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Case 1:06-cv-00305-MBH Document 75 Filed 11/06/2007 Page 1 of 6

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.

THE UNITED STATES’ RESPONSE TO PLAINTIFF’S MEMORANDUM

REGARDING PROBABLE EVIDENTIARY DISPUTES THAT WILL ARISE WITH

RESPECT TO THE GOVERNMENT’S SPOLIATION OF EVIDENCE CLAIM



Plaintiff takes the position, based on the “law of the case” doctrine, that the Government

should be precluded from presenting any evidence of plaintiff’s alleged failure to preserve

potentially relevant evidence. Pl. mem., p. 5. In support of that contention, plaintiff relies on

excerpts from the transcript of a hearing in this case held on June 7, 2007. The Court’s findings

and conclusions following that hearing were embodied in its Order entered June 11, 2007, in

which the Court rejected plaintiff’s claim of work-product privilege with respect to three

documents that the Court reviewed in camera. Id. In that Order, the Court stated as follows:

Furthermore, after in camera review, defendant’s first motion to compel was
GRANTED in a bench ruling. The court concluded that the plaintiff’s documents
sought by defendant did not meet the test of preparation in anticipation of
litigation, and were not protected from disclosure under the attorney work-
product privilege. The tax risk letter, the tax change letter, and the in-house
memorandum at issue shall be disclosed to defendant. Dkt. # 38, p. 1.

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Plaintiff contends that, because the Court found that the three documents identified in the

Order were not prepared in anticipation of litigation, for purposes of making a valid claim of

work-product privilege, the Court is now precluded under the “law of the case” doctrine from

finding that plaintiff had any duty to preserve evidence from the time that those three documents

were prepared in 1997 through the close of the IRS examination in 2005. Accordingly, plaintiff

seeks to limit the testimony of its employee, defendant’s witness Andrew Scher, as a matter of

law, on the grounds that, by denying plaintiff’s claim of work-product privilege, the Court has,

in effect, already determined that plaintiff had no duty to preserve evidence in this case.1

Plaintiff’s reasoning is flawed in several respects. First, plaintiff misconstrues the

Court’s June 11 Order. In that Order, the Court ruled only that the three documents it reviewed

in camera were not prepared in anticipation of litigation. Dkt. No. 38, p. 1. The Court did not

make any findings or conclusions regarding the time at which plaintiff’s duty to preserve

evidence was triggered in this case. That issue was not before the Court at that time. Rather, the

issue before the Court was the Government’s motion to compel production of documents with

respect to which plaintiff had claimed work-product privilege. The Court ruled that the

documents were not protected from disclosure. The Court’s Order, on its face, says nothing of

plaintiff’s duty to preserve evidence in this case, and no conclusions on that issue can be inferred

from the Court’s denial of plaintiff’s claim of work-product privilege.

1 Plaintiff also contends that the Government should be precluded from arguing that

plaintiff failed to preserve embedded data in certain electronically stored documents, citing the
new federal e-discovery rules set forth in Fed. R. Civ. P. 26(f). Pl. mem., p. 7. The Government
does not seek embedded data in this matter.

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Second, plaintiff is incorrect in its assumption that “the same ‘anticipation of litigation’

standard controls both the work product and document preservation inquiries.” Pl. mem., p. 5.

Indeed, the case on which plaintiff relies for that proposition makes clear that the same standard

does not apply to both inquiries. In AAB Joint Venture v. United States, 75 Fed. Cl. 432 (2007),

in ruling on AAB’s motion to compel production of documents, this Court addressed both

AAB’s claim that the Government failed to preserve evidence for litigation, id. at 440, and the

Government’s claim of work-product privilege with respect to production of 35 specific

documents requested by AAB, id. at 444. In analyzing the Government’s duty to preserve

evidence, the Court stated:

Federal courts have long recognized a duty of the parties to preserve relevant
evidence for litigation. The duty to preserve attaches not just when suit is filed,
but whenever a party knows or should know that evidence may be relevant to
anticipated litigation. The scope of the duty to preserve extends to electronic
documents, such as e-mails and back-up tapes.

