Cadwalader may be liable
under the federal seeurities law only if it (1) had directly
participated in the misrepresentation or (2) had actual
knowledge of and substantially aided in the wrong (App.
C, infra, pp. 8a-10a), the seope and manner of Cadwala-
der’s involvement in the transaction is critical and, in
large measure, can only be proved by documents which
are solely in Cadwalader’s possession. Thus, Gottlieb and
Carr have “a particularized and compelling need for the
production of the relevant work product of these attor-
neys” (A.M. Int'l, Inc. v. Eastman Kodak Co., 35 Fed. R.
Serv. 2d 311, 313 (N.D. Ill. 1982)), and the Respondent
Court did not abuse its discretion in ordering their
production. See, e.g., Diamond v. Stratton, 95 F.R.D. 503
(S.D.N.Y. 1982); Handgards, Inc. v. Johnson & Johnson,
413 F. Supp. 926, 931 (N.D. Cal. 1976).”
VI.
THE “FAILURE” OF THE RESPONDENT COURT
TO CONDUCT AN IN CAMERA INSPECTION IS
NOT PROPERLY BEFORE THIS COURT AND, IN
ANY EVENT, DOES NOT CONSTITUTE AN ABUSE
OF DISCRETION
Perhaps Cadwalader’s most egregious abuse of the
discovery rules in the proceedings below was its multiple
°To preserve the issue should the Court grant the Petition (see
Wiener v. United States, 357 U.S. 349, 351 n.* (1958)), Carr and
Gottlieb also contend that Cadwalader waived its right to resist
production by its selective disclosure of certain work product docu-
ments and by placing in issue its clients’ fraud and purported
compliance with the securities laws. Weil v. Investment/ Indicators,
Research & Management, Inc., 647 F.2d 18, 25 (9th Cir. 1981);
Central Soya Co. v. Geo. A. Hormel & Co., 581 F. Supp. 51, 53 (W.D.
Okla. 1982); Garfinkle, 64 F.R.D. at 689-90.
PS met yer
tee
23
assertions of the attorney-client privilege and the work
product doctrine without ever attempting to identify the
documents for which the privileges were claimed. Such
blanket claims of privilege are clearly improper. FTC v.
Shaffner, 626 F.2d 32, 37 (7th Cir. 1980); In re Shopping
Carts Antitrust Litig., 95 F.R.D. 299, 305 (S.D.N.Y. 1982);
SEC v. Dresser Indus., Inc., 453 F. Supp. 573, 576 (D.D.C.
1978), aff'd, 628 F.2d 1368 (D.C. Cir.), cert. denied, 449
U.S. 993 (1980).
As Magistrate Penne incisively observed at the Septem-
ber 30, 1985 hearing,
[1]f the opposing party wishes to claim the privilege
they must set out a schedule of the documents,
identify the documents, who the author of the docu-
ment is, who the recipient is, and on what ground the
privilege is claimed, whether it’s work product or
attorney-client.... You can’t expect to stand behind
a blanket authority, a blanket claim, and not give
opposing counsel and the court an opportunity to
evaluate your claim. You don’t have to reveal any-
thing that’s privileged but you at least ought to tell,
state enough of the general nature of the document
to enable someone to decide whether or not there’s a
basis for challenge.
(App. B, infra, p. 2a-3a). Cf. Kerr, 426 U.S. at 400
(“ ‘claiming a privilege should involve specifying which
documents... are privileged and for what reasons’ ’’).
“Without identification of the documents, the party
against whom the privilege is claimed is completely una-
ble to challenge the validity of that claim. The outcome is
indefensible.” A.M. Int'l, Inc. v. Eastman Kodak Co., 100
F.R.D. 255, 256 (N.D. Ill. 1981). Indeed, “[a]n improp-
erly asserted claim of privilege is no privilege at all.”
24
International Paper Co. v. Fibreboard Corp., 63 F.R.D. 88,
94 (D. Del. 1974).”°
Notwithstanding Cadwalader’s patent failure to this
day to identify the documents it claims are privileged, the
Petitioner apparently requests this Court to reverse sum-
marily this matter with directions that the Respondent
Court conduct an in camera review of these documents,
whatever they may be. Had Cadwalader made such an
offer on June 17, 1985 when its response to Gottlieb’s
request for production of documents was initially due, the
requested im camera inspection would arguably merit
consideration by this Court and may indeed have obviated
the need for what has now become a two-year struggle by
Carr and Gottlieb to compel their production.
Yet, the only reference in the entire record that Cad-
walader “specifically offer{ed] the documents for in-
camera inspection” before the Respondent Court is one
lonely sentence buried in the middle of Cadwalader’s 35-
page memorandum filed in support of its objections to the
magistrate’s order. (Petition at 5 & n.2). In sum, Cadwal-
ader’s purported offer of an in camera inspection was not
made until after Magistrate Penne had already ruled on
Gottlieb’s motion to compel, the “offer” was apparently
limited only to attorney-client communications and did
not include work product, and, clearly, none of the parties
briefed this issue during the proceedings in the Respon-
° Compare United States Dep’t of Energy v. Crocker, 629 F.2d 1341
(Temp. Em. Ct. App. 1980) (district court erred in declining DOE’s
proffer of im camera review when DOE had prepared “a detailed
index of the withheld documents and the privilege claimed as to
each”) with Coastal Corp. v. Dunean, 86 F.R.D. 514, 522-24 (D. Del.
1980), cited with approval in Crocker, 629 F.2d at 1345 n.* (district
judge had no necessity to review documents when DOE had failed to
raise privilege claims properly).
