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Case 1:06-cv-00305-MBH Document 21 Filed 04/03/2007 Page 1 of 35

No. 06-305 T

(Judge Marian Blank Horn)

IN THE UNITED STATES COURT OF FEDERAL CLAIMS



CONSOLIDATED EDISON COMPANY
OF NEW YORK, INC. & SUBSIDIARIES

v.

THE UNITED STATES,

Plaintiff

Defendant



DEFENDANT'S MOTION TO COMPEL



EILEEN J. O’CONNOR
Assistant Attorney General

DAVID GUSTAFSON
STEVEN I. FRAHM
DAVID N. GEIER
JOSEPH A. SERGI
JAMES E. WEAVER
ADAM R. SMART

Attorneys
Tax Division
Department of Justice
Washington, D.C. 20044
(202) 616-3448 (telephone)
(202) 307-0054 (facsimile)

Case 1:06-cv-00305-MBH Document 21 Filed 04/03/2007 Page 2 of 35

TABLE OF CONTENTS

TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

QUESTIONS PRESENTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

STATEMENT OF FACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

A.

B.

Background – The LILO Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Plaintiff’s Production of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

1.

2.

3.

Documents Produced to the Internal Revenue
Service During Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Documents Produced to Defendant During Discovery . . . . . . . . . . . . . . . 7

Shearman & Sterling Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

A.

B.

Legal Opinions Disclosed to Pricewaterhouse are Not Privileged . . . . . . . . . . . 13

The Privilege Asserted Does Not Attach or Has Been Waived With
Respect to 29 Documents Identified on Plaintiff’s Privilege Log . . . . . . . . . . . . 15

1.

2.

Documents Disclosed to the IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Documents Disclosed in Discovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

a.

b.

General Objections Do Not Preserve a
Privilege Claim as to Documents Produced . . . . . . . . . . . . . . . . 18

Plaintiff’s Disclosures Can Not Be Considered Inadvertent . . . . 19

(i)

(ii)

Plaintiff Waived the Attorney-Client Privilege as to
the Leasing White Paper . . . . . . . . . . . . . . . . . . . . . . . . . 20

Plaintiff Waived the Privilege as to 13 Documents
Produced on December 13, 2006 . . . . . . . . . . . . . . . . . . . 22



Case 1:06-cv-00305-MBH Document 21 Filed 04/03/2007 Page 3 of 35

C.

Plaintiff Waived any Privilege With Respect to the Subject
Matter of Information Contained in Documents it Produced . . . . . . . . . . . . . . . 24

1.

2.

Subject Matter Waiver as to the Documents
Produced to the Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Subject Matter Waiver Related to the Shearman
& Sterling Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

ii



Case 1:06-cv-00305-MBH Document 21 Filed 04/03/2007 Page 4 of 35

TABLE OF AUTHORITIES

FEDERAL CASES

Alaska Pulp Corp., Inc. v. United States, 44 Fed. Cl. 734 (1999) . . . . . . . . . . . . . . . 21-23

Cabot v. United States, 35 Fed. Cl. 442 (1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Carter v. Gibbs, 909 F.2d 1450 (Fed. Cir. 1990)

Duplan Corp. v. Deering Milliken. Inc., 397 F. Supp. 1146 (D.S.C. 1974) . . . . . . . . . 14

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Energy Capital Corp. v. United States, 45 Fed. Cl. 481 (2000) . . . . . . . . . . . . . . . . . . 12

Eureka Finance Corp. v. Hartford Accident & Indemnity Co., 136 F.R.D. 179

(E.D. Cal. 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

First Federal Sav. Bank of Hegewisch v. United States, 55 Fed. Cl. 263 (2003) . . . . . 12

First Heights Bank, F.S.B. v. United States, 46 Fed. Cl. 312 (2000)

. . . . . . . . . . . . . . 27

Fisher v. United States, 425 U.S. 391 (1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

GFI, Inc. v. Franklin Corp., 265 F.3d 1268 (Fed. Cir. 2001) . . . . . . . . . . . . . . . . . . 24-25

In re G-I Holdings Inc., 218 F.R.D. 428 (D. N.J. 2003) . . . . . . . . . . . . . . . . . . . . . 19, 28

In re Grand Jury Proceedings, 33 F.3d 342 (4th Cir. 1994)

. . . . . . . . . . . . . . . . . . 14-15

In re Grand Jury Proceedings, 727 F.2d 1352 (4th Cir. 1984) . . . . . . . . . . . . . . . . 13, 15

International Bus. Machine Corp. v. United States, 37 Fed. Cl. 599 (1997)

. . . . . . . . 13

National Helium Corp. v. United States, 219 Ct. Cl. 612, 614 (1979) . . . . . . . . 13, 20-21

N.C. Electric Membership Corp. v. Carolina Power & Light Co., 110 F.R.D. 511

(M.D.N.C. 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Pacific Gas & Electric Co. v. United States, 69 Fed. Cl. 784 (Ct. Cl. 2006) . . . . . . 28-29

Pavlik v. Cargill, Inc., 9 F.3d 710 (8th Cir.1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Permian Corp. v. United States, 665 F.2d 1214 (D.C. Cir. 1981) . . . . . . . . . . . . . . . . . 12

iii



Case 1:06-cv-00305-MBH Document 21 Filed 04/03/2007 Page 5 of 35

In re Pioneer Hi-Bred International, Inc., 238 F.3d 1370 (Fed. Cir. 2001) . . . . . . 24, 26

Precision Pine & Timber, Inc. v. United States, No. 98-720, 2001 WL

1819224 (Fed. Cl. Mar. 1, 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Republican Party of N.C. v. Martin, 136 F.R.D. 421 (E.D.N.C. 1991) . . . . . . . . . . . . . 14

United States v. Exxon Corp., 94 F.R.D. 246 (D.D.C. 1981) . . . . . . . . . . . . . . . . . . . . 27

United States v. Kelsey-Hayes Wheel Co., 15 F.R.D. 461 (E.D. Mich. 1954)

. . . . . . . 22

United States v. Under Seal, 748 F.2d 871 (4th Cir. 1984), cert. granted

sub nom, United States v. Doe, 469 U.S. 1188 (1985)

