IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF ILLINOIS 

EASTERN DIVISION 

VENTAS REALTY, LIMITED 

PARTNERSHIP, 

Plaintiff, 

V. 

ALC CVMA, LLC, ALC GGMG, LLC, 

ALC HTIF, LLC, ALC PEDG, LLC, ALC 

TPCG, LLC, ALC WRWG, LLC, and 

ASSISTED LIVING CONCEPTS, INC., 

Defendants. 

No.: 12-cv-3107 

Judge Ronald A. Guzman 

Magistrate Judge Sidney I. Schenkier 

REPLY MEMORANDUM OF LAW OF DEFENDANTS IN SUPPORT OF 

THEIR MOTION FOR A PROTECTIVE ORDER PURSUANT TO 

RULE 26 OF THE FEDERAL RULES OF CIVIL PROCEDURE 

Defendants, ALC CVMA, LLC, ALC GGMG, LLC, ALC HTIF, LLC, 

ALC PEDG, LLC, ALC TPCG, LLC, ALC TISSC, LLC, ALC TSKG, LLC, ALC 

WRWG, LLC, and Assisted Living Concepts, Inc. ("ALC"), respectfully submit this 

reply memorandum of law in further support of their motion, pursuant to Rule 26(c) of 

the Federal Rules of Civil Procedure, for a protective order striking two interrogatories, 

two requests for production of documents, and a Rule 30(b)(6) deposition notice 

propounded by plaintiff Ventas Realty, Limited Partnership ("Ventas"). 

ARGUMENT 

Try as it might, Ventas cannot defend the propriety of its discovery 

requests into a privileged and confidential Audit Committee investigation unrelated to the 

allegations of the Amended Complaint in this action. 

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1. Ventas's opposition memorandum has abandoned the initial 

argument on which Ventas sought discovery into the ALC Audit Committee 

investigation. In its motion for expedited discovery and again at the May 17th hearing on 

that motion, Ventas argued that it needed discovery into the Audit Committee 

investigation based on speculative alarms that the investigation might be related to the 

physical condition of the properties or the health, safety, and welfare of the residents. 

That argument has now disappeared, and for good reason. In its opening set of motion 

papers, ALC submitted the declaration of Alan Bell, a member of the ALC Audit 

Committee, attesting, under the penalty of perjury, that the investigation has nothing to 

do with the health, safety or welfare of the residents or the physical condition of the 

facilities. ALC made the same representation in its responses to Ventas's interrogatory 

requests. 

2. The only rejoinder Ventas can muster to Mr. Bell's declaration is 

that Ventas is not "required" to take his declaration at "face value." Putting aside 

Ventas's stubborn refusal to accept statements made under the penalty of perjury by Mr. 

Bell, a respected attorney admitted to practice in Canada, Ventas has not put forward any 

countervailing evidence to show that the ALC Audit Committee investigation relates to 

any of the subjects on which Ventas sought discovery in the first instance. Ventas's 

discovery requests should be struck on this ground alone. 

3. Ventas's contention that the Court authorized it to serve the 

discovery requests that are the subject of this motion is correct, but only half the story. 

Not only did the Court refuse to order expedition on the timetable sought by Ventas, but 

the Court expressly allowed ALC to assert any objections to the pending discovery 

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requests ALC believed appropriate. Recognizing that ALC would likely assert objections 

regarding the propriety of the requests, and without passing on the merits, the Court 

stated that the matter would be referred to the Magistrate Judge for resolution, in the 

event Ventas sought to override the objections and compel responses. 

4. Ventas next argues, unpersuasively, that ALC cannot assert 

attorney-client privilege and work product immunity with respect to the Audit Committee 

investigation because ALC has not yet produced a privilege log. This argument puts the 

cart before the horse. Ventas cannot fault ALC for not having prepared a privilege log 

when ALC has filed the pending motion to strike the underlying discovery requests. 

Until that motion is resolved, and in Ventas's favor, Ventas should not be heard to 

complain that ALC has not produced a log. To put it mildly, it would be onerous to 

require ALC, as the price of being able to make a motion to strike patently improper 

discovery requests, to produce and update an extensive privilege log (which would 

contain hundreds of entries, and would expand daily as the investigation continues) on 

just two weeks' notice. During the parties' meet and confer process, ALC made the 

reasonable request that Ventas agree, under the circumstances, that ALC had no 

obligation to provide such a log; Ventas refused to do so, specifically confirming its 

insistence that ALC prepare a log listing every communication relating to the Audit 

Committee investigation. 

5. In any event, Ventas wholly fails to rebut the assertion in Mr. 

Bell's declaration that the ALC Audit Committee investigation is privileged. Mr. Bell's 

declaration attested to the fact that ALC has retained counsel—the New York law firm 

Milbank, Tweed, Hadley & McCloy LLP—to advise and assist in the Audit Committee 

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investigation. This information was also set forth in the Form 8-K filed by ALC on May 

3, 2012. Ventas does not even attempt to address the cases cited by ALC in its opening 

memorandum that such investigations, as a matter of regular course, are subject, not just 

to the attorney-client privilege, see Upjohn v. United States, 449 US. 383, 394-95 (1981); 

Sandra T.E., et al. v. S. Berywn Sch. Dist. 100, et al., 600 F.3d 612, 620 (7th Cir. 2009), 

but also to the attorney work-product immunity, see Sandra T.E., et al. v. S. Berywn Sch. 

Dist. 100, et al., 600 F.3d at 621; Logan v. Commercial Union Ins. Co., 96 F.3d 971, 976- 

77 (7th Cir. 1996). 