25
dent Court. As a result, Cadwalader’s request for an in
camera review is not properly before this Court. See
Singleton v. Wulff, 428 U.S. 106, 120-21 (1976); Kerr, 426
U.S. at 405 n.9; Country Fairways, Inc. v. Mottaz, 539 F.2d
637, 642 (7th Cir. 1976) (“an issue not presented in the
court below cannot be raised for the first time on appeal
and form a basis for reversal’’).
Further, while this Court — as well as the Ninth Cir-
euit (In re Grand Jury Investigation of Hugle, 754 F.2d
863, 865 (9th Cir. 1985) ) — has commended the judicious
use of in camera proceedings to resolve disputed issues of
privilege, at least in civil matters a party does not have a
right as a matter of course to demand an in camera
review; rather, the matter lies within the sound discretion
of the trial court. See Northrop Corp. v. McDonnell Doug-
las Corp., 751 F.2d 395, 401 (D.C. Cir. 1984); Renfield
Corp. v. E. Remy Martin & Co., 98 F.R.D. 442, 445 (D.
Del. 1982). See also Hayden v. Maldonado, 110 F.R.D.
157, 160 (N.D.N.Y. 1986) (magistrate did not have to
review files in camera when objecting party “failed to
eomply with Kerr” by interposing privilege objections in
blanket fashion). The “failure” of the Respondent Court
to conduct an im camera inspection would not, in any
event, constitute an abuse of discretion “amounting to a
judicial usurpation of power” as to justify mandamus
review. Allied Chem. Corp., 449 U.S. at 35; Will v. United
States, 389 U.S. at 95; In re Bankers Trust Co., 775 F.2d at
547.
CONCLUSION
For the foregoing reasons, the Petitioner has not shown
that its right to issuance of a writ is clear and indisputa-
ble. The Petition should therefore be denied. Indeed, Carr
and Gottlieb further submit that Cadwalader’s petition
26
for writ of certiorari is frivolous or interposed solely for
purposes of delay and that appropriate damages under
Supreme Court Rule 49.2 or 28 U.S.C. § 1927 should be
awarded.
Respectfully submitted,
RICHARD B. CUTLER
ROBERT A. MERRING
(Counsel of Record)
CUTLER AND CUTLER
A Professional Law Corporation
700 South Flower Street, Suite 3222
Los Angeles, California 90017
(213) 622-2117
Attorneys for Plaintiff Allan Carr
and Real Party in Interest
Daniel M. Gottlieb
May 18, 1987
APPENDICES
la
APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
No. 86-7357
DC # CV-83-7340-WDK
Central California
CADWALADER, WICKERSHAM & TAFT,
Petitioner,
VS.
UNITED STATES DISTRICT COURT FOR THE
CENTRAL DISTRICT OF CALIFORNIA,
Respondent,
and
DANIEL M. GOTTLIEB,
Real Party in Interest.
ORDER
[Filed Aug. 4, 1986]
Before: FARRIS, PREGERSON and WIGGINS, Cir-
cuit Judges
This petition for writ of mandamus requires further
consideration under Fed. R. App. P. 21(b). Within
14 days of the entry of this order, petitioner shall submit
an additional three copies of its petition and exhibits.
Answers to the petition shall be filed within 28 days of the
entry of this order. Petitioner may file a reply memoran-
dum within 42 days of the entry of this order.
% Upon completion of briefing, this matter will be submit-
4 ted to the next regular motions panel for decision.
2a
APPENDIX B
EXTRACT FROM DECLARATION OF PAMELA M.
WOODS FILED IN THE UNITED STATES DIS-
TRICT COURT, BEING A TRANSCRIPTION OF
THE HEARING BEFORE MAGISTRATE PENNE
ON SEPTEMBER 30, 1985
* * * *
Magistrate Penne: ... Now, then. Category No. 1.
Request No. 1 is denied. And Request No. 2 is denied.
Request No. 3 is denied. Now, Request No. 23. Did the
defendant have any particular argument directed to
ee
Mr. Merring: [Counsel for Carr and Gottlieb]: Your
honor, may I ask the reason for the....
Magistrate Penne: They’re too broad. They’re not lim-
ited to this particular transaction that is involved at issue
in this case.
Mr. Merring: Is it just on the grounds of overbreadth?
Magistrate Penne: Well. If you’re, if you’re bringing
up the question of attorney-client privilege and work
product....
Mr. Merring: Yes, your honor.
Magistrate Penne: Well I think your point is well
taken with respect to those privileges that if the opposing
party wishes to claim the privilege they must set out a
schedule of the documents, identify the documents, who
the author of the document is, who the recipient is, and on
what ground the privilege is claimed, whether it’s work
product or attorney-client. Now there’s ample authority
been cited by plaintiff in this particular case and there’s
WGKA. Re peas
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lot of other authority too. You can’t expect to stand
behind a blanket authority, a blanket claim, and not give
opposing counsel and the court an opportunity to evaluate
your claim. You don’t have to reveal anything that’s
privileged but you at least ought to tell, state enough of
the general nature of the document to enable someone to
decide whether or not there’s a basis for challenge.
*x* * * *
4a
APPENDIX C
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
Case No. CV 83-7340-CHH
ALLAN CARR,
Plaintiff,
Vv.
SENTINEL GOVERNMENT SECURITIES, et al.,
Defendants.
ORDER GRANTING IN PART AND DENYING
IN PART DEFENDANTS’ MOTIONS TO
DISMISS, DENYING DEFENDANT CADWALADER,
WICKERSHAM & TAFT’S MOTIONS FOR CHANGE
OF VENUE AND FOR SANCTIONS AND
DISCOVERY
[Entered Sept. 26, 1984]
Defendants’ motions to dismiss, defendant Cadwala-
der, Wickersham & Taft’s (“Cadwalader”) motion for
change of venue to the Southern District of New York,
and Cadwalader’s motion for sanctions and discovery
pursuant to Fed. R. Civ. P. 11 are now before the Court.