. . . . . . . . . . . . . . . . . . . . 13-14

Universal City Development Partners, Ltd. v. Ride & Show Engineering,

Inc., 230 F.R.D. 688 (M.D. Fla. 2005)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Upjohn Co. v. United States, 449 U.S. 383 (1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Westinghouse Electric Corp. v. Republic of the Philippines, 951 F.2d 1414

(3d Cir. 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Yankee Atomic Electric Co. v. United States, 54 Fed. Cl. 306 (2002) . . . . . . . . . . . . 25-27

MISCELLANEOUS

8 Wigmore, Evidence §§ 2192, 2292 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-13, 24




iv



Case 1:06-cv-00305-MBH Document 21 Filed 04/03/2007 Page 6 of 35

No. 06-305 T

(Judge Marian Blank Horn)

IN THE UNITED STATES COURT OF FEDERAL CLAIMS



CONSOLIDATED EDISON COMPANY
OF NEW YORK, INC. & SUBSIDIARIES

v.

THE UNITED STATES,

Plaintiff

Defendant



DEFENDANT'S MOTION TO COMPEL



Pursuant to RCFC 37(a)(2)(B), the United States moves this Court to compel Plaintiff to

produce the documents withheld from Plaintiff’s response to the United States’ Requests for

Production of Documents. The parties dispute whether the attorney-client privilege applies or

has been waived. Counsel for the United States discussed the issues with Plaintiff’s counsel in

correspondence and by telephone in a good faith effort to resolve the matter, but was

unsuccessful. The Court’s assistance is essential, and Defendant submits the following in

support of its motion:

QUESTIONS PRESENTED

1.

Whether Defendant is entitled to the final opinion letters of Plaintiff’s outside
counsel and supporting and related documents concerning the LILO Transaction
because the documents lack the requisite confidentiality for the attorney-client



Case 1:06-cv-00305-MBH Document 21 Filed 04/03/2007 Page 7 of 35

2.

3.

privilege to apply, because Plaintiff intended to provide and did provide the final
opinion letters to a third-party.

Whether Plaintiff waived the attorney-client privilege with respect to twenty-nine
documents identified on its privilege log (and any objection to defendant’s
present use of the documents) by producing them to the IRS in unredacted form
during audit and to Defendant in the course of discovery.

Whether there has been a subject matter waiver of the attorney-client privilege
with respect to legal advice by Plaintiff’s outside and in-house counsel
concerning the LILO Transaction, because Plaintiff produced documents on audit
and during discovery that contain information similar to or on the same subject
matter.

INTRODUCTION

As to some of the documents or information defendant is seeking, Plaintiff previously

disclosed earlier drafts or similar information to Defendant and other third parties. Therefore

either the privilege does not attach to the withheld documents or information, or the privilege has

been waived by Plaintiff’s conduct.

As to other information, Plaintiff actually produced it at some point in this litigation, but

now claims that it is privileged. While Defendant obviously already has this information, it is

included in this motion, because Defendant wishes to use it in upcoming depositions; but,

Plaintiff has indicated it will continue to assert a privilege, and Defendant’s discovery will be

frustrated without relief.

On its Revised December 13, 2006 Privilege Log (attached as Exhibit A-21), Plaintiff

1All exhibits referred to in this motion are attached to the Declaration of David N. Geier,

filed concurrently. Where Plaintiff has produced multiple copies or versions of a document it
claims as privileged, Defendant has not attached each copy or version as an exhibit. Instead,
Defendant cites an exhibit that is an instance of the document to discuss its substance and, for
completeness, simply references the bates numbers for each additional version or copy. Of
course, if the Court so desires, Defendant will be happy to provide all copies and versions of
documents produced by Plaintiff during discovery.

2



Case 1:06-cv-00305-MBH Document 21 Filed 04/03/2007 Page 8 of 35

claimed a privilege with respect to thirty-one documents.2 A summary of Plaintiff’s productions

relevant to Plaintiff’s claims of privilege is included in the following chart3:

Document

Description

EZH
White
Paper
(Ex. C-4)

Contains a review of the LILO Transaction,
including the risks benefits, legal impediments
and lease terms, all in summary fashion, for
presentation to Plaintiff’s board. The document
also contains a discussion of the expected
opinion Plaintiff’s counsel would render
regarding the tax merits of the transaction.

Dates Unredacted
Copies Produced

1. 9/25/06
(CE012018-23)

When
Privilege
First
Claimed
12/13/06

2. 10/31/06
(PF004350-55)

3. 12/13/06
(PF008275-80)
(various drafts:
PF008614-20,
PF008621-28,
PF008629-36,
PF008637-44,
PF008645-51,
PF008652-58,
PF008790-96,
PF009307-14,
PF009316-20)

2Two of the thirty-one documents are not at issue in this motion. CE003029-44 and

CE0030358-67, identified on page four of the log.

3As reflected in the chart, many of the documents were produced multiple times.

3



Case 1:06-cv-00305-MBH Document 21 Filed 04/03/2007 Page 9 of 35

Same as EZH White Paper, except it is for
another LILO transaction considered by
Plaintiff

1. 11/3/06
(PF007327-33)

ENECO
White
Paper
(Exs. C-5
& C-7)

2. 12/13/06
(PF008258-64)
(PF008265-72)

1. IRS Audit (US
US7047-48)
2. 9/25/06
(CE006516-17)
3. 10/31/06
(PF005936-37)
1. IRS Audit
(US03450-51)
2. 11/3/06
(PF005618-19)
3. 12/13/06
(PF007852-53)
1. IRS Audit
(US03452-53)
2. 11/3/06
(PF005647-48)
3. 12/13/06
(PF007854-55)
1. IRS Audit
(US01594-97)

DePlautt
Email1
(Ex. C-6)

Discussion of the proposed Treasury
Regulation on the LILO Transaction

Con Ed
Memo 1
(Ex. C-1)

Discusses status of work being performed by
Plaintiff’s Counsel with respect to the impact of
the soon to be implemented Treasury
regulations and the tax risks associated with the
LILO Transaction

Con Ed
Memo 2
(Ex. C-2)

