Avoiding the ‘Al Capone’ Trap: The Dangers of Supplying Inaccurate Information to FERC

82

Gregory K. Lawrence is a partnerin the Energy and Commodities

(E&C) group of the law firmCadwalader, Wickersham & Taft

LLP. Mr. Lawrence focuses hispractice on enforcement and

investigation involving Federal andstate agencies, regulatory

proceedings, projects, negotiations,and agency litigation relating to the

wholesale and retail electricity andnatural gas industries.

Tom Kuczajda is a special counselin the Litigation and Business Fraudgroups of the law firm of Cadwalader,

Wickersham & Taft LLP. Mr.Kuczajda focuses his practice on

securities litigation and compliance,enforcement matters and

investigations involving federal andstate agencies and authorities and

foreign government agencies.

1040-6190/$–see front matter # 2013 Elsevier

Avoiding the ‘Al Capone’Trap: The Dangers of SupplyingInaccurate Informationto FERC

A bit like Al Capone’s tax infractions relative to hissuspected greater misdeeds, allegations that a marketparticipant made an inaccurate statement to the FederalEnergy Regulatory Commission is a tempting piece oflow-hanging fruit for the agency’s Enforcement divisionwhen manipulation claims may be difficult to prove. Somepractical considerations outlined here can help protectagainst such claims.

Gregory K. Lawrence and Tom Kuczajda

One of the primary objectives of

the Federal Energy Regulatory

Commission’s Enforcement

division is to prevent, or at least

punish, manipulation of the

energy markets. But market par-

ticipants and practitioners should

be just as leary of accidentally

tripping over the seemingly

simple rule against providing

inaccurate information to FERC

as they are of intentionally

committing systemic fraud. A bit

Inc. All rights reserved., http://dx.doi.org/10.1016

like Al Capone’s tax infractions

relative to his suspected greater

misdeeds, allegations that a mar-

ket participant made an inaccu-

rate statement to FERC is a

tempting piece of low-hanging

fruit for FERC Enforcement when

manipulation claims may be dif-

ficult to prove. Below, we outline

FERC’s increasing willingness to

pursue allegedly inaccurate

statements made to FERC

or FERC Staff, and practical

/j.tej.2013.09.012 The Electricity Journal

http://dx.doi.org/10.1016/j.tej.2013.09.012

N

considerations for how best to

protect against such claims.1

I. If ProvingManipulation Is TooDifficult, Include anAdditional Offense

Enron’s failureprompted a regulatoryand enforcementresponse designed togive FERC moreauthority and moreoptions to prevent andpunish wrongdoing.

FERC Enforcement investiga-

tions are in high gear as the

agency continues to move to

establish itself as a credible anti-

fraud enforcer. Without the long

history of enforcement of its

brethren at the Department of

Justice, Securities and Exchange

Commission, and Commodities

and Futures Trading Commis-

sion, FERC seems to be playing an

aggressive game; and arguably its

most prominent weapon are the

anti-manipulation rules covering

electricity and natural gas mar-

kets.2 Several settlements invol-

ving electricity manipulation

allegations have given FERC the

benefit of some arguably good

press, and at least a few pending

manipulation matters present the

possibility of litigation in the near

future – though only regarding

conduct that occurred several

years ago.3 FERC, however, has

yet to litigate to conclusion any

alleged electricity manipulation

cases. Meanwhile, the DC Circuit

recently slapped down FERC’s

claim that it had jurisdiction over

allegations of manipulation of

natural gas futures that occurred

over six years ago.4

T he resulting perception that

energy manipulation claims

are difficult and time-consuming

to litigate and ultimately prove

ovember 2013, Vol. 26, Issue 9 1040-6190/$–se

also happens to be the reality.5

Without an established, success-

ful anti-manipulation litigation

regime, FERC has shown itself

willing to pursue other

additional offenses. Section

35.41(b) of the Commission’s

rules6 – which prohibits making

inaccurate statements to FERC – is

most prominent among

these additional allegations.