The Court has considered the evidence presented, the
points and authorities submitted by the parties, and the
oral argument of counsel.
IT IS HEREBY ORDERED that defendants’ motions
to dismiss are granted in part and denied in part, Cadwal-
ader’s motion for change of venue is denied, and Cadwala-
ere er ‘donk ‘.
Oe kal A ENETANES X ARS ai 3
‘Scr wnat iaaginanln IAT 46 Gd oe
5a
der’s motion for sanctions and discovery is denied. This
Order is based on the following:
1. This Court retains jurisdiction over all claims al-
leged. Plaintiff has sufficiently alleged subject matter
jurisdiction under the Securities Act of 1933 (the “1933
Act’), and the Securities Exchange Act of 1934 (the
“1934 Act”). Under the doctrine of pendent jurisdiction
and the analysis of United Mine Workers v. Gibbs, 383 U.S.
715 (1966), this Court also has jurisdiction over the
plaintiff's state law claims. These state law claims arise
from a common nucleus of operative facts. Whatever
additional facts may be required to establish the state law
claims for malpractice and breach of fiduciary duty are
insignificant compared to the common facts. Trial of the
state law claims in a separate state proceeding would be
unfair to the parties and a waste of judicial resources.
2. For purposes of the defendants’ motions to dismiss,
plaintiff's second claim for relief, misrepresentation
under $ 11 and § 12(2) of the 1933 Act, is not barred by
the applicable statute of limitations. Plaintiff's first com-
plaint is admissible at trial as a prior inconsistent state-
ment, but superseded pleadings are not conclusive
judicial admissions at the pleadings stage. Raulie v.
United States, 400 F.2d 487, 526 (10th Cir. 1968). Claims
under § 11 and § 12(2) are governed by $13 of the 1933
Act and the federal doctrine of equitable tolling. SEC v.
Seabord Corp., 677 F.2d 1289, 1293-94 (9th Cir. 1982).
Section 13 requires that an action brought under $11 or
§ 12(2) be brought within “one year after the discovery of
the untrue statement or omission, or after such discovery
should have been made by the exercise of reasonable
diligence,” but in no event “more than three years after
the sale.” 18 U.S.C. § 77m. Sinee plaintiff's first complaint
is not an admission for purposes of pleading, whether
6a
plaintiff discovered the alleged misrepresentations or
omissions or should have discovered them by reasonable
diligence remains a question for the trier of fact. This
Court also notes that it sees no basis for applying the
tolling provisions of Cal. Code of Civ. P. § 351 to prevent
plaintiff's second claim from being barred by $ 13 if it is
later shown that plaintiff discovered the alleged misrepre-
sentations more than one year before the filing of this
cause of action.
3. Plaintiff’s first, third and fifth claims are also
timely. Plaintiff’s first claim for relief, failure to register
under Cal. Corp. Code § 25110, is governed by the statute
of limitations of Cal. Corp. Code § 25507 which requires
actions to be brought within two years of the violation of
§ 25110 or one year of discovery, whichever expires first.
Plaintiffs third and fifth claims for relief, misrepresenta-
tion under Cal. Corp. Code $§ 25400-02, are governed by
the statute of limitations in Cal. Corp. Code § 25506
which requires actions to be brought within four years of
the alleged wrongful misrepresentation or one year of
discovery, whichever occurs first. Even though plaintiff
has not met the two years from violation requirement of
§ 25507, and even though defendants may later establish
that plaintiff has not met the one year from discovery
requirement of § 25506, plaintiff’s first, third and fifth
claims are still timely because of the operation of Cal.
Code Civ. P. $351. Under Cal. Code Civ. P. §351
(“§ 351”), the statutes of limitations in question were
tolled for the entire time the defendants were not in the
State of California. This is true even though defendants
were subject to service of process and personal jurisdic-
tion, Dew v. Appleberry, 23 Cal. 3d 630, 153 Cal. Rptr. 219
(1979), and even though defendants are not California
residents, Cvevich v. Giardino, 37 Cal. App. 2d 394, 99
P.2d 573 (1940). Furthermore, the operation of Cal. Corp.
AIDS 2 AB BEI ETE ks el Si ARR PRE a MP
Ta -
Code § 25550 and the decision of Loope v. Greyhound
Innes, Inc., 114 Cal. App. 2d 611, 250 P.2d 651 (1952), do
not affect the application of § 351 in this ease. Section
25550 appoints the Commissioner of Corporations as an
agent for service of process only when there is conduct
prohibited by the Corporate Securities Law of 1968 and
personal jurisdiction over the alleged wrongdoer “cannot
otherwise be obtained.” Since personal jurisdiction over
the defendants was available no agent was appointed. The
Loope decision recognized that foreign corporations ‘“do-
ing business” in the state which were subject to substitute
service of process through the Secretary of State or
another designated agent within California were not ab-
sent from the state for purposes of § 351. 250 P.2d at 652.
Since defendants in this case were not doing business in
California and Cal. Corp. Code § 25550 did not operate to
appoint an agent within the state, the reasoning of Loope
is inapplicable to the present case.
4. Plaintiff's eighth claim, violation of the Racketeer
Influenced and Corrupt Organizations Act (RICO), 18
U.S.C. § 1961 et. seqg., is also timely. This claim is gov-
erned by the three-year statute of limitations of Cal. Code
Civ. P. § 338. Compton v. Ide, 732 F.2d 1429, 1433 (9th
Cir. 1984). Since this action was filed within three years
of the sale to plaintiff it is timely under Cal. Code Civ. P.
§ 338.
5. Plaintiff's complaint complies with the mandate of
Fed. R. Civ. P. 9(b) that fraud be alleged with particular-
ity. Defendants are appraised of which representations
Carr claims are false or misleading, and the time and
manner in which such representations were allegedly
made.
