A group of at most 8,000 documents has become the flashpoint for an argument over attorney-client privilege in the ongoing litigation over Fannie Mae’s 2004 accounting scandal.
Discovery-related spats have plagued the case for a while now, and Fannie Mae has already had to hand over more than 30 million documents. But this latest dispute poses a pertinent question for many companies that end up in regulatory hot water: If a corporation hires a law firm for an independent investigation, is its work privileged?
For those who aren’t yet familiar with this labyrinthine mess of litigation, here’s a brief overview. Fannie Mae was sued by investors in 2004, after the company’s government regulator unearthed evidence of improper accounting. Later on, Fannie Mae sued its auditor, KPMG, for malpractice. KPMG sued back, claiming it had been fed false information. At the same time, Fannie is also fighting off an ERISA complaint from its employees.
Recently, KPMG has been seeking access to documents related to Paul, Weiss, Rifkind, Wharton & Garrison’s independent investigation of Fannie Mae’s corporate practices. The firm, which Fannie hired to look into its operations after the scandal broke, eventually yielded a 616-page report that the mortgage giant released to the public.
Fannie has handed over most of the material from that project, but is claiming that a few thousand documents (the exact number is not settled) are protected by the attorney-client privilege. KPMG is calling foul, claiming that Paul Weiss did not represent the mortgage dealer in any traditional sense, in part because the company’s regulator, the Office of Federal Housing Enterprise Oversight, had mandated the investigation and had looked at most of the paperwork it produced. It also claims that Fannie waived any rights to the privilege when it published the final report.
“Paul Weiss was not hired to represent Fannie Mae in proceedings against OFHEO or another third party. Instead, Paul Weiss was explicitly required to independently of Fannie Mae,” wrote lawyers for KPMG, which is represented by Gibson, Dunn & Crutcher.
Both Fannie Mae and Paul Weiss have pushed back, filing opposition motions on Friday, claiming that KPMG has asked for documents even OFHEO never saw. And despite the fact that the law firm was performing an investigation, they argue that for all intents and purposes, it was an attorney-client relationship.
“While Paul, Weiss was ‘independent’ in the sense that the firm had not worked previously for Fannie Mae or its board, independence in this regard does not mean that Paul, Weiss did not or could not act as legal counsel,” wrote lawyers for the firm. “Indeed, [Fannie Mae] sought Paul, Weiss’s legal advice on many issues, including, for example, how best to conduct a credible internal investigation that would withstand the scrutiny of the regulators.”