In numerous cases, some briefly

described below, FERC has

either included or separately

alleged violations of Rule 35.41(b)

in the context of fraud and

manipulation investigations. It is

perhaps easy to see why: such

claims appear much simpler for

FERC to establish than a sub-

stantive fraud or manipulation

claim, yet still carry potentially

substantial penalties.7 An appre-

ciation for the legal parameters of

Rule 35.41(b), including its due

diligence defense, and an under-

standing of how FERC has pur-

sued alleged violations of the

Rule, provide the necessary

background for considering of

how to avoid falling victim to

those allegations.

e front matter # 2013 Elsevier Inc. All rights reserved

II. Enron’s Legacy: TheMarket Behavior Ruleand AccurateInformation

Among the impact that

Enron’s failure had on the energy

markets was the regulatory and

enforcement response designed

to give FERC more authority and

more options to prevent and

punish wrongdoing. One piece

of the regulatory overhaul

included the adoption of

Market Behavior Rule 3, later

codified as Rule 35.41(b).8

That Rule provides:

A Seller must provide accurate

and factual information and not

submit false or misleading

information, or omit material

information, in any

communication with the

Commission . . . unless Seller

exercises due diligence to prevent

such occurrences.9

V iolations of the Rule can

give rise to sanctions,

including civil penalties under

Section 316A of the Federal

Power Act, and the suspension

of market-based rate (MBR)

authority under Section 206 of

the FPA.10

FERC has applied Rule 35.41(b)

in a wide variety of contexts,

regardless of intent,11 and

whether or not FERC or FERC

Staff were actually misled. For

example, FERC has:

� Suspended MBR authority of

a seller as a result of a

misrepresentation in a discovery

dispute, even though Staff was

aware of the correct information

(J.P. Morgan Ventures Energy

., http://dx.doi.org/10.1016/j.tej.2013.09.012 83


Notably,there is nomateriality

requirementwith

respect toaffirmative

misstatements.

84

Corp., Order Suspending MBR

Authority, 141 FERC � 61,131

(2012) (‘‘JP Morgan’’));

� Ordered monetary penalties

where entities misrepresented

and omitted facts in the context of

their respective MBR applications

(see e.g. Vista Energy, 139 FERC �61,154 (2012); Moussa I. Kourouma,

135 FERC � 61,245 (2011)

(‘‘Kourouma’’));

� Included violations of Rule

35.41(b) as part of a settlement of

market manipulation allegations

(Deutsche Bank Energy Trading,

LLC, 142 FERC � 61,056 (2013);

Constellation Energy Commodities

Group, Inc., 138 FERC � 61,168 at P

2 (2012); Gila River Power, LLC, 141

FERC � 61,136 (2012);

� Approved a settlement

including monetary penalty

where seller that repeatedly

misled Staff in connection with an

investigation of the entity’s

bidding behavior in PJM (Edison

Mission, 123 FERC � 61,170

(2008)).

III. Basic LegalStandards under Rule35.41(b)

A violation of Rule 35.41(b)

occurs only where a seller

submitted false or misleading

information or omitted material

information and failed to exercise

due diligence to prevent such a

submission or omission.

Although ‘‘intent’’ or ‘‘scienter’’

are not required,12 inadvertent

misstatements or omissions are

not intended to be covered by

the Rule.13


Notably, there is no materiality

requirement with respect to

affirmative misstatements. A

seller arguably violates the Rule if

a statement to FERC is factually

inaccurate or untrue, regardless of

the relative importance of the

inaccuracy (though still subject to

a due diligence defense).14 Unlike

affirmative misstatements, how-

ever, omissions only violate the

Rule if they are ‘‘material.’’

Using securities law precedent

as a guide, FERC assesses mate-

riality based on whether there

was a substantial likelihood that a

reasonably prudent person would

have viewed the omitted infor-

mation as altering the total mix of

information available.15

IV. Advice of Counseland the Due DiligenceDefense against Rule35.41(b) Allegations

Rule 35.41(b) provides an

explicit due diligence defense.

‘‘[T]he due diligence exception

was added to the Commission’s

rules for the purpose of ensuring


that inadvertent submissions are

not sanctioned.’’16 The Commis-

sion has not outlined what spe-

cific efforts constitute due

diligence,17 but has explained

generally that it expects adequate

processes designed to prevent

inaccuracies and material

omissions.18

[W]here the seller can demonstrate

that it has implemented proce-

dures reasonably designed to

comply with our rules, we will

treat that evidence as a rebuttable

presumption that the seller did not

engage in conduct prohibited by

[Rule 35.41(b)]. . .. As such, we

expect the seller submitting the

information to have in place pro-

cesses that assure the accuracy of

the submitted information.19

The defense necessarily recog-

nizes that an entity may make a

misstatement or a material omis-

sion despite exercising adequate

due diligence – i.e. if the defense is

to have any meaning, a misstate-

ment or material omission cannot

be proof, alone, that diligence was

lacking.