Discusses status of work being performed by
Plaintiff’s Counsel with respect to the impact of
the soon to be implemented Treasury
Regulation and the tax risks associated with the
LILO Transaction

Risk
Analysis
(Ex. C-3)

Incorporated expected conclusions to be
reached by Shearman & Sterling regarding the
bona fides of the transaction and a discussion of
the risks concerning the impact of the Treasury
Regulation

11/3/06
with
respect to
certain
redactions
12/13/06
with
respect to
further
redactions
Never

11/3/06

11/3/06

Never

4



Case 1:06-cv-00305-MBH Document 21 Filed 04/03/2007 Page 10 of 35

Internal email discussing legal advice from
Shearman & Sterling

1. 12/13/06
(PF008570-72)

12/13/06

1. 12/97 draft to
PWC
(Accountant)
2. 12/97-1/98 final
to PWC
(Accountant)
3. 11/3/06
(draft: PF 006115-
19
1. 11/3/06
(PF007258-59)

Never as
to draft

11/3/06 as
to final

Never as
to draft
11/3/06 as
to final

DePlautt
Email 2
(Ex. C-8)

LILO
Opinion
(Ex. C-9)

Legal opinion letter pertaining to LILO
Transaction

Equipment
Opinion
(Ex. C-10)

Legal opinion concerning preexisting
equipment lease and its impact on the lease
transaction



STATEMENT OF FACTS

A.

Background – The LILO Transaction

This case involves the proper tax treatment to be accorded Plaintiff’s LILO shelter

transaction. Consolidated Edison Company of New York, Inc. & Subsidiaries (“Con Ed” or

“Plaintiff”) participated in a lease-in/lease-out (“LILO”) shelter transaction involving a power

station (the “RoCa3” facility owned by South Holland Electric (N.V. Electriciteitsbedrifj Zuid-

Holland) (hereinafter “EZH”)) located in the Netherlands (hereinafter the “LILO Transaction”).

Plaintiff, a United States taxpayer, through a subsidiary, purported to lease property from its

owner, EZH, under a head lease and simultaneously purported to lease the property back to EZH

under a sublease. As is typical in a LILO transaction, the counter-party, EZH, is an entity, in this

case a foreign corporation, that is not subject to federal income taxation, and therefore is unable

5



Case 1:06-cv-00305-MBH Document 21 Filed 04/03/2007 Page 11 of 35

to claim federal income tax benefits, like depreciation, associated with ownership of the RoCa3

facility. Plaintiff claimed very substantial rent and interest deductions associated with the

purported head lease, very little lease income, and therefore large amounts of income from other

sources were sheltered from tax. Despite the execution of paperwork, EZH or its successors

continued to operate the property as before and retained all of the benefits and burdens

associated with the property’s use and ownership. The general issue raised in this refund suit is

whether Plaintiff is entitled in 1997 to deduct rent, interest, and transaction costs in connection

with the LILO Transaction.

Defendant contends that the tax deductions Plaintiff claimed are improper for several

reasons. Plaintiff did not acquire a genuine leasehold interest in property in 1997 when it

participated in the LILO Transaction. Plaintiff also did not incur a genuine debt obligation for

which it is entitled to claim tax deductions. Perhaps most important for the purposes of this

motion to compel, Defendant contends that the LILO Transaction should be disregarded under

the economic substance doctrine, which requires, among other inquiries, that the Court examine

Plaintiff’s motivation for engaging in the LILO Transaction.

B.

1.

Plaintiff’s Production of Documents

Documents Produced to the Internal Revenue Service During Audit

Plaintiff produced information to the IRS in connection with the audit of its 1997 tax

year. This material, which was included in the IRS’s administrative files, was then delivered to

the Department of Justice to help defend this case. The same material was then produced to

Plaintiff in electronic format on or about September 25, 2006, as part of Defendant’s initial

disclosures.

6



Case 1:06-cv-00305-MBH Document 21 Filed 04/03/2007 Page 12 of 35

Two of the documents Plaintiff produced during the audit discussed, inter alia, the status

of work being performed by Plaintiff’s lawyers (Shearman & Sterling LLP and in-house counsel)

and its accountants (Arthur Andersen and Pricewaterhouse). (“Con Ed Memos 1 & 2” attached

as Exhibits C-1 & C-2 respectively). According to the memoranda, Plaintiff’s lawyers were

working for Plaintiff on an analysis of the impact of soon to be implemented Treasury

Regulation and the tax risks associated with the LILO Transaction. (Id.).

Plaintiff also produced during audit several versions of its “Risk Analysis” of the

transaction (a section of Volume 1 of Plaintiff’s “EZH Briefing Memo”). The Risk Analysis

incorporated the expected conclusions to be reached by Shearman & Sterling regarding the bona

fides of the LILO Transaction, and a discussion of the risks concerning the impact of the

Treasury Regulation identified above. (See, e.g., US01594-97, attached as Exhibit C-3).

Plaintiff also produced an email from Brian DePlautt, vice-president at Consolidated Edison

Development (“CED”), the subsidiary of Consolidated Edison, Inc. through whom the LILO

transaction was effectuated, containing a discussion of the proposed Treasury Regulation and its

impact on the LILO Transaction.4 (US7047-48, hereinafter “DePlautt Email 1” attached as

Exhibit C-6).

2.

Documents Produced to Defendant During Discovery

On or about September 25, 2006, Plaintiff produced documents to Defendant in

electronic format as part of its initial disclosures. As part of this production, Plaintiff produced

4Even though this email does not indicate that the discussion originated with counsel, a
review of the information contained in the redacted version of the EZH White Paper indicates
that the substance of the communication contained in DePlautt Email 1 came from Shearman &
Sterling.

7



Case 1:06-cv-00305-MBH Document 21 Filed 04/03/2007 Page 13 of 35

an unredacted copy of a “Leasing White Paper” (CE012018-23, hereinafter “EZH White Paper”,

redacted version attached as Exhibit C-45). The document contains a review of the LILO

Transaction, including the risks, benefits, legal impediments and lease terms, all in summary

form, written for presentation to Plaintiff’s board of trustees or directors. The EZH White Paper

also includes a discussion of the expected legal opinion Plaintiff’s private counsel would render

regarding the merits of the LILO Transaction. Plaintiff produced this same White Paper to

Defendant a second time, also without redactions, on October 31, 2006, but with a new bates

number (PF004350-55, see Exhibit C-4).6 The October 31, 2006 production was the result of a

change in the bates numbering Plaintiff used for the documents it produced.

