Unnamed Class Action Plaintiffs Must Satisfy Two Prong Test To Gain Access To Class Counsel's Work Product
June, 2009
In Wyly v. Milberg Weiss Bershad & Schulman, LLP, 2009 WL 1227876 (N.Y.), Plaintiff Sam Wyly ("Wyly") sought access to class counsel's work product. The underlying lawsuits were 24 related cases alleging that Computer Associates International, Inc. ("CA"), a large software company, violated the Securities Exchange Act of 1934 by engaging in questionable accounting practices. Id. at *1.
In December of 2003, the United States District Court for the Eastern District of New York certified the class actions and approved a proposed settlement in the 24 related cases. The settlement class, of which Wyly was a member, was given 5.7 million shares of CA common stock in exchange for releases of civil liability. After the settlement agreement was entered into, Wyly's individual counsel, P. Kent Correll ("Correll"), claimed that the settlement was "likely procured by fraud upon the shareholders, their counsel and the Court." Id. at *2.
Correll noted that CA's former general counsel had pleaded guilty to conspiracy to commit securities fraud and obstruction of justice. Furthermore, Correll alleged he was not advised of the existence of 23 boxes of CA financial documents until after the settlement. Thus, Correll sought for the class plaintiffs to be relieved from the settlement and filed a 60(b) motion in District Court on behalf of Wyly and other individuals/entities associated with Wyly. It was estimated that the Wyly movants represented approximately 1% of the shares that were to be distributed to the class.
As part of the discovery associated with the motion to be relieved from the settlement, Wyly sought access to class counsel's "pre-trial investigations...all the discovery produced or taken...and all requests for discovery, indices, summaries, or other materials created by Class Counsel." Id. at *2. Wyly asserted that he was entitled to these materials on the basis that the Wyly entities were "substantial members of the Settlement Class" and had an attorney-client relationship with class counsel. Id.
The District Court, through a federal magistrate, approved discovery in relation to Wyly's motion to be relieved from the settlement. Although Wyly obtained "some of the materials" he sought, Wyly alleged that class counsel still "refused to produce the most critical category of documents...: Class Counsel's work product and analysis." Id. at *3. On August 2, 2007, the District Court denied Wyly's motion to be relieved from the settlement and also denied the related discovery requests.
While the motion to be relieved from the settlement was still pending before the District Court, Wyly commenced a special proceeding in New York Supreme Court. Wyly sought a judgment directing class counsel to "turn over their class files..." including "all e-mails, attorney's notes, internal memoranda, document requests, indices, privilege logs, drafts and research..." Id. at *3. Wyly argued that he had "all the privileges and rights pursuant to the attorney-client relationship..." and, thus, class counsel was obligated to provide the requested materials.
Relying on the prior holding in Matter of Sage Realty Corp. v. Proskauer Rose Goetz & Mendelsohn, 91 N.Y.2d 30 (N.Y. 1997), the Supreme Court ruled in favor of Wyly's special proceeding and ordered class counsel to provide the requested documents. The Supreme Court found that the Wyly's relationship with class counsel was "sufficiently similar to a traditional attorney-client relationship so as to create a presumption in favor of affording him access" to the requested materials. Id. at *4. The Appellate Division reversed the Supreme Court finding that, in the class setting, the relationship between attorney and class "differs fundamentally." Id. at *5. The Court of Appeals upheld the Appellate Division and noted fundamental policy differences in class actions.
The Court of Appeals noted that class-action plaintiffs did not have to hire their own counsel and they rarely are subject to counterclaims, cross-claims or liability for fees or costs. Reviewing other federal appellate court precedence, the Court of Appeals noted that counsel for a class is in a "unique position" and concluded that "absent class members... are a unique species of client." Id. at *7. The Court noted that a class action involved many geographically diverse clients and allowing all of these clients access to class counsel's files created the potential that class counsel would be "unduly burdened" by document requests. Id. at *8. In addition to the problems posed by burdensome requests, the Court of Appeals noted that the role played by the trial court in a class action provides additional protection to the individual unnamed class members as the court appoints class counsel and when doing so, must assess the quality of representation. Id.
The Court of Appeals set forth a two-part test for assessing when unnamed class plaintiffs may obtain class counsel's files. The test required a court to assess the amount of plaintiff's interest and whether the unnamed plaintiff had shown a "legitimate need" for the documents. Id. The Court held that Wyly failed with respect to the second prong of the test. Although Wyly had a substantial stake in the outcome, Wyly did not show that class counsel's work product and analysis would shed any further light on the allegations of fraud which formed the basis for the motion to be relieved of the settlement and a related legal malpractice action. Id.
Learning Point: Class action cases present unique problems and challenges. As Wyly makes clear, even considerations respecting the fundamental attorney-client relationship are altered by the unique status afforded to a class action.
For more information contact Alexander X. Saunders at asaunders@clausen.com
Back to New York CM Report of Recent Decisions (2009v2) 2009 Volume 2 Table of Contents