I mportantly, reliance on

advice of counsel may consti-

tute a significant component of a

due diligence defense. Proof of

reliance on counsel is generally

permitted to establish that a

respondent acted with care.20

In particular, FERC Staff has

explicitly recognized that reliance

on counsel, as in the securities

law context, can demonstrate

good faith and due care.21

In practice, however, FERC has

found that a blanket and generic

assertion of reliance on counsel

may not be sufficient to immunize

a participant against a Rule



FERC has suggestedthat the defense can bedeemed adequate only ifa participant canexplain in detail thespecific steps taken andprocesses in place usedto ensure accuracy.

N

35.41(b) violation. Rather, FERC

has suggested that the defense can

be deemed adequate only if a

participant can explain in detail

the specific steps taken and pro-

cesses in place used to ensure

accuracy. In response to a Show

Cause Order, JP Morgan argued

that it did not violate Rule 35.41(b)

because it observed adequate due

diligence procedures by hiring

experienced lawyers to handle its

discovery issues with CAISO and

FERC Enforcement.22 The Com-

mission disagreed, stating that,

‘‘[c]ontrary to JP Morgan’s asser-

tions, its retainer of qualified

attorneys does not constitute

sufficient due diligence to exon-

erate JP Morgan’s violations.’’23

The Commission noted further,

that JP Morgan’s response to the

Show Cause Order lacked ‘‘any

explanation or description of how

its counsel performed due dili-

gence to ensure that all statements

it made to the Commission in

those filings were accurate.

Instead, JP Morgan’s

response suggests that reliance

on counsels’ memories was

‘sufficient, if imperfect, due

diligence.’’’24

I t is critical, therefore, that

market participants establish

and maintain adequate processes

to best ensure the accuracy of

information submitted to FERC –

whether in their day-to-day

operations and regulatory setting,

or in the context of ongoing FERC

investigations or litigation with

the agency. The inclusion of in-

house and outside counsel as part

of that process is prudent and

likely necessary in most instances


given the specialized nature of

energy regulation. By seeking out

well-informed advice from cred-

ible counsel as part of an estab-

lished procedure for handling

FERC-related communications,

market participants can build

protections against inadvertent

misstatements or omissions

under Rule 35.41(b), or unfair

allegations of such violations.

And, of course, by involving

outside counsel, in-house

principals are further removed

from potential claims against

them as individuals. A tree

without low-hanging fruit is

much harder to pluck.

V. Managing PotentialPrivilege Waiver Issues

Even when counsel is utilized

as part of an effective diligence

process, there is a potential ser-

ious rub: waiver of the privilege.

Assertion of reliance on counsel

may act as a waiver of any pri-

vilege relating to those specific

communications at issue or as to

the entire subject matter of those


communications. Generally, a

respondent cannot use attorney-

client communications as a sword

on one hand to defend against

alleged violations, while using the

attorney-client privilege as a

shield to prevent disclosure of

those communications to

an adversary, like FERC.25

Participants, however, can

mitigate the potential for waiver,

and the potential impact of any

waiver.

The inclusion of counsel,

or mention of counsel’s

involvement, in the diligence

process does not automatically

result in waiver. In response to

FERC concerns or allegations

relating to a potential Rule

35.41(b) violation, a seller should

not hesitate to highlight the fact

that trustworthy and well-

informed counsel was involved in

evaluating or submitting the

information at issue. Emphasiz-

ing counsel’s involvement can

impart much of the benefit of a

more formal assertion of ‘‘reliance

on counsel,’’ without putting

specific communications at issue

and without the need to discuss

specific legal advice.26 This result

is obviously easier to accomplish

when there is a robust and well-

documented diligence process, in

which legal advice and involve-

ment of counsel play roles but are

not the sole steps.

C ircumstances may arise,

however, where the

specific advice of counsel is more

pertinent to a due diligence

defense. In such cases, handing

over specific communications

to FERC may be practically



As the pressure forFERC Enforcement to

continue to assert itselfincreases, so too will the

pressure for FERC topursue violations that

it believes are easier toprove.

86

unavoidable to the extent a seller

chooses to continue to present

reliance on counsel as part of the

defense. Several options exist

that may limit such waiver or its

impact.

� First, FERC Staff may agree to

review relevant attorney

communications ‘‘in camera’’

without taking possession of the

privileged materials, and with an

understanding that the

respondent does not intend to

waive privilege. Doing so may

permit FERC Staff to come to a

reasonable conclusion about the

validity of a due diligence defense

while avoiding formal and

physical production of privileged

materials.

� Second, the respondent can

seek an explicit non-waiver

agreement with FERC Staff.