Plaintiff also produced, in unredacted form, DePlautt Email 1 (discussing proposed

Treasury Regulation and its impact on the LILO Transaction) for a second and third time in the

September 25 (CE006516-17) and October 31 (PF005936-37) productions. DePlautt Email 1

appears to contain information similar to the information redacted in the EZH White Paper.

(Compare Exhibit C-6 with, Exhibit C-4).

5Although this document and others were produced to Defendant during discovery
without redactions, Defendant has attached only redacted versions in connection with this
motion, so as to preserve the status quo while this motion is pending. However, should the Court
request it, unredacted versions can be submitted for in camera review.

6On or about November 3, 2006, in response to Defendant’s Request for Production,

Plaintiff produced a partially redacted copy of yet another White Paper, describing another LILO
shelter that Plaintiff was evaluating, identified as ENECO. (PF007327-33 also labeled
CE011957-63, hereinafter “ENECO White Paper”, redacted version attached as Exhibit C-5).
Although this document was produced with a single redaction for privilege, Plaintiff did not
redact information about its counsel’s expected opinion on tax risk. As discussed above, this
same opinion on risk was produced to Defendant on September 25 and October 31, 2006.

8



Case 1:06-cv-00305-MBH Document 21 Filed 04/03/2007 Page 14 of 35

Plaintiff did not assert a privilege with respect to the EZH White Paper (Exhibit C-4) or

DePlautt Email 1 (Exhibit C-6) when it later produced subsequent first privilege log on

November 3,2006. (Attached as Exhibit A-1).

On November 16, 2006, Defendant challenged Plaintiff’s privilege claims, advising

Plaintiff of the inconsistency in claiming privilege as to documents it had produced. (Nov. 16,

2006 correspondence, attached as Exhibit B-1). Plaintiff responded on December 1, 2006,

claiming that some of its prior disclosures, including the EZH White Paper, were inadvertent and

that Defendant should destroy the documents. (Dec. 1, 2006 correspondence, attached as Exhibit

B-2).

When Defendant expressed concern regarding Plaintiff’s basis for requesting the

destruction of documents (Dec. 12, 2006 correspondence, attached as Exhibit B-3), Plaintiff

responded that it had produced over seven thousand pages of documents,7 that counsel had

reviewed and re-reviewed the documents prior to their production, that the disclosure of the

information was inadvertent and that Plaintiff wished to retain its privilege as to the disclosed

documents (Dec. 14, 2006 correspondence, attached as Exhibit B-4). Plaintiff also continued to

argue that its General Objections to defendant’s discovery are sufficient to preserve Plaintiff’s

privilege. (Id.).

While the parties were discussing whether Plaintiff’s productions a month earlier were

privileged and inadvertent, on or about December 13, 2006, Plaintiff made its second

supplemental production in responses to Defendant’s Request for Production of Documents.

7The actual number was 5,520 pages when Plaintiff first produced the EZH White Paper

in unredacted form as part of its initial disclosures.

9



Case 1:06-cv-00305-MBH Document 21 Filed 04/03/2007 Page 15 of 35

Plaintiff’s second supplemental production again included such purportedly “privileged” and

inadvertently produced documents and information. The production included a third unredacted

copy of the EZH White Paper and a second unredacted copy of the ENECO White Paper, this

time with different bates numbers (PF008275-80 and PF008258-64, respectively). (See Exhibits

C-4 and C-5). Plaintiff also produced additional unredacted drafts of the EZH White Paper

(PF008614-20, PF008621-28, PF008629-36, PF008637-44, PF008645-51, PF008652-58,

PF008790-96, PF009307-14, and PF009316-20) (see Exhibit C-4), another unredacted version of

the ENECO White Paper (PF008265-72, redacted version attached as Exhibit C-7), an

unredacted copy of Con Ed Memo 2 (PF007854-55) (see Exhibit C-2), and an unredacted

internal email discussing legal advice from Shearman & Sterling (PF008570-72, hereinafter

“DePlautt Email 2”, a redacted version attached as Exhibit C-8).

Each document was produced in unredacted form, notwithstanding that nearly all were

identified on Plaintiff’s December 13, 2006, supplemental privilege log. (Exhibit A-2). With

this latest production, some of the “inadvertently” disclosed information had been now been

turned over to Defendant multiple times. Defendant once again notified Plaintiff that its

privilege claims were inconsistent with its production. (See December 19 & 20 correspondence,

attached as Exhibits B-5 & B-6).

On December 21, 2006, and in a follow-up conversation with Defendant’s counsel,

Plaintiff’s counsel blamed the December 13, 2006 production of “privileged” information on an

error in the production of the CD ROM containing the information, and that counsel had not

reviewed the CD ROM produced to the United States. (See Dec. 21, 2006 correspondence,

attached as Exhibit B-7).

10



Case 1:06-cv-00305-MBH Document 21 Filed 04/03/2007 Page 16 of 35

3.

Shearman & Sterling Opinion

On or about November 3, 2006, in response to the United States’ First Set of Requests for

Production, Plaintiff produced unredacted copies of draft legal opinions issued by its counsel,

Shearman and Sterling. The draft opinions relate to (1) the LILO Transaction at issue here (PF

006115-19, hereinafter the “LILO Opinion”, attached as Exhibit C-9) and (2) a preexisting

equipment lease and its impact on the lease transaction (PF007258-59, hereinafter the

“Equipment Opinion”, attached as Exhibit C-10).8 Based on Plaintiff’s November 3, 2006,

disclosure of the draft LILO and Equipment Opinions, Defendant requested the final opinion and

related material. (Exhibit B-1).

In response, Plaintiff stated that draft opinions produced to Defendant had previously

been shared with its accountants, Pricewaterhouse, and were therefore discoverable and not

privileged. (Exhibit B-2). Plaintiff explained that Pricewaterhouse did not receive the final legal

opinion or any other related communications, and that these materials are privileged. (Id.).

