TheCorporateCounsel.net

November 10, 2010

Can Disclosure in a SEC Filing Waive the Attorney-Client Privilege?

What if a company touts in one of its SEC filings that – although several of its customers had sought indemnification from it for claims of patent infringement made against those customers by a third-party – the company had obtained opinions of counsel that concluded the company’s products did not infringe the asserted patents and the patents were invalid regardless? Would this disclosure of the conclusion of these opinions constitute a waiver of any claim to the attorney-client privilege and the work product doctrine?

It appears there are few cases addressing this waiver issue. But at least in one case, the answer is “yes.” In this order, the US District Court for the Middle District of Georgia found that – in AFLAC v. Intervoice – that the defendant had “let the cat out of the bag” by disclosing its counsel’s conclusions and ordered that the opinions be produced.

Section 304: Second Circuit Rules in Clawback Case of First Impression

Here is something I blogged on “The Advisors’ Blog” on CompensationStandards.com a while back: I pulled the following from this press release from Carter Ledyard, the law firm which won this case:

On September 30, 2010, in an important case of first impression, the United States Court of Appeals for the Second Circuit held that public companies may not indemnify their CEOs or CFOs from liability under Section 304 of the Sarbanes Oxley Act, which mandates that if a public company is required to restate its financial reports as a result of misconduct, the CEO and CFO must reimburse the company for any bonuses, incentive compensation, or trading profits that they earned during that period.

The Second Circuit held that Section 304, whose purpose is to prevent CEOs and CFOs from profiting by misleading investors and regulators about the financial health of their companies, does not provide a private cause of action and may only be enforced or waived by the SEC. Allowing a public company to indemnify and release its officers and directors from liability under Section 304 would nullify the SEC’s authority to pursue the Section 304 remedy or to grant exemptions from the statute.

The case before the Second Circuit, In re: DHB Industries, Inc. Derivative Litigation, Docket No. 08-3860-cv (2d Cir. Sept. 30, 2010), was an appeal from the approval by the United States District Court for the Eastern District of New York of a settlement of derivative lawsuits brought on behalf of shareholders of a public company formerly known as DHB (now Point Blank Solutions, Inc.) against former CEO David H. Brooks, former CFO Dawn Schlegel, and other former officers and directors of the company. One of the key provision of the settlement was that DHB would indemnify Brooks and Schlegel from any liability under Section 304 of the Sarbanes Oxley Act.

On September 14, 2010, Brooks and former COO Sandra Hatfield were convicted on 31 criminal charges stemming from their participation in a conspiracy involving massive securities fraud and theft of company assets. Schlegel had earlier pled guilty to having participated in this conspiracy. The SEC currently has actions pending against Brooks, Schlegel and Hatfield in the Southern District of Florida, in which it seeks disgorgement of $186 million under Section 304. The effect of today’s ruling by the Second Circuit is that DHB, which is currently undergoing bankruptcy proceedings in the United States Bankruptcy Court for the District of Delaware, In re Point Blank Solutions, Inc., Case No. 10-11255-PWJ, is no longer bound by the terms of the settlement to reimburse its officers and directors for their liability under Section 304, and is instead eligible to recoup those funds itself if the SEC’s pending actions are successful.

The ‘Former’ Corp Fin Staff Speaks on Proxy Access & Dodd-Frank

We have posted the transcript of our popular webcast: “The ‘Former’ Corp Fin Staff Speaks on Proxy Access & Dodd-Frank.”

– Broc Romanek