Under such an agreement, the

parties would agree: to define

narrowly the scope of any

privileged information to be

provided; that the production of

any privileged information is not

intended and will not act as a

broad subject-matter waiver as to

FERC; and that the production is

not intended and will not act as a

waiver for any privilege with

respect to third parties. Although

courts do not often enforce such

non-waiver agreements as to

third parties,27 protections against

FERC’s later attempts to pry open

the privilege further, and at least

the possibility of limiting third-

party waiver, creates considerable

incentives for sellers to try to

reach agreement on these terms

before handing over privileged

information.


VI. A Word to the Wise:Avoiding the Al CaponeTrap of Rule 35.41(b)

As the pressure for FERC

Enforcement to continue to assert

itself increases, so too will the

pressure for FERC to pursue

violations that it believes are

easier to prove and that permit the

agency to up the ante during

negotiations regarding resolving

pending investigations. While

manipulation cases stand out as

the white whale in FERC’s hunt-

ing grounds, smart market parti-

cipants will remain very cautious

against other fish in FERC’s

Enforcement sea – Rule 35.41(b)

violations. Market participants

must be truthful. In addition to

watching what they say to FERC,

market participants in particular

should consciously and explicitly

follow well-documented dili-

gence procedures in all commu-

nications with FERC and should

utilize competent and well-

informed in-house and outside

counsel to protect their businesses

and the individuals within them.

When the time comes to defend


against both ‘‘big’’ and ‘‘small’’

alleged violations, why tempt

FERC with the low-hanging fruit

of inaccurate and poorly dili-

genced statements? Al Capone

did not worry much about his

taxes, and look what happened to

him.&

Endnotes:

1. We focus here on the application ofthe rule to communications with FERCor its Staff, which includesEnforcement, the Division of Audits,and the new Division of Analytics andSurveillance, for example. The Rulealso applies to communications withan ISO/RTO, its market monitors,and jurisdictional transmissionproviders.

2. 18 C.F.R. § 1c.1 and 1c.2 (2012);Prohibition of Energy MarketManipulation, Order No. 670, 114 FERC� 61,047 (2006) (Order No. 670).

3. See e.g. J. Wellinghoff Statement(March 15, 2012) (at http://www.ferc.gov/media/statements-speeches/wellinghoff/2012/03-15-12-wellinghoff.asp) (announcingsettlement of allegations of electricitymarket manipulation againstConstellation Energy CommoditiesGroup for conduct occurring in 2007and 2008); FERC Approves MarketManipulation Settlement withDeutsche Bank (Jan. 22, 2013) (athttp://www.ferc.gov/media/news-releases/2013/2013-1/01-22-13.asp);Order to Show Cause against BarclaysBank PLC and others, Docket No.IN08-8-000 (Oct. 31, 2012)(Enforcement Staff seeking nearly $490million in penalties and disgorgementfor alleged manipulation occurringfrom November 2006 to December2008); FERC News Release, FERC, JPMorgan Unit Agree to $410 Million inPenalties, Disgorgement to Ratepayers(Jul. 30, 2013) (at http://www.ferc.gov/media/news-releases/2013/2013-3/07-30-13.asp)(announcing settlement of allegationsof market manipulation stemmingfrom bidding activities in electricity


http://www.ferc.gov/media/statements-speeches/wellinghoff/2012/03-15-12-wellinghoff.asp




http://www.ferc.gov/media/news-releases/2013/2013-1/01-22-13.asp






N

markets in California and the Midwestfrom Sept. 2010 through Nov. 2012).

4. Hunter v. FERC, 711 F.3d 155 (D.C.Cir. 2013).

5. See e.g. G. Lawrence and T. Healey,FERC Enforcement: The Pit and thePendulum, ELEC. J., April 2013.

6. 18 C.F.R. § 35.41(b).

7. The ISOs and RTOs have similarprovisions in their tariffs. The CFTCalso has a similar rule prohibiting falsestatements, recently expanded by theDodd-Frank Act, and has also not beenshy to include allegations of itsviolation as an ‘‘add-on’’ charge tomore serious fraud allegations. Priorto Dodd-Frank, CEA Section 6(c)prohibited the dissemination of falseinformation to the Commission inregistration applications or reportsfiled with the CFTC. The Dodd-FrankAct went further to forbid thedissemination of false informationmade in ‘‘any statement of materialfact made to the Commission in anycontext.’’ As a result, the CFTC hasincreased its prosecution of falsestatement actions in recent years. Seee.g. CFTC v. Arista LLC, et al., No. 12-CV-9043 (S.D.N.Y. Jun. 4, 2013)(Amended Complaint) (addingallegations that the defendantsmisrepresented certain accountbalances, asset values, and feecalculations in a letter sent to theCFTC’s Division of Enforcement, inviolation of CEA Section 6(c)).