Plaintiff argues that there was no waiver of privilege as to the final legal opinions or related

communications about those opinions. Plaintiff also claims there was no subject matter waiver

with regard to its disclosures to Pricewaterhouse, because the disclosures were not made in the

context of a judicial proceeding, and the disclosures did not provide Plaintiff with any “tactical

advantage.” (Id.). Plaintiff offered that it has “not relied upon, and does not intend to rely upon,

the legal advice received from Shearman & Sterling or any other counsel in the context of this

litigation.” as further justification for withholding this information. (Id.). Finally, Plaintiff

8The date and description on the privilege log do not make it clear whether the document

listed as CE011543-44 is a copy of the Equipment Opinion. (See Exhibit A-2).

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contended that the information constitutes attorney work product.9 (Id.). As set forth below,

these reasons are factually inaccurate and therefore do not support Plaintiff’s position.

ARGUMENT

The attorney-client privilege is “the oldest of the privileges for confidential

communications known to the common law” and its purpose is “to encourage full and frank

communications between attorneys and their clients and thereby promote broader public interests

in the observance of law and administration of justice.” Upjohn Co. v. United States, 449 U.S.

383, 389 (1981). The classic test for application of the attorney-client privilege is:

(1) the asserted holder of the privilege is or sought to become a client; (2) the
person to whom the communication was made (a) is a member of the bar of a
court [and] . . . (b) in connection with this communication is acting as a lawyer;
(3) the communication relates to a fact of which the attorney was informed (a) by
his client (b) without the presence of strangers (c) for the purpose of securing
primarily either (I) an opinion on law or (ii) legal services or (iii) assistance in
some legal proceeding [and] . . . (4) the privilege has been (a) claimed and (b) not
waived by the client.

First Fed. Sav. Bank of Hegewisch v. United States, 55 Fed. Cl. 263, 266 (2003) (citing Energy

Capital Corp. v. United States, 45 Fed. Cl. 481, 484- 485 (2000)); see, e.g., 8 Wigmore,

Evidence § 2292 at 554.

Like all privileges and immunities, “[i]t ought to be strictly confined within the narrowest

possible limits consistent with the logic of its principle.” J. Wigmore, Evidence §§ 2192 at 70

and 2291 at 554 (McNaughton rev. 1961); Permian Corp. v. United States, 665 F.2d 1214, 1221

(D.C. Cir. 1981). Therefore, courts, including this one, strictly construe the scope of the

9Inconsistent with its claim of work product in anticipation of litigation, Plaintiff had
expressed its belief that there existed virtually no risk with respect to this transaction. (See
Exhibit C-3).

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privilege. See Cabot v. United States, 35 Fed. Cl. 442, 444 (1996) (citing Eureka Fin. Corp. v.

Hartford Accident & Indem. Co., 136 F.R.D. 179, 183 (E.D. Cal. 1991)).

As with all evidentiary privileges, the party asserting the attorney-client privilege has the

burden of proving all essential elements including the element of non-waiver. Fisher v. United

States, 425 U.S. 391 (1976); Cabot, 35 Fed. Cl. at 444. The privilege is waived by the client or

prospective client if the communication is later disclosed to a third party, and the client either did

not wish to keep the materials confidential, or “did not take adequate steps in the circumstances

to prevent disclosure” of the privileged communication. National Helium Corp. v. United States,

219 Ct. Cl. 612, 614 (1979); International Bus. Mach. Corp. v. United States, 37 Fed. Cl. 599,

603 (1997).



A.

Legal Opinions Disclosed to Pricewaterhouse are Not Privileged

The attorney-client privilege has no application where the communications are not

private and confidential between the client and the attorney. See Cabot, 35 Fed. Cl. at 444.

Documents sent to third-parties, including accountants, cannot be privileged, since they are not

“private and confidential” as between the attorney and her client. In re Grand Jury Proceedings,

727 F.2d 1352, 1357 (4th Cir. 1984). Even documents intended to be, but never actually,

produced to third-parties, are not privileged, because a privileged communication is only a

communication that was intended to be private and confidential. Id. at 1357-58.

Likewise, preliminary drafts of letters or documents which are intended to be published

to others also lack the necessary intended confidentiality to constitute privileged

communications. N.C. E1ectric Membership Corp. v. Carolina Power & Light Co., 110 F.R.D.

511, 517 (M.D.N.C. 1986) (citing United States v. Under Seal, 748 F.2d 871 (4th Cir. 1984),

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cert. granted sub nom, United States v. Doe, 469 U.S. 1188 (1985), appeal after remand, 757

F.2d 600 (vacated on other grounds); Duplan Corp. v. Deering Milliken. Inc., 397 F. Supp. 1146,

1168 (D.S.C. 1974)). Not only are the drafts themselves not privileged, but the communications

and details underlying the drafts to be published to third parties are not subject to the privilege.

See In re Grand Jury Proceedings, 33 F.3d 342, 354 (holding that not only must the party

produce final audit letters and SEC filings, but also the underlying drafts, notes, and memoranda

reflecting client communications on the subject). Such underlying details include all preliminary

drafts, any communications, including information to be published or from which the published

information is derived, and any attorney’s notes containing material necessary to the preparation

of the document. Under Seal, 748 F.2d at 875 n.7; Republican Party of N.C. v. Martin, 136

F.R.D. 421, 427 (E.D.N.C. 1991).

As described above, Plaintiff produced the draft Shearman & Sterling LILO Opinion

(Exhibit C-9) and the Equipment Opinion (Exhibit C-10) in response to Defendant’s discovery

requests. The draft LILO Opinion also was provided to Plaintiff’s accountant, Pricewaterhouse,

on December 10, 1997 (See PF6113, attached hereto as Exhibit C-11), in response to Plaintiff

circulating a draft tax opinion by Pricewaterhouse on December 9, 1997. (See PF005602-5605,

attached as Exhibit C-12).

While Defendant does not have a copy of the final Shearman & Sterling opinion, it does

have a document Plaintiff has produced, stating that Plaintiff intended to produce Shearman &

Sterling’s LILO Opinion to Pricewaterhouse. (See PF006324-26, see row 33, attached as Exhibit

C-14). Contrary to this clear indication in its own documents, Plaintiff asserted in its December

1, 2006, correspondence to defendant that “[t]o Con Edison’s knowledge, neither the final legal

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opinion nor any other related communications were provided to Pricewaterhouse.” (Exhibit B-

2).