Id. at 440-441, citing, inter alia, Kronish v. United States, 150 F.3d 112, 126 (“The obligation to

preserve evidence arises . . . most commonly when suit has already been filed, . . . but also on

occasion in other circumstances, as for example when a party should have known that the

evidence may be relevant to future litigation.”). On the facts presented in that case, this Court

concluded that the Government’s duty to preserve evidence began when an administrative

“request for equitable adjustment” was filed in July 2002, approximately 2 years prior to the

commencement of the litigation. Id. at 442.

Turning to the Government’s claim of work-product privilege, the Court noted that all of

the 35 documents at issue were generated after July 2002, the date on which the Court

determined that the Government “could reasonably have anticipated litigation and was,

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therefore, obligated to preserve documents for discovery purposes.” Id. at 445. The Court

observed, “[i]t would be incongruous for the Court to find that Defendant had a duty to preserve

documents for discovery because of impending litigation, yet could not assert the work product

doctrine to protect documents prepared in anticipation of that litigation.” Id. Nevertheless,

applying the standard applicable to the work product doctrine, the Court ultimately concluded

that the Government had failed to show that the 35 documents at issue were protected from

disclosure as work product:

Defendant fails to set forth objective facts to support its claim of [work-product]
privilege. Moreover, Defendant does not show that there was a real possibility,
rather than just a remote possibility, of litigation at the time of preparation of the
work product, and that the documents were prepared in anticipation of litigation
rather than for a business purpose. Accordingly, the Court finds Defendant’s
invocation of the work product doctrine to be deficient. Id.

Thus, AAB Joint Venture makes clear that the assertion in plaintiff’s memorandum herein that

“the same ‘anticipation of litigation’ standard controls both the work product and document

preservation inquiries” is incorrect.

Third, determining whether a party has made a valid claim of work-product privilege

requires a document-by-document analysis that focuses not only on the timing of the preparation

of the document but also the purpose for the preparation of the document–i.e., whether its

purpose was for business reasons or in anticipation of litigation. Id. at 444-445; Pac. Gas &

Elec. Co. v. United States, 69 Fed. Cl. 784, 798, 808 (2006). This is a more stringent analysis

than that required in determining the point in time at which a party had an obligation to preserve

evidence. See, AAB Joint Venture, 75 Fed. Cl. at 445. Thus, when a Court finds that a party has

failed to set forth a valid claim of work-product privilege with respect to a particular document,

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one cannot infer from that decision that, at the time that document was prepared, the party

otherwise had no obligation to preserve any documents whatsoever.

Finally, plaintiff’s attempt to prevent the Government from making a case for spoliation

of evidence at this stage of the proceedings is improper. During the pre-trial proceedings, the

parties submitted joint statements of issues of law and issues of fact. Dkt. Nos. 54 and 59. The

issue of failure to preserve evidence was included in both joint statements. Dkt. No. 54, p. 2;

Dkt. No. 59, p. 3, ¶ 21. Further, this issue was discussed by the parties at the pre-trial conference

in this matter. At no time prior to trial did plaintiff raise its new theory that this issue is

precluded under the law of the case doctrine. In fact, plaintiff agreed to the admission of the

depositions of Dawson Newberry (Ex. 1335) and Terence Walsh (Ex. 1336), both of which were

specifically focused on this exact issue. The parties jointly presented the spoliation issue as one

of fact and law for trial and post-trial briefing in this matter.

In conclusion, plaintiff has failed to show any legal basis on which to bar the

Government from presenting its case on this issue. Thus, the United States respectfully requests

that the Court deny plaintiff’s request to limit Mr. Scher’s testimony and that the Court allow the

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Government an opportunity to present evidence on plaintiff’s failure to preserve evidence in this

matter.

Respectfully submitted,

s/ David N. Geier
DAVID N. GEIER
Attorney of Record
U.S. Department of Justice, Tax Division
Post Office Box 26
Washington, D.C. 20044
Telephone: (202) 616-3448
Facsimile: (202) 307-0054

RICHARD T. MORRISON
Assistant Attorney General
DAVID GUSTAFSON
Chief, Court of Federal Claims Section
STEVEN I. FRAHM
Assistant Chief, Court of Federal Claims Section

s/ Mary M. Abate
Of Counsel

November 6, 2007

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