Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_08-cv-01733/USCOURTS-cand-3_08-cv-01733-12/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:78m(a) Securities Exchange Act

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

IN RE 

CHARLES SCHWAB CORPORATION 

SECURITIES LITIGATION.

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This Document Relates To All Cases.

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No. C 08-01510 WHA

ORDER RE WAIVER OF

ATTORNEY-CLIENT

AND WORK-PRODUCT 

PRIVILEGES 

Section 11 allows defendants to avoid liability by proving that they “had, after reasonable

investigation, reasonable ground to believe and did believe that the registration statement was

not materially misleading.” This is an affirmative defense and the burden of proof rests on

defendants. The key inquiry focuses on a defendant’s belief at the time in question and

specifically whether he had reasonable belief in the accuracy of the registration statement. 

A similar affirmative defense is afforded by Sections 12 and 15. 

When a defendant asserts the affirmative defense, he places in issue his subjective state

of mind as to the contested disclosures at the time in question and therefore all information,

whether privileged or not, received by him on those matters during or before the time in question

are discoverable. This is because all information received by him on those matters would have,

or at least arguably should have, informed his belief as to the reasonableness of the investigation

and the accuracy of the registration statement. The waiver extends to all relevant

communications received by said defendant on or before the time in question, whether or not said

Case 3:08-cv-01733-WHA Document 42 Filed 02/23/10 Page 1 of 4
United States District Court

For the Northern District of California

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defendant now remembers those communications. It does not, however, waive any privilege as to

communications received only by others, for those communications could not have influenced

the state of mind of the defendant in question. This means that those defendants who merely

testify at trial that they believed competent counsel had been employed to investigate and to

prepare the registration statement in compliance with regulations and that they otherwise had

nothing to do with their preparation will waive no privilege so long as they had no relevant

privileged communications. 

If the defendant is a corporation rather than an individual, then the communications that

matter are all those received by all officers, directors and any managing agents responsible for the

registration statements, for their state of mind would be at issue, they being the ones through

whom the corporation must have acted. Therefore, in the case of a corporation asserting the

defense, the waiver must extend to all officers, directors and any managing agents responsible for

the registration statements and the relevant communications received by them up to the time in

question. Again, the waiver occurs even if one or more of the officers, directors and managing

agents have now forgotten the communications, for those communications would have helped

inform their beliefs at the time in question, regardless of their present-day memories. 

As to such communications, the waiver extends to the following subjects: (i) the

investigative process used to prepare the registration statement, including the scope of

engagement, the qualifications and experience of those involved; (ii) the registration statement

itself, and (iii) the specific topics (such as the duration issue) challenged in this action. 

An example of the latter would be communications regarding the duration question whether

or not the communication came upon in the specific context of the registration statement. 

Also waived are any communications from said defendant to counsel made during

or before the time in question bearing upon the registration statement or the investigative process

used to prepare it or the particular topics challenged as misleading (such as the duration question)

since these statements would or could reasonably be expected to have influenced or revealed said

defendant’s beliefs. And, the adequacy of the client disclosure to counsel may be a factor in

evaluating the reasonableness of reliance on counsel’s response or investigation. 

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United States District Court

For the Northern District of California

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Assuming, therefore, that the documents were requested and that the requests were

otherwise unobjectionable, this order holds that, as to each defendant asserting said defense, any

privilege assertable by said defendant must be deemed waived and the requested communications

must be turned over under Rule 34. As stated, there is no waiver as to communications received

only by others. Nor is there any waiver as to the actual propriety of compliance counsel’s vetting

process except to the extent of actual communications on that subject to or from those defendants

invoking the defense. 

Each defendant may have until MARCH 1 AT NOON to file an election whether to withdraw

the affirmative defense. Some may choose to do so and others may not. But on that date, defense

counsel must produce for inspection and copying all documents previously withheld from

production on account of privilege which were directed to or from any defendant persisting in the

defense, at least for documents prepared during or before the time in question on the subject of

the registration statement, the investigative process and to prepare them, and any of the particular

topics challenged herein as misleading (such as the duration question), whether or not said

defendant now remembers the communication, keeping in mind that for any corporate defendant

the waiver will extend to all officers, directors and any managing agents responsible for the

registration statements.

The Court has read the declarations of Darryl P. Rains and David B. Bayless submitted

yesterday. Those declarations plainly indicate that there are documents that should be produced

under this ruling. The exact extent of the required production depends on facts in the possession

of counsel and so the Court hereby ORDERS Attorneys Rains and Bayless to produce unredacted

copies of all previously withheld materials as to those defendants who persist in these affirmative

defenses, as set forth above. The declarations do not reveal enough information for the Court to

identify all documents that should be produced, so the Court will not pick some and thereby

imply that others need not be produced. Counsel will understand this ruling and knowing all of

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United States District Court

For the Northern District of California

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the facts will proceed honorably. Depositions of counsel and those involved in the process will

not be ordered at this time. 

IT IS SO ORDERED.

Dated: February 23, 2010. WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE

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