Since Plaintiff at least intended to disclose the final Shearman & Sterling opinion letters

to Pricewaterhouse, and also may have disclosed them,10 the attorney-client privilege does not

attach to the final opinion letters or the communications and details underlying the final

opinions. In re Grand Jury Proceedings, 727 F.2d at 1357; In re Grand Jury Proceedings, 33

F.3d at 354.

B.

The Privilege Asserted Does Not Attach or Has Been Waived With
Respect to 29 Documents Identified on Plaintiff’s Privilege Log

As a result of its repeated disclosures to the United States, Plaintiff has waived any

potential privilege as to twenty-nine (29) of the thirty-one (31) documents listed as privileged in

Plaintiffs’ December 31, 2006 privilege log.11 (Exhibit A-2). The reasons for waiver are several.

First, Plaintiff provided the Con Ed Memos 1 and 2 (Exhibits C-1 & C-2) to the IRS, but

now seeks to prevent Defendant from using them in this case. (See Exhibit A-2, pages 1 & 2:

PF005618-19, PF005647-48, and PF007852-53). Second, although Plaintiff claims privilege on

10 Due to the uncertainty, Defendant has issued third party discovery to Pricewaterhouse

to determine exactly what they reviewed.

11 Defendant has identified other, redacted documents produced by Plaintiff that are not
listed on its privilege log. (See, e.g., PF003022-003038, attached as Exhibit C-16). Although
Defendant alerted Plaintiff to its production of redacted materials without listing them on its
privilege log (see Exhibit B-1), Plaintiff never amended its privilege log to include this
document, and therefore has not made a valid claim of privilege with respect to the redacted
information. Plaintiff therefore is obligated to produce this document in unredacted form. It
should also be recognized that Plaintiff has redacted information from documents produced to
Defendant for reasons other than privilege. (See Exhibit B-2 and Exhibit A-2, at page 4).
Plaintiff’s practice in doing so belies any claim that its redaction of information in Exhibit C-16
should be treated as a claim of privilege.

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the White Papers and other memoranda reflecting advice of counsel, it produced documents

containing substantially similar information to the IRS during audit and to Defendant during

discovery.12 (Compare Exhibits C-3 & C-6 with Exhibit C-4). Third, on several occasions

during discovery, Plaintiff produced documents it now claims are either privileged or contain

privileged information. (See Exhibits C-4, C-5, C-7 & C-8). In fact, some of this production

occurred well after Defendant first notified Plaintiff of the inconsistencies between its production

and its privilege log. The produced documents include unredacted versions of the EZH and

ENECO White Papers that Plaintiff had earlier produced and then asked Defendant to destroy.

(PF008275-80 and PF008258-64, other drafts of the EZH White Paper,13 the ENECO White

Paper (Exhibit C-6), Con Ed Memo 2 (Exhibit C-2), and DePlautt Email 2, discussing the legal

advice provided by counsel (Exhibit C-8)).

Plaintiff attempts in various ways to explain away the significance of its repeated

productions; explanations range from inadvertently not identifying a document as privileged

despite what Plaintiff says was a “thorough” review, to unreviewed errors in the production of

CD ROMs. Plaintiff’s claims of inadvertence also should be evaluated in light of its having

provided to the United States and its accountants, Pricewaterhouse, information about certain

legal opinions it obtained from Shearman & Sterling in connection with this transaction,

12For example, based on the descriptions of documents set forth in Plaintiff’s privilege
log, Con Ed Memos 1 and 2 appear to discuss the substance of documents for which Plaintiff
asserts a privilege (CE005825 and CE008028). (See Exhibit A-2, pages 1- 2).

13 Identified at bates numbers PF008614-20; PF008621-28; PF008629-36; PF008637-44;

PF008645-51; PF008652-58; PF008790-96; PF009307-14; and PF009316-20.

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including both draft opinions (Exhibits C-9 & C-10) and final conclusions, while refusing to

provide other drafts as well as a final version of the opinion to Defendant.

1.

Documents Disclosed to the IRS

During Plaintiff’s audit, it produced numerous documents to the IRS, pertaining to the

LILO transaction at issue in this case, thereby waiving any privilege that otherwise might have

applied to any of the documents or information they contain. Carter v. Gibbs, 909 F.2d 1450,

1451 (Fed. Cir. 1990) (the privilege “evaporates upon any voluntary disclosure of confidential

information to a third party . . . .”), superseded in non-relevant part, Pub. L. No. 103-424, §

9(c), 108 Stat. 4361 (1994); see Westinghouse Elec. Corp. v. Republic of the Philippines, 951

F.2d 1414, 1424 (3d Cir. 1991) (“[I]t is well-settled that when a client voluntarily discloses

privileged communications to a third party, the privilege is waived.”).

Among these documents were the Con Ed Memos 1 and 2 (Exhibits C-1 & C-2), the Risk

Analysis document (Exhibit C-3), and DePlautt Email 1 (Exhibit C-6). These documents

discussed, among other matters, the status of Plaintiff’s counsel’s work with respect to an

analysis of the impact of the soon to be implemented Treasury Regulation and the tax risks

associated with the LILO Transaction, as well as the expected conclusions and final conclusions

of counsel with respect to these issues. (Exhibits C-1, C-2, C-3 & C-6). Consequently, Plaintiff

waived the attorney-client privilege as to the legal advice from Shearman & Sterling identified

on Plaintiff’s privilege log, including that contained in the LILO Opinion, White Papers and

other memoranda. Carter, 909 F.2d at 1451. Further, since the documents disclosed to the IRS

are the same as other documents produced in discovery to which Plaintiff asserts the privilege

still attaches (PF005618-19, PF005647-48, and PF007852-53), these privilege claims should be

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denied. Because this information was disclosed to the IRS during audit, Plaintiff is not entitled

to assert a privilege with respect to (1) the same documents produced during discovery and (2)

information contained within those documents. Further, as described more fully below,

Plaintiff’s disclosure of these documents constitutes a subject matter waiver of the subjects

addressed in those documents.