6. Plaintiff's complaint adequately states a cause of
action for malpractice. Under California law an attorney
8a
owes a duty to third parties who are intended recipients
of information provided to a client. Roberts v. Ball, Hunt,
Hart, Brown & Baerwitz, 57 Cal. App. 3d 104, 128 Cal.
Rptr. 901 (1976).
7. Plaintiff's second claim for relief, misrepresentation
under § 11 and $12(2) of the 1933 Act, fails to state a
cause of action only to the extent that it alleges aiding
and abetting liability against defendant Cadwalader. This
Court agrees with the reasoning and conclusion of Judge
Pfaelzer in Hokama v. E. F. Hutton & Co., Inc., 566 F.
Supp. 636 (C.D. Cal. 1983), that aiding and abetting
liability is not available under §12(2) because it is
inconsistent with the objective of §12(2) to regulate
sellers. This does not preclude plaintiff from recovering
from Cadwalader under § 12(2) by establishing that Cad-
walader was a “participant” in the sale, and therefore
liable to plaintiff as a seller. SEC v. Seaboard Corp.
(Jones), 677 F.2d 1289, 1294-95 (1982). In order to
establish that defendant Cadwalader was a participant,
plaintiff will have to show that his injury resulted directly
and proximately from the actions of Cadwalader. Jd. at
1294; see, e.g., Junker v. Crory, 650 F.2d 1349, 1360-61
(5th Cir. 1981) (corporate attorney involved in negotia-
tions found a “seller” within § 12(2)).
8. Plaintiff's fourth claim for relief, misrepresentation
under § 17 of the 1933 Act, § 10 of the 1934 Act, Rule 10b-
5, and § 206 of the Investment Advisers Act, fails to state
a cause of action against defendant Cadwalader only to
the extent that it seeks recovery for aiding and abetting
under these sections for reckless conduct by Cadwalader.
First, under these sections as under § 12(2) above, Cad-
walader may be liable to plaintiff as a participant, if its
participation in the misrepresentation was direct, and if it
knew or was reckless in not knowing that there was a
9a
material misrepresentation. SEC v. Seaboard Corp.
(Hugh Johnson), 677 F.2d 1301, 1312 (9th Cir. 1982).
Second, liability for aiding and abetting is available
under Rule 10b-5 and § 17 upon a showing that Cadwala-
| der had knowledge of the wrong, and substantially as-
, - sisted in the wrong. Harmsen v. Smith, 693 F.2d 932, 943
(9th Cir. 1982), cert. denied, U.S. , 104 S. Ct. 89.
However, plaintiff cannot recover from Cadwalader as an
aider and abettor merely by showing that Cadwalader was
reckless in not knowing of the wrong. Plaintiff refers to
the Harmsen and Seaboard Corp. (Hugh Johnson) deci-
sions to argue that, because Cadwalader owed a duty to
the intended beneficiaries of the information it provided,
proof of recklessness by Cadwalader can support aiding
and abetting recovery. In Harmsen the Ninth Cireuit held
that the elements of aiding and abetting liability under
10b-5 are “(1) the existence of an independent primary
wrong; (2) actual knowledge by the alleged aider and
abettor of the wrong and his or her role in furthering it;
and (3) substantial assistance in the wrong.” Id. (empha-
sis added). The Harmsen court gave no indication that a
recklessness standard would suffice, although it did note
that some courts have allowed aiding and abetting recov-
ery on a showing of recklessness where a direct fiduciary
duty was owed to the injured party by the alleged aider
and abettor. Jd. at 944 n.10. The Seaboard Corp. (Hugh
Johnson) decision does not support plaintiff's position
either. Any indication by the court that recklessness
would support a cause of action for aiding and abetting
must be disregarded in light of the specific statement that
the court was not “confronting” the aiding and abetting
issue. 677 F.2d at 1311 n.12. Finally, even if recklessness
is used as a basis for aiding and abetting recovery, and
: this Court thinks that it should not be, the present case is
| not the type of direct fiduciary duty which ealls for the
1D Aoki Son
es
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1
10a
recklessness standard. Cadwalader’s only duty to plaintiff
was as the recipient of legal information, not as a client.
Those circuits which have imposed aiding and abetting
liability for reckless behavior have limited the theory’s
availability to cases where the alleged aider and abettor
owed a “direct fiduciary duty” to the irijjured party. See,
e.g., Rolf v. Blyth, Eastman Dillon & Co., Inc., 570 F.2d 38,
45 (2d Cir. 1978), cert. denied, 439 U.S. 1039. Application
of a recklessness standard in this case would make attor-
neys who issue tax opinions and offering memorandums
guarantors of the facts which their clients provide them
and impose a duty to investigate on such attorneys which
would significantly increase the cost of legal advice. It is
enough, as provided in Harmsen, that such attorneys are
liable if they have actual knowledge of the wrong.
9. Plaintiff's allegations of recklessness in his sixth
claim, fraud and deceit under state law, sufficiently state
a cause of action. In California the statutory definitions of
fraud, Cal. Civ. Code $§ 1571-73, and deceit, Cal. Civ.
Code §§ 1709-10, inelude recklessness and even negli-
gence among the degrees of scienter which can support
these actions. See Cal. Civ. Code $§ 1572 (2) (5), 1710(2).
California courts have recognized that recklessness is
sufficient to state a cause of action under a theory of
either fraud or deceit. Gonsalves v. Hodgson, 38 Cal. 2d 91,
237 P.2d 656, 662 (1951); Gold v. Los Angeles Democratic
League, 49 Cal. App. 3d 365, 122 Cal. Rptr. 732, 738
(1975).
10. Plaintiff's request for punitive damages in his
seventh claim, negligent misrepresentation under state
law, is insufficient. Plaintiff's claim for punitive damages
in his sixth claim, fraud and deceit under state law, is
sufficient only to the extent that it requests punitive
damages for intentional fraud or deceit. As noted above,
RS BRL Oa EI et ie Gials Oy acis Se
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lla
see {9, reckless and negligent misrepresentations can
serve as the basis of a fraud or deceit action in California.
To recover punitive damages, however, plaintiff must also
meet the requirements of Cal. Civ. Code § 3294
(““§ 3294”). Seetion 3294 was amended in 1980 to specify
the type of fraud or deceit which can serve as the basis for
punitive damages. Stats. 1980, ¢. -1242, p. 4217, §1.
Section 3294(3) now defines fraud for the purposes of
§ 3294 as an “intentional misrepresentation, deceit, or
concealment of a material fact known to the defendant
with the intention on the part of the defendant of, thereby
depriving a person of property or legal rights or otherwise
causing injury.” Thus, only that portion of plaintiff's
seventh claim which alleges intentiona! fraud or deceit
can serve as a basis for recovery of punitive damages
under § 3294.
11. Plaintiff's claim under the Racketeer Influenced
and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq., is
insufficient to state a cause of action. Plaintiff has failed
to identify an organization satisfying the enterprise re-
quirement of RICO. 18 U.S.C. § 1961(4). Plaintiff has
named one individual and several corporate or partner-
ship entities as RICO defendants. Plaintiff, however, has
failed to allege whether there was an ongoing enterprise
which all of these defendants associated with, or whether
these defendants invested in one or more legitimate
enterprises with racketeering proceeds. Absent clearer
allegations of the structure of the enterprise or enter-
prises, the RICO defendants are not given adequate
information from which to plan a defense. See Sevilie
Industrial Machinery Corp. v. Southmost Industrial Ma-
chinery Corp., 567 F. Supp. 1146 (D. N.J. 1983). Plaintiff
is also advised that this Court will allow plaintiff leave to
amend to specify the exact amount of expenses incurred
in complying with the IRS audit. See Complaint § 74.
12a
However, in repleading the RICO claim plaintiff should
specify whether it is just these expenses or whether it is
these expenses plus the $1.8 million claim which plaintiff
is seeking to have trebled under the RICO claim. Finally,
both parties are advised that this Court is not disposed to
follow the reasoning of the recent Second Cireuit deci-
sions of Bankers Trust Co. v. Rhoades, _——s F.2d (2d
Cir. 1984) or Sedima v. Imrez Co., Inc., _‘ F.2d (2d Cir.
1984).
12. Defendants’ motions to dismiss plaintiff’s first
amended complaint are granted as to: (1) that portion of
plaintiff's second claim for relief which seeks recovery for
aiding and abetting under § 12(2) of the 1933 Act; (2)
that portion of plaintiff's fourth claim for relief which
seeks recovery for aiding and abetting on a theory of
recklessness; (3) that portion of plaintiffs sixth claim
which seeks recovery of punitive damages for reckless or
negligent conduct; (4) that portion of plaintiff's seventh
claim which seeks recovery of punitive damages; and (5)
all of plaintiff's eighth claim. In all other respects sucn
motions are denied. By this Order defendants are now
required to go forward with this proceeding by filing
answers to the first amended complaint on or before
October 15, 1984. The granting of defendants’ motion as
to the eighth clam, RICO, is without prejudice to plain-
tiffs right to amend. All other portions of plaintiff's first
amended complaint which are dismissed are dismissed
with prejudice. Plaintiff must file any amendment of the
RICO elaim on or before October 15, 1984. Defendants
may oppose any amended claim under RICO on or before
November 5, 1984. :
13. Cadwalader’s motion for change of venue to the
Southern District of New York is denied. Change of venue
pursuant to 28 U.S.C. § 1404(a) is discretionary with this
sii Sic cs hn aaa
Oa eS en CER
13a
Court. Plaintiff has shown sufficient connections with the
Central District of California. The only evidence of incon-
venience to defendant Michael Senft before this Court
comes from secondhand statements that he is incarcer-
ated in New York. There is no indication that Mr. Senft
eould not be held in federal prison in California during
the course of the trial, or that Mr. Senft could attend a
trial in New York. Having considered the convenience of
the parties and the convenience of all witnesses, this
Court declines to transfer venue.
14. Cadwalader’s motion for sanctions pursuant to
Fed. R. Civ. P. 11 is denied. Plaintiff's first complaint and
plaintiff's first amended complaint are in conflict. The
ehange may indicate that plaintiff's counsel could have
thought through their claims more fully, but it is no
different than an amendment to add a new cause of
action. There is no evidence that the inquiry of Carr’s
counsel before the first complaint was less than reasona-
ble, or that the allegations in the first complaint or the
first amended complaint were made in bad faith.
Dated: September 25, 1984.
/s/ CYNTHIA HOLCOMB HALL
CYNTHIA HOLCOMB HALL
United States District Judge
l4a
APPENDIX D
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
At a stated Term of the United States Court of Appeals
for the Second Circuit, held at the United States Court-
house in the City of New York, or®the-239th day of March,
One Thousand Nine Hundred and Eighty-five.
PRESENT:
HON. WILLIAM H. TIMBERS,
Hon. ELLSWORTH A. VAN GRAAFEILAND,
Hon. LAWRENCE W. PIERCE,
Circuit Judges.
84-1254, 84-1264, 84-1281, 84-1286
————a
UNITED STATES OF AMERICA,
Appellee,
V.
MICHAEL SENFT, WALTER ORCHARD,
JOSEPH ANTONUCCI, and DAVID SENFT,
Defendants-Appellants.
ORDER
[Filed Mar. 29, 1985]
Michael Senft, Walter Orchard, Joseph Antonucci and
David Senft appeal from judgments of conviction which
followed a jury trial in the United States District Court
for the Southern District of New York before Judge
Owen. All four appellants were found guilty of conspiracy
to defraud the United-States through fraudulent tax
shelter schemes and of aiding and assisting the filing of
eg eee ee
15a
false tax returns. Additionally, Michael Senft was con-
victed of personal income tax evasion.
The fraudulent schemes involved phantom trading in
government securities, rigged so as to give investors
apparent tax losses, together with the phony documenta-
tion and misleading representations that were an essen-
tial part of the fraudulent transactions. The trading
purportedly was done by two limited partnerships, Senti-
nel Financial Instruments (SFI) and Sentinel Govern-
ment Securities (SGS). The aiding and assisting counts
resulted from the filing of false returns by investors and
by Michael Senft himself.
The Government’s proof, which we need not recount,
eonvineingly established appellants’ guilt on all the
counts on which they were convicted. There is no merit in
appellants’ contention that the conduct which furnished
the basis for the conspiracy conviction was not criminal in
nature. The sham transactions, which had no economic
effect and whose only purpose was tax avoidance, were
legally insufficient to justify the tax benefits that were
promised and claimed. See Knetsch v. United States, 364
U.S. 361 (1960); United States v. Ingredient Technology,
698 F.2d 88, 93-97 (2d Cir.), cert. denied, 103 S. Ct. 3011
(1983); Lynch v. C.ILR., 273 F.2d 867, 871-72 (2d Cir.
1959); United States v. Winograd, 656 F.2d 279, 283 (7th
Cir. 1981), cert. denied, 455 U.S. 989 (1982); Un'ted States
v. Clardy, 612 F.2d 1139, 1151-53 (9th-Cir. 1980
Appellants’ numerous claims of procedural error are
equally without merit. The district court did not err in
permitting the Government to introduce evidence derived
from the police search of the SFI and SGS office. Assum-
ing for the sake of argument that at least one of the
appellants had a sufficient privacy interest in the prem-
ises to be able to challenge the search, the challenge must
16a
fail. A magistrate’s finding of probable cause is entitled to
substantial deference. United States v. Travisano, 724 F.2d
341, 345 (2d Cir. 1983). Based on the affidavit of an
I.R.S. agent, which set forth detailed information secured
from a former executive of both SFI and SGS concerning
the method of operation of the two firms, the magistrate
properly could find that fraud so permeated the opera-
tions as to justify the search and seizure of the business
records described. See National City Trading Corp. v.
United States, 635 F.2d 1020, 1026 (2d Cir. 1980). Having
failed to make a substantial showing that statements
necessary to the finding of probable cause were recklessly
or intentionally false, appellants were not entitled to a
Franks hearing. See Franks v. Delaware, 438 U.S. 154, 155-
56 (1978). The warrants themselves did not lack suffi-
cient particularity. United States v. Mankam, 738 F.2d
538;-546 (2d Cir. 1984); National City Trading Corp. v.
United States, supra, 635 F.2d at 1026.
The district court correctly instructed the jury that the
losses claimed would be fraudulent if the jury found that
the challenged transactions “in their totality ... were not
intended to have and in fact had no economic substance
and were entered into solely for the purpose of tax
avoidance.” See United States v. Ingredient Technology,
supra, 698 F.2d at 93-97 & n.9. Appellants contend that,
because a few trades actually were conducted, the jury
was precluded from finding a lack of beneficial interest.
However, “it is well settled that acts which are in them-
selves legal lose that character when they become constit-
uent elements of an unlawful scheme.” Continental Ore
Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 707
(1962).
A detailed discussion of the challenged evidentiary
rulings of the district court is unnecessary because of the
Sia at atte P
17a
lack of substance in appellants’ numerous claims of error.
“Absent abuse of discretion, evidentiary rulings will
rarely be disturbed on appeal.” United States v. Asbury,
586 F.2d 973, 978 (2d Cir. 1978). We see no abuse of
discretion or prejudicial error in any of the rulings com-
plained of. The district court properly admitted the let-
ters and lists of SFI and SGS salesmen as sufficiently
authenticated agents’ admissions, Fed. R. Evid. § 901 (a),
and other challenged documents as records kept in the
ordinary course of business, Fed. R. Evid. § 803(6).
On the other hand, the district court properly barred
certain records of appellants’ auditors, which were based
on false information furnished by appellants and also
contained a large measure of inadmissible hearsay. Inso-
far as the records may have tended to show the auditors’
state of mind, their offer was directed towards an irrele-
vant issue. The legality of appellants’ conduct was for the
jury to determine on the basis of facts proven on the trial.
There is no proof that appellants relied upon the auditors’
beliefs and, in the face of the overwhelming proof of
knowing and intentional fraud, such reliance could not be
inferred. See United States v. King, 560 F.2d 122, 132 (2d
Cir.), cert. denied, 484 U.S. 925 (1977). This fact was
correctly recognized by the district court when it refused
to charge the jury on the issue of good faith reliance. Jd.
Conversations between an outside firm and its attorneys
concerning the transaction of business with SGS was also
properly excluded for similar reasons.
The district court’s refusal to admit the testimony of
more than two expert defense witnesses constituted
proper management of the case.
John Lane’s tape recordings of his conversations with
appellant Orchard concerning some of the transactions at
issue herein did not fall under the ban of 18 U.S.C.
18a
§ 2511(2)(d) as having been made “for the purpose of
committing any criminal or tortious act.” Lane’s purpose
in making the recording was simply to protect the inter-
ests of his own firm should SFI and SGS attempt to
breach their contract. See Moore v. Telfon Communications
Corp., 589 F.2d 959, 965-66 (9th Cir 1978).