6. Ventas's argument that ALC has not demonstrated that the Audit 

Committee investigation is protected by the work-product doctrine can be swiftly 

rejected. It is well understood by directors of publicly traded companies and their 

counsel that a public company's announcement of an internal investigation into 

accounting irregularities immediately exposes that company to the very real risk of 

litigation by regulators and stockholders. That is exactly what happened here. In the 

immediate aftermath of ALC's announcement in its May 3, 2012 Form 8-K of the 

commencement of the Audit Committee investigation, a prominent class action law firm 

issued a press release the next day citing ALC's Form 8-K filing and soliciting ALC 

shareholders to discuss their "claims" against ALC and their "rights as a potential class 

member or lead plaintiff" Rothstein Decl., Exh. A. There is no question that the Audit 

Committee investigation is being conducted "in anticipation of litigation" sufficient to be 

afforded the protection of the work-product doctrine. Allendale Mut. Ins. Co. v. Bull 

Data Sys., Inc., 145 F.R.D. 84, 87 (N.D. Ill. 1992). 

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7. The authority relied upon by Ventas is equally unavailing. 

Ventas's opposition memorandum cites a number of cases for the unremarkable 

proposition that the attorney-client privilege and the work-product doctrine do not protect 

the "underlying facts" of an investigation. Ventas Br. at 7 (citing cases). But even if 

true, Ventas proffers no evidence to rebut Mr. Bell's declaration that the "underlying 

facts" of the Audit Committee investigation relate to possible irregularities in ALC's 

accounting with respect the Ventas lease. These facts are not the subject of the Amended 

Complaint. The overwhelming focus of that pleading is that ALC breached the lease 

(1) by receiving from state regulators in Georgia and Alabama notices of revocation of its 

operating licenses for three of the assisted living facilities and (2) by failing timely to 

report to Ventas two fires at a fourth facility. And, it bears emphasis that Ventas has 

already served numerous other discovery requests relating to the notices of revocation of 

the operating licenses; accordingly, these allegations do not justify disclosure of the 

Audit Committee investigation. 

8. In the very last paragraph of its brief, Ventas argues for the first 

time that the discovery it seeks into the Audit Committee's investigation is somehow 

relevant because the Amended Complaint alleges, in a single sentence, that ALC did not 

"comply with their reporting obligations under Section 25" of the Ventas lease. Putting 

aside the fact that the Amended Complaint alleges no facts supporting this bare assertion, 

nothing stops Ventas from seeking discovery directly into the issue of ALC's compliance 

with its reporting obligations under Section 25 of the lease, and in fact, Ventas has served 

extensive discovery on ALC with respect to its reporting obligations—a fact that Ventas 

nowhere mentions in its opposition memorandum. See Rothstein Decl., Exh. B (Second 

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Set of Interrogatories, dated May 25, 2012, requesting, among other information, 

identification of each "compliance certificate" submitted by ALC pursuant to Section 25 

of Ventas lease); Exh. C (Second Request for Production of Documents, dated May 25, 

2012, seeking, among other documents, "all documents related to communications, 

related to any Compliance Certificates submitted to Ventas"). Speculation that the Audit 

Committee investigation might nevertheless relate to ALC's compliance with its Section 

25 reporting requirements does not justify discovery into the "underlying facts" 

pertaining to the internal investigation itself. 

9. Ventas also has no meaningful response to the showing in ALC's 

opening brief that Ventas's discovery requests are improper because they would require 

disclosure of a confidential communication protected under the Sarbanes-Oxley Act. 

Ventas cites no authority in support of its argument that the strong Congressional policy 

judgment protecting the identity of whistleblowers, embodied in Sections 301 and 806 of 

the Sarbanes-Oxley Act, can be overcome whenever a litigant seeks discovery into an 

internal Audit Committee investigation. We are confident no such authority exists. 

10. Lastly, Ventas's contention that Menendez v. Halliburton, Inc., 

ARB Case No. 09-002 (DOL Admin. Rev. Bd. Sept. 13, 2011), is not controlling because 

Ventas is willing to accept "redacted" documents on an "attorneys' eyes only" basis is 

meritless. First, as ALC demonstrated in its opening brief, redaction would not prevent 

the disclosure of the whistleblower's identity: given the relative handful of persons 

within ALC involved in the accounting function with respect to the Ventas lease, 

disclosure of this communication would allow persons to deduce the identity of the 

individual who made the communication. Second, there is no carve-out in Sections 301 

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and 806 permitting the identity of whistleblowers to be disclosed to a plaintiff s lawyer 

prosecuting claims on behalf of a third party against the whistleblower's employer. 

These provisions of the Sarbanes-Oxley Act are designed to encourage employees to 

report possible wrongdoing to audit committees, in confidence and without fear of 

retaliation. That principal statutory goal would be frustrated by a rule allowing 

confidential employee communications to be discovered by a plaintiff s counsel seeking 

to use that information for the benefit, not of the whistleblower, but of a contractual 

counter-party. At bottom, it is not plaintiff's prerogative to receive or use this 

information. 

CONCLUSION 

For the foregoing reasons and the reasons set forth in ALC's opening 

memorandum of law, the Court should issue a protective order striking Ventas's First Set 

of Interrogatories, its First Request for the Production of Documents, and its Rule 

30(b)(6) Notice. 

Dated this llth day of June, 2012. /s/ John A. Rothstein 

John A. Rothstein 

US Dist. Ct. N. D. Ill Bar No.1004356 

QUARLES & BRADY LLP 

411 E. Wisconsin Ave. 

Milwaukee, WI 53202 

414-277-5351 

John.Rothstein@quarles.com 

Leonard S. Shifflett 

ARDC # 2587432 

QUARLES & BRADY LLP 

300 N. LaSalle St. Suite 4000 

Chicago, IL 60654-3406 

312-715-5000 

Leonard.Schifflett@quarles.com 

Attorneys for all Defendants 

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