2.

Documents Disclosed in Discovery

During initial disclosures and in response to the United States’ Request for Production,

Plaintiff produced several unredacted documents, including numerous drafts of the EZH and

ENECO White Papers (see Exhibits C-4, C-5 & C-7), and memoranda and email

communications discussing the legal advice provided by its private and in-house counsel which

it now claims are privileged (see Exhibits C-1, C-2 & C-8). Plaintiff also produced DePlautt

Email 1 (Exhibit C-6), which appears to contain legal advice similar to the information set forth

in the White Papers and other communications that Plaintiff now seeks to shield. Plaintiff has

not asserted a claim of privilege with respect to DePlautt Email 1.

Plaintiff has made a variety of arguments to Defendant that its productions do not result

in a waiver of privilege. None has merit.

a.

General Objections Do Not Preserve a Privilege
Claim as to Documents Produced

Plaintiff argues that its General Objections to defendant’s discovery requests preserves

the privileged nature of produced documents. (See Exhibit A-6). Plaintiff’s General Objection

states “(t)he inadvertent disclosure by Con Edison of any information protected by the

attorney-client privilege, the work-product protection or any other privilege shall not constitute a

waiver of the applicable privilege or protection as to that information or any other related

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information.” (Id.). Plaintiff’s General Objection neither validly asserts a claim of privilege, nor

establishes that prior production actually was inadvertent and does not waive privilege.

To begin with, even if documents are not disclosed, a general objection is insufficient to

validly assert a claim of privilege. See Universal City Development Partners, Ltd. v. Ride &

Show Engineering, Inc., 230 F.R.D. 688, 695 (M.D. Fla. 2005) (noting that a generalized claim

of privilege is insufficient in part because it does not enable the opposing party to assess the

validity of the privilege); Precision Pine & Timber, Inc. v. United States, No. 98-720, 2001 WL

1819224, at *2 (Fed. Cl. Mar. 1, 2001) (finding blanket assertions of privilege improper and

insufficient to preserve a privilege and noting the party’s refusal to withdraw generalized claims

of privilege in assessing sanctions) (a copy is attached hereto); see generally In re G-I Holdings

Inc., 218 F.R.D. 428, 431-32 (D. N.J. 2003) (a general objection on the basis of privilege is

insufficient to maintain that privilege in the face of production of privileged documents).14

b.

Plaintiff’s Disclosures Can Not Be Considered Inadvertent

Plaintiff next claims that documents containing “certain privileged and protected

information was inadvertently not redacted” and produced to Defendant during discovery. As

discussed above, however, some of the information that Plaintiff claims was produced

inadvertently was disclosed previously to the IRS on audit in Con Ed Memos 1 and 2, the Risk

Analysis documents, and DePlautt Email 1 (see Exhibits C-1, C-2, C-3 & C-6), and during

discovery in the form of DePlautt Email 1 (see Exhibit C-6). Despite Plaintiff’s claims, such

repeated disclosures cannot be considered “inadvertent.”

14 Plaintiff’s reliance on its General Objection, made only in response to Defendant’s

Request for Production has no application to the EZH White Paper produced as part of Plaintiff’s
Initial Disclosures. (Exhibit C-4).

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And even if they had been inadvertent, it does not follow necessarily that there has been

no waiver of privilege. Courts generally have followed one of three distinct approaches to

attorney-client privilege waiver when there has been an inadvertent disclosure: (1) the “lenient”

position that holds that an inadvertent disclosure is not “voluntary” and not a waiver; (2) the

“strict” approach provides that an inadvertent disclosure waives the privilege; and (3) the

“middle of the road” approach employing a multi-factored balancing test to determine whether

there has been a waiver. Pavlik v. Cargill, Inc., 9 F.3d 710, 713 (8th Cir.1993). The Court of

Federal Claims follows the “middle of the road” approach, holding that the circumstances

surrounding an inadvertent disclosure must be considered when determining if there has been a

waiver. National Helium Corp. v. United States, 219 Ct. Cl. 612, 616 (1979) (“The fundamental

questions always are: did the client wish to keep back the privileged materials, and did he take

adequate steps in the circumstances to prevent disclosure of such documents.”).

(i)

Plaintiff Waived the Attorney-Client Privilege as to
the Leasing White Paper15

On December 14, 2006, in response to Defendant’s concerns about Plaintiff’s privilege

claims, Plaintiff sent a letter to Defendant, requesting that it destroy an unredacted copy of the

EZH White Paper (Exhibit C-4) that it previously produced to Defendant during discovery on

September 25, 2006. That document had been produced a second time, on October 31, 2006,

albeit with a different bates number (PF004350-55).

15While the discussion in this section is limited to the EZH White Paper, the same
analysis applies to the ENECO White Paper (Exhibit C-5) Plaintiff initially produced on
November 3, 2006.

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In its letter, Plaintiff relied upon National Helium Corp. v. United States, 219 Ct. Cl. 612

(1979) and Alaska Pulp Corp., Inc. v. United States, 44 Fed. Cl. 734, 735 (1999), to argue that its

repeated disclosure of this document was inadvertent. (Exhibit B-2). Neither case supports

Plaintiff’s claim that its disclosures were inadvertent.

In National Helium, the plaintiff disclosed 10 pages out of approximately 150 cartons of

responsive documents. Based on the large number of documents and the short time for

production, the court found no waiver after the plaintiff undertook a “good faith, sufficiently

careful, effort to winnow a relatively small number of privileged materials from a very large

volume of documents to be produced. . . .” National Helium Corp., 219 Ct. Cl. at 615.

Similarly, in Alaska Pulp, the plaintiff sought to recover one privileged document provided to

the defendant by a third party. The plaintiff claimed that the production of the privileged

material was inadvertent, and that the document had not lost its privileged status. The Court held

that given the clear labeling of the document (the documents were clearly labeled “Attorney

Work Product -- Attorney/Client Communication” in bold), the extraordinary large number of

documents (70,000 pages), the short production time (the plaintiff did not ask for an extension)

and plaintiff’s reasonable steps to protect the privilege (including a screening process requiring

the efforts of a team of several lawyers and approximately ten to fifteen paralegals and

secretaries with a spot check at the end) that the privilege had not been waived as to the

privileged material. 44 Fed. Cl. at 736.