There is no substance in appellant’s claims of
prosecutorial misconduct. Information reported in the
press was available in most instanees from public pro-
ceedings and reported decisions. See, e.g., In re SGS, 530
F. Supp. 793 (S.D.N.Y.), appeal dismissed (2d Cir.), cert.
demed, 456 U.S. 977 (1982); In re Grand Jury Subpoenas
Addressed to SFI, 553 F. Supp. 71 (S.D.N.Y.), aff’d mem.,
714 F.2d 118 (2d Cir. 1982), cert. demed, 459 U.S. 1208
(1983). Appellants have not shown that any non-public
information was released in such a manner as to have
improperly influenced the jurors.
Appellants’ Brady claim lacks merit. Appellants had
full knowledge of the persons whose statements are at
issue and the information available to those persons and
thus were in a position themselves to call the witnesses
and to take advantage of any exculpatory testimony they
might furnish. United States v. LeRoy, 687 F.2d 610, 618-
19 (2d Cir. 1982), cert. denied, 459 U.S. 1174 (1983).
The district court did not err in concluding that the
Government’s rebuttal summation was properly based on
the record. To the extent, if any, that the prosecutor
suggested any inferences not fully supported by the
evidence, in view of the overwhelming proof of appellants’
active and knowing participation in the fraudulent tax
scheme, such transgression as may have occurred was
harmless.
EY Te Pe ee
19a
We reject appellant Antonucci’s contention that he
could not have been a participant in a conspiracy that
involved fraud by both SFI and SGS, because he left SFI
before SGS was formed. The district court properly in-
structed, United States v. Tramunti, 513 F.2d 1087, 1107
(2d Cir.), cert. denied, 423 U.S. 832 (1975), and left to the
jury, United States v. Bagaric, 706 F.2d 42, 63 n.18 (2d
Cir.), cert. denied, 104 S. Ct. 134 (1983), the question
whether the evidence established a single conspiracy. The
proof, which showed a substantial intermingling of SFI
and SGS operations and employees, was sufficient to
support the jury’s determination that only a single con-
spiracy existed. The jury was instructed to disregard
evidence concerning SGS in determining Antonucci’s
guilt, and can be presumed to have followed those instruc-
tions absent any showing to the contrary, Shotwell Mfg.
Co. v. United States, 371 U.S. 341, 367 (1963).
Antonucci also fails in his contention that, because he
resides outside the Southern District of New York and
the customers whom he is charged with aiding and assist-
ing filed their tax returns by mail, he was entitled to be
tried in the district of his residence. See 18 U.S.C.
§ 3237(b). The district court correctly denied Antonucci’s
request for change of venue, relying on Jn re United States
(Clemente), 608 F.2d 76 (2d Cir. 1979), cert. denied, 446
U.S. 908 (1980), which held that section 3237(b) applies
only where, unlike here, venue is predicated on the use of
the mails.
The jury’s verdict was properly rendered. Six days
after beginning deliberations, the jury passed a note to
the court stating that it could not reach a unanimous
verdict. After informing counsel that he was prepared to
take a partial verdict and receiving no objection, Judge
Owen asked the jury whether they had reached a verdict
20a .
on any count. The foreman asked for more time to deliber-
ate, because the jury was making progress. Later that
day, the jury sent a note stating that it had reached
unanimous decision on some counts but not others and
that further deliberations would not prove effective. The
jury was called into court, the verdict was read, and the
jurors were polled.
It is well established that a jury may be allowed to
return a partial verdict as to some defendants or some
counts. United States v. Cotter, 60 F.2d 689 (2d Cir.), cert.
- demed, 287 U.S. 666 (1932); Fed. R. Crim. P. 31(b).
Nothing in the instant case indicates that the jury’s
partial verdict was intended to be anything but final, and
the district court correctly treated it as such. Although
the jury later inquired whether each of the counts should
be judged collectively or individually, this does not indi-
cate that the jury was reassessing appellants’ guilt on the
counts already decided. Likewise, the note from a juror
indicating that she had felt pressured and had changed
her convictions, furnishes no basis to challenge the unani-
mously rendered partial verdict. United States v.
Hockridge, 573 F.2d 752, 756-60 (2d Cir.), cert. denied,
435, U.S. 821 (1978).
Appellant Michael Senft’s contention that, in fixing his
sentence, the district court impermissibly considered his
protestations of innocence throughout the trial, is merit-
less. The court’s statement upon sentencing, on which
appellant relies, merely expressed regret at Senft’s appar-
ent lack of remorse, a valid sentencing criterion. United
States v. Grayson, 438 U.S. 41 (1978).
ON Pree ese nen eee Sam oe
ee Se oss
2la
We have fully considered all of appellants’ contentions,
including any not discussed in the above paragraphs, and
find no merit in any of them. The judgments of conviction
are affirmed. Mandate shall issue forthwith.
/s/ WM. H. TIMBERS
Hon. WILLIAM H. TIMBERS
/s/ ELLSWORTH A. VAN GRAAFEILAND
Hon. ELLSwortH A. VAN GRAAFEILAND
/s/ LAWRENCE PIERCE
Hon. LAWRENCE W. PIERCE
N.™. Since this statement does not constitute a formal
opinion of this court and is not uniformly available
to all parties, it shall not be reported, cited or
otherwise used in unrelated cases before this or
any other court.
22a
APPENDIX E
THE STATUTES, RULES AND
REGULATIONS THE CASE INVOLVES
FEDERAL RULES:
Federal Rule of Civil Procedure 26(b) (3)
(3) Trial Preparation: Materials. Subject to the
provisions of subdivision (b) (4) of this rule, a party
may obtain discovery of documents and tangible
things otherwise discoverable under subdivision
(b) (1) of this rule and prepared in anticipation of
litigation or for trial by or for another party or by or
for that other party’s representative (including his
attorney, consultant, surety, indemnitor, insurer, or
agent) only upon a showing that the party seeking
discovery has substantial need of the materials in the
preparation of his case and that he is unable without
undue hardship to obtain the substantial equivalent
of the materials by other means. In ordering discov-
ery of such materials when the required showing has
been made, the court shall protect against disclosure
of the mental impressions, conclusions, opinions, or
legal theories of an attorney or other representative
of a party concerning the litigation. ...