8. Rule 35.41(b) codified FERC’sMarket Behavior Rule 3, with noalteration. See Conditions for PublicUtility Market-Based Rate AuthorizationHolders, Order No. 674, 114 FERC �61,163 (2006) (codifying MarketBehavior Rule 3 in Part 35); OrderAmending Market- Based Rate Tariffsand Authorizations, 105 FERC �61,218 (2003) (finalizing MarketBehavior Rules).

9. A ‘‘Seller’’ includes ‘‘any personthat . . . seeks authorization to engagein sales for resale of electric energy,capacity or ancillary services atmarket-based rates . . .’’ 18 C.F.R. §35.36(a)(1).

10. 16 U.S.C. § 825o-1; 16 U.S.C. §824e. ‘‘[T]he Commission has


repeatedly emphasized thatcompanies failing to adhere to theCommission’s rules and regulationsare subject to suspension or revocationof their market-based rate authority, inaddition to the disgorgement of unjustprofits and the assessment of civilpenalties.’’ J.P. Morgan Ventures EnergyCorp., Order to Show Cause, 140 FERC� 61,227 at 2 (2012) (citing, e.g.,Enforcement of Statutes, and Regulationsand Orders, 123 FERC � 61,156, at P 49(2008); Investigation of Terms andConditions of Pub. Util. Market-BasedRate Authorizations, 114 FERC � 61,165,at P 32 (2006); Investigation of Terms andConditions of Pub. Util. Market-Based

Rate Authorizations, 105 FERC � 61,218at PP 6, 146, 151).

11. Intent is not an element of Rule35.41(b). See infra, discussing the duediligence defense.

12. ‘‘No showing of the respondent’sintent or mindset is necessary in orderto demonstrate that a violation ofsection 35.41(b) has occurred.’’ J.P.Morgan Ventures Energy Corp., OrderSuspending MBR Authority, 141 FERC� 61,131 at P 45 (2012) (‘‘JP Morgan’’),141 FERC � 61,131 at P 45 (citingKourouma, 135 FERC � 61,245 atPP 20–22).

13. JP Morgan, Order SuspendingMBR Authority, (‘‘[T]he due diligenceexception was added to theCommission’s rules for the purpose ofensuring that inadvertent submissionsare not sanctioned.’’) (citing Moussa I.Kourouma, 135 FERC � 61,245 at P 21(2011) (‘‘Kourouma’’); Market Behavior


Rules Order, 105 FERC � 61,218 at P110). See infra, Section III.A.

14. See, e.g., JP Morgan, Order to ShowCause, 140 FERC � 61,227 at P 3 (2012)(explaining that the Rule ‘‘only appliesif a seller submits (i) ‘false ormisleading information’ or (ii) if theseller ‘omits material information’’’)(emphasis added); JP Morgan, OrderSuspending MBR Authority, 141 FERC� 61,131 at P 37 (examining whether ornot misstatements were accurate, notwhether they were material, anddistinguishing material omissionsfrom inaccurate statements in thatregard: ‘‘filings with the Commissionwere not only inaccurate, but omittedmaterial information’’); seeInvestigation of Terms and Conditions ofPublic Utility Market-Based RateAuthorizations, Order on Rehearing,107 FERC � 61,175 at P 93 (2004)(‘‘Market Behavior Rules RehearingOrder’’) (rejecting comments thatsuggested FERC revise the rule so thata violation would require a findingthat ‘‘the information submitted bemisleading on an issue that is materialto the subject of the communication orsubmission and creates an artificialprice’’).

15. See, e.g., Cobb Customer Requestersv. Cobb Electric Membership Corp., 136FERC � 61,084 at P 42 (2011) (‘‘Guidedby securities law precedent, a fact isconsidered material if there is asubstantial likelihood that areasonable market participant wouldconsider it in making its decision totransact because the material factsignificantly altered the total mix ofinformation available.’’) (internalquotations and citations omitted). Inpractice, FERC has applied a‘‘reasonably prudent person’’standard in defining materiality. SeeKourouma, 135 FERC � 61,245 at P 35(2011). FERC’s application of Rule35.41(b), however, suggests that theCommission will look at the relativeimportance of the omitted facts in thecontext of the particular statements atissue, even if not directly related to anMBR application or MBR eligibility.See, e.g., JP Morgan, Order SuspendingMarket-Based Rate Authority, 141FERC � 61,131 at PP 37–39, 56 (finding,in the context of a discovery dispute



88

related to an underlying marketmanipulation investigation, that JPMorgan omitted material facts byfailing to acknowledge that JPMorgan’s counsel had been informedseveral times that FERC authorizedthe relevