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In re Cendant Corp. Securities Litigation Ernst & Young LLP

September 16, 2003


On Appeal from the United States District Court for the District of New Jersey D.C. Civil Action No. 98-cv-01664 (District Judge: Honorable William H. Walls)

Before: Scirica, Chief Judge,*fn1 Ambro and Garth, Circuit Judges

The opinion of the court was delivered by: Scirica, Chief Judge.


Argued April 24, 2003


At issue on appeal is whether the "work product" of a non-testifying trial consultant in this case is privileged and subject to only limited discovery. Ernst & Young, LLP, and Cendant Corporation are co-defendants in a federal securities class action involving Cendant's alleged accounting fraud. The class action claims were settled, leaving claims asserted by Cendant and Ernst & Young against each other as the focus of the remaining litigation.*fn2


Cendant deposed Simon Wood, a former Ernst & Young senior manager and auditor who prepared the Cendant financial statements at issue in the underlying litigation.*fn3

At Wood's deposition, Cendant inquired into communications that took place between Wood, Ernst & Young's counsel who also represented Wood, and Dr. Phillip C. McGraw of Courtroom Sciences, Inc. Dr. McGraw is a consulting expert in trial strategy and deposition preparation who was retained as a non-testifying trial expert to assist Ernst & Young's counsel in anticipation of litigation.

Specifically, Cendant's counsel asked Wood: "Have you ever met Phil McGraw?"; "On how many occasions did you meet with Phil McGraw?"; "Did you understand Phil McGraw to be a jury consultant?"; "Did Mr. McGraw provide you with guidance in your conduct as a witness?"; "Did you rehearse any of your prospective testimony in the presence of Mr. McGraw?"; "In the course of preparing for this deposition... did you review any work papers?"; "Did you select the work papers that you reviewed?"; "Did you ask anyone for the opportunity to review any particular work papers?"; and "Did you ask to review work papers on any particular subject?" Ernst & Young's counsel objected, citing the work product doctrine and the attorney-client privilege and arguing the discovery sought related to private communications relayed in the presence of counsel and for the purpose of assisting counsel in rendering legal advice.

In March 2002, the Special Discovery Master*fn4 held:

Wood may be asked whether he has met with Dr. McGraw, the date and duration of any meetings, who was present and the purpose for same. He may not be asked what Dr. McGraw told the witness, whether testimony was practiced, whether any part of the meetings were recorded, whether the witness took any notes, or whether Dr. McGraw provided the witness with any documents. In my view, answers to the latter questions would violate the work product doctrine.

From the information developed thus far, it appears that Dr. McGraw is an expert retained by Ernst & Young's counsel to assist in trial preparation. He is not expected to be called as a witness and no exceptional circumstances have been cited to justify the exploration Cendant seeks.

In November 2002, the District Court reversed the Special Discovery Master's determination, holding the work product doctrine and attorney-client privilege did not apply. The District Court said:

[W]ork product deals with things legal, things with preparation, evaluation, strategies, tactics and it is at first limited to lawyers and then will strictly or rigidly expand it, or restrictively expand it to include people such as paralegals and maybe assistants to lawyers because of their intimacy with the lawyer.

The privilege is really that of the lawyers.... because he or she has a right to tell his or her client certain things. But, when we go beyond that into a person who is not dealing with the law but telling someone how to prepare it as Blumenthal v. Drudge indicates, one of the questions where the lawyer was telling this witness what to do, it's a question what this jury consultant [is] more or less telling that person what to do.

Let me read from... the Blumenthal opinion....

"It is true that in some cases the attorney-client privilege may be extended to non lawyers who are employed to assist the lawyer in the rendition of professional legal services. This extension of the privilege to non lawyers, however, must be strictly confined within the narrowest possible limits consistent with the logic of its principle and should only occur when the communication was made in confidence for the purpose of obtaining legal advice from the lawyer. If what is sought is not legal advice or if the advice itself is the accountant's rather than the lawyers, no privilege exists.

Here it appears that Mr. Horowitz was retained for the value of his own advice, not to assist the defendant's attorney in providing their legal advice, and the attorney has not carried the burden of demonstrating that the privilege applies."

[W]e all know what a jury consultant does. He doesn't come down and tell you in the case of Expert Z you have to blah, blah and you have to be careful of the countervailing opinion in B v. J. He or she says come on now, you've got to spruce up. You have to look this way ...

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