Federal Rule of Evidence 501
Except as otherwise required by the Constitution
of the United States or provided by Act of Congress
or in rules prescribed by the Supreme Court pursu-
ant to statutory authority, the privilege of a witness,
person, government, State, or political subdivision
thereof shall be governed by the principles of the
common law as they may be interpreted by the courts
ber acaba cnialeoeeee
23a
of the United States in light of reason and experi-
ence. However, in civil actions and proceedings, with
respect to an element of a claim or defense as to
which State law supplies the rule of decision, the
privilege of a witness, person, government, State, or
political subdivision thereof shall be determined in
accordance with State law.
CALIFORNIA STATUTES:
California Corporations Code § 25102(f) (West 1977),
amended by 1981 Cal. Stat., ch. 1120, § 1 (effective Nov. 1,
1981)
The following transactions are exempted from the
provisions of Section 25110:
* & *
(f) Any offer or sale, in a transaction not involv-
ing any public offering, of any bona fide general
partnership, joint venture or limited partnership in-
terest, or any beneficial interest in a trust which is a
“security” within the meaning of Section 25019, if in
the ease of such beneficial trust interests immedi-
ately after the sale and issuance they are owned by
no more than five persons.
California Corporations Code § 25110 (West 1977)
It is unlawful for any person to offer or sell in this
state any security in an issuer transaction (other
than in a transaction subject to Section 25120),
whether or not by or through underwriters, unless
such sale has been qualified under Section 25111,
25112 or 25113 (and no order under Section 25140 or
subdivision (a) of Section 25143 is in effect with
respect to such qualification) or unless such security
24a
or transaction is exempted under Chapter 1 (com-
mencing with Section 25100) of this part.
California Corporations Code § 25504 (West 1977)
Every person who directly or indirectly controls a
person liable under Section 25501 or 255038, every
partner in a firm so liable, every principal executive
officer or director of a corporation so liable, every
person occupying a similar status or performing
similar functions, every employee of a person so
liable who materially aids in the act or transaction
constituting the violation, and every broker-dealer or
agent who materially aids in the act or transaction
constituting the violation, are also liable jointly and
severally with and to the same extent as such person,
unless the other person who is so liable had no
knowledge of or reasonable grounds to believe in the
existence of the facts by reason of which the liability
is alleged to exist.
California Corporations Code § 25504.1 (West Supp.
1987)
Any person who materially assists in any violation
of Section 25110, 25120, 25130, 25133, or 25401, or a
condition of qualification under Chapter 2 (com-
mencing with Section 25110) of Part 2 of this divi-
sion imposed pursuant to Section 25141, or a
condition of qualification under Chapter 3 (com-
mencing with Section 25120) of Part 2 of this divi-
sion imposed pursuant to Section 25141, or an order
suspending trading issued pursuant to Sec-
tion 25219, with intent to deceive or defraud, is
jointly and severally liable with any other person
liable under this chapter for such violation.
25a
CALIFORNIA ADMINISTRATIVE CODE:
10 Cal. Admin. Code § 260.102.2 (1980)
(amended effective Nov. 1, 1981)
For the purposes of Subdivisions (e) and (g) of
Section 25102 and Subdivision (a) of Section 25104
of the Code, an offer or sale, and for the purposes of
Subdivision (f) of Section 25102, an offer or sale of
any bona fide general partnership, joint venture or
limited partnership interest, does not involve any
public offering if offers are not made to more than 25
persons and sales are not consummated to more than
10 of such persons, and if all of the offerees either
have a preexisting personal or business relationship
with the offeror or its partners, officers, directors or
controlling persons or by reason of their business or
financial experience could be reasonably assumed to
have the capacity to protect their own interests in
connection with the transaction. The number of offer-
any described in subdivision (i) of Section 25102 of
the Code and a husband and wife (together with any
custodian or trustee acting for the account of their
minor children) are counted as one person. This
section does not create any presumption that a public
offering is involved in offers not conforming to this
section, and the determination of whether or not a
transaction not covered by this section involves a
publie offering shall be made without reference to
this section.
—E
-PROOF OF SERVICE BY MAIL
I am a citizen of the United States and a resident of the
City and County of Los Angeles; I am over the age of
eighteen years and not a party to the within action; my
business address is: 1706 Maple Avenue, Los Angeles,
California.
On May 18, 1986, I served the within Brief In Opposition
to Petition for a Writ of Certiorari in re: “Cadwalader,
Wickersham & Taft vs. United States District Court of
the Central District of California” in the United States
Supreme Court, October Term 1986, No. 86-1639;
on the Parties in said action, by placing Three copies
thereof enclosed in a sealed envelope with postage fully
prepaid, in the United States post office mail box at Los
Angeles, California, addressed as follows:
The Honorable Charles Fried
Solicitor General
Department of Justice
Washington, D.C. 20530
The Honorable William D. Keller
United States District Court
Central District of California
312 North Spring Street
Los Angeles, California 90012
The Honorable Erwin N. Griswold
Jones, Day, Reavis & Pogue
655 Fifteenth Street, N.W.
Washington, D.C. 20005-5701
Susan L. Hoffman, Esq.
Tuttle & Taylor
355 South Grand Avenue
Los Angeles, California 90071
All Parties Required to be served have been served.
I certify (or declare), under penalty of perjury, that the
foregoing is true and correct.
Executed on May 18, 1987, at Los Angeles, California
Cfruuny4, OU actor
LAWRENCE T. MeMANUS
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.