Plaintiff’s disclosures fall far short of the standards for inadvertence expressed in

National Helium and Alaska Pulp. The EZH White Paper produced by Plaintiff contained no

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designation that Plaintiff intended to keep it privileged.16 The Court, in United States v. Kelsey-

Hayes Wheel Co., 15 F.R.D. 461, 465 (E.D. Mich. 1954), held “[i]t is difficult to be persuaded

that the documents were intended to remain confidential in light of the fact that they were

indiscriminately mingled with other routine documents of the corporation and that no special

effort to preserve them in segregated files with special protections was made.” Indeed, the EZH

White Paper, did not appear on Plaintiff’s original privilege log and was mingled with the other

documents produced by Plaintiff in its Rule 26 disclosures. (See Exhibit A-1). Plaintiff did not

raise a privilege claim until after it received Defendant’s letter dated November 16, 2007. And

while in National Helium the litigants had to sift through 150 cartons, and Alaska Pulp involved

a production of 70,000 pages, Plaintiff production was much smaller, was made in two stages,

and contained largely duplicative information. Plaintiff produced 5,520 pages in the Initial

Disclosures, and 1,813 pages in response to discovery. Moreover, unlike the two cases Plaintiff

relies on, it faced no burdensome time constraints on production, as it controlled the timing of

the filing of the suit and received an extension of time to respond to the United States’ discovery

requests. Moreover, it appears that Plaintiff relied on information in these documents to support

its Complaint and responses to interrogatories. See infra section C.2.

(ii)

Plaintiff Waived the Privilege as to 13 Documents Produced on December
13, 2006

Even if Plaintiff’s production of the EZH and ENECO White Papers were inadvertent in

its Rule 26 initial disclosures and inadvertent again in its initial response to Defendant’s

16While the ENECO White Paper (Exhibit C-4) originally produced to Defendant did

contain one redaction, there was no other indication that Plaintiff intended to keep the rest of the
document privileged.

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Requests for Production, it in any event waived any privilege on December 13, 2006 when it

again produced these documents, as well as various drafts and other documents referring to the

information. Ironically, at the same time Plaintiff was producing these documents, its counsel

was drafting a letter to Defendant describing its thorough screening procedures. (See Exhibit B-

4).

Plaintiff’s production on December 13, 2006, plaintiff consisted of only 1,781 pages,

labeled PF007843-PF009624, which included eleven documents (and only 68 pages) that it

claimed were privileged. (Exhibit A-2). Plaintiff can hardly claim that it was rushed into

inadvertently producing this small number of documents, as the production occurred 75 days

after Defendant’s initial request for production. Unlike the plaintiffs in National Helium and

Alaska Pulp, Plaintiff had adequate time to perform its review. Nevertheless, each document

appeared unredacted on a CD Rom produced by Plaintiff on December 13, 2006.17 Plaintiff

claims that it, “clearly did not intend to produce the documents in unredacted form, as it included

them on a privilege log. The documents were reviewed and redacted for attorney-client privilege

and work product protection. . . . The error in producing the documents in unredacted form

resulted solely from an error in the production of the CD Rom.” (Exhibit B-7). However, if

Plaintiff had examined even one of the eleven documents on the CD Rom, it easily would have

discovered that they did not contain any redactions.18 Obviously, Plaintiff failed to take adequate

17To confuse matters further, Plaintiff produced additional unredacted copies of Con Ed

Memo 2 (Exhibit C-2) and the ENECO White Paper (Exhibit C-7), with new bates numbers,
PF007854-55 and PF008265-72, which did not appear on Plaintiff’s December 13, 2006
privilege log. (See Exhibit A-2).

18 The Court in Alaska Pulp discussed the importance of random spot checks as a final

measure to protect privilege. Alaska Pulp Corp., 44 Fed. Cl. at 736.

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steps to protect these documents – especially since Plaintiff already was on notice from

Defendant of its previous disclosure of such information. Plaintiff therefore waived any

privilege with respect to these documents.

C.

Plaintiff Waived any Privilege With Respect to the Subject Matter of
Information Contained in Documents it Produced

Once a court determines there has been a waiver of the attorney-client privilege, the

question of the scope of the waiver arises. In GFI, Inc. v. Franklin Corp., 265 F.3d 1268, 1275

(Fed. Cir. 2001), the Federal Circuit determined that generally, a disclosure of a privileged

communication waives the privilege with respect to the same subject matter in other

communications. Accord 8 Wigmore, Evidence, § 2328, at 638 (“The client’s offer of his own or

the attorney’s testimony as to a specific communication to the attorney is a waiver as to all.”). In

In re Pioneer Hi-Bred Int’l, Inc., 238 F.3d 1370 (Fed. Cir. 2001), the Federal Circuit held that

disclosure of legal advice waives the attorney-client privilege “with respect to all documents

which formed the basis for the advice, all documents considered by counsel in rendering that

advice, and all reasonably contemporaneous documents reflecting discussions by counsel or

others concerning that advice.” Id. at 1374-75. The rationale for waiving the attorney-client

privilege as to documents with the same subject matter as the disclosed documents is predicated

on fairness and consistency. 8 Wigmore, Evidence, § 2327.

1.

Subject Matter Waiver as to the Documents Produced to the Government

For the reasons stated above, Plaintiff has voluntarily waived its privilege on the

documents produced to the IRS during audit, specifically (1) the Con Ed Memos 1 and 2

(Exhibits C-1 & C-2), which describe the work being performed by in-house counsel with

respect to the LILO Transaction and describe the analysis being performed by Shearman &

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Sterling relating to the tax risks of the LILO Transaction, (2) the Risk Analysis documents

(Exhibit C-3), which opine on the expected opinions to be issued by Shearman & Sterling with

respect to the LILO Transaction, and (3) DePlautt Email 1 (Exhibit C-6), which discusses,

among other things, the substance of the advice of Shearman & Sterling pertaining to the impact

of the proposed Treasury Regulation. Defendant also is entitled to all documents related to these

same subject matters. GFI, Inc., 265 F.3d at