(Reuters) - Apple Inc’s hope for a mid-case appeal to shield sensitive internal documents -- including 2018 email exchanges between CEO Tim Cook and top corporate officials as Apple weighed whether to tell investors that its revenue estimate was off by billions of dollars -- was dashed on Thursday.
U.S. District Judge Yvonne Gonzalez Rogers, who is overseeing a shareholder class action alleging that Apple misled investors about softening demand for iPhones in China in early 2019, rejected Apple’s request that she certify an interlocutory appeal of a ruling that the company must give shareholders some of the internal documents for which Apple had claimed attorney client privilege. Rogers held in Thursday’s decision that Apple’s lawyers at Orrick, Herrington & Sutcliffe failed to satisfy any of the three requirements for an interlocutory appeal of a non-dispositive order.
Apple isn't yet ready to concede, however. On Friday, the company filed a last-ditch mandamus petition to the 9th U.S. Circuit Court of Appeals, asking the appellate court to reverse Rogers’ “clearly erroneous” decision. The petition contends that Rogers' ruling “threatens to eviscerate Apple’s attorney-client privilege and to jeopardize protections for many other companies seeking to comply with the law as they go about doing business.” The company also asked Rogers to stay her order that it turn over the materials until the 9th Circuit has reviewed and resolved its mandamus petition.
Apple and lead counsel James Kramer of Orrick did not respond to my query. Shareholder lawyer Shawn Williams of Robbins Geller Rudman & Dowd declined to comment.
The crux of Apple's argument to maintain a shield on the internal documents is that there’s uncertainty in the 9th Circuit’s existing standard for evaluating privilege claims for so-called dual purpose documents that involve both business and litigation advice. Last January, the appeals court ruled in In re Grand Jury that courts should consider whether business advice was a primary purpose for the communication, in which case the documents might not be protected by privilege.
But the appeals court left open the question of whether privilege shields documents that have both a business and legal purpose if legal advice is a primary purpose of the communication but not necessarily the sole primary purpose. (The defendant in the In re Grand Jury case has asked the U.S. Supreme Court for review, arguing that the justices must resolve variations between the federal circuits on the privilege test for dual purpose documents.)
The judge initially tasked with evaluating Apple’s privilege claims, U.S. Chief Magistrate Judge Joseph Spero, applied the 9th Circuit’s In re Grand Jury test. He concluded in August that (among other things) some communications between Apple CEO Cook, general counsel Katherine Adams and CFO Luca Maestri involved business advice and must therefore be turned over to shareholders. Rogers upheld Spero’s findings in a Sept. 7 order, prompting Apple to ask the district judge for leave to appeal to the 9th Circuit.
Apple argued, in effect, that the magistrate might have reached a different conclusion about some of the contested documents if he had applied a more expansive test that preserves privilege whenever litigation is a primary purpose of communications.
In Apple’s view, when Cook sought advice from Adams and Maestri in 2018, as the company weighed whether to issue a public revision of its revenue estimates based on a slowing Chinese market, the communications between these top officials clearly anticipated the prospect of litigation. (And rightly so: After Apple disclosed the revised revenue estimate, its share price fell by about $16. Shareholders, predictably, sued, citing Cook’s previous assertion that the Chinese market remained strong.)
Therefore, in Apple’s view, the company is entitled to privilege for communications with a primary litigation purpose, even if the documents also discussed the business implications of a downward revision of revenue estimates.
Rogers disagreed with Apple’s assumptions in Thursday’s decision. As an initial matter, the judge said, the magistrate did not indicate that any of the communications he ordered Apple to turn over actually had both legal and non-legal primary purposes. So even if the 9th Circuit clarified its standard for dual purpose documents, Rogers said, it’s unlikely that any refinement of the Grand Jury test would change the magistrate’s fact-specific findings about particular documents he deemed to be non-privileged.
The judge also said that Apple overstated any uncertainty in the 9th Circuit test. Although the appeals court specifically noted that it was not deciding whether litigation advice must be the primary purpose – as opposed to only a primary purpose – in order to maintain privilege, Rogers pointed out that the 9th Circuit said in the Grand Jury decision that such distinctions will rarely matter.
Moreover, Rogers said, Apple failed to show that an interlocutory appeal would advance the litigation, which is quite far along. Apple has already moved for summary judgment, and shareholders have filed motions to exclude Apple experts at trial. “It is not clear," Roger wrote, "that the scope of plaintiff’s claims and what is available to support them will even change based on the discoverability of the documents in question.”
Rogers ordered Apple to produce the documents within 24 hours.
Instead, Apple filed a mandamus petition. The company, which seems to be dead-set on keeping Cook’s emails private, told the 9th Circuit that Spero, the magistrate, erred when he concluded that privilege does not apply to communications with a business purpose even if those communications also involved litigation advice. Rogers compounded that error, Apple said, in upholding Spero’s order and refusing to allow the company to seek interlocutory appeal.
“The district court assessed Apple’s attorney-client privilege claims under a single-primary-purpose test for the dual-purpose communications at issue,” Apple insisted. “That test is not required by this court’s precedent; conflicts with well-settled principles of common law and the weight of authority; and is unworkable in the business context.”
Apple told the 9th Circuit that this dispute is bigger than just its case because CEOs like Cook need attorney-client protection when they seek advice from other executives on complex issues that implicate both business and litigation concerns.
Will the 9th Circuit bite? Stay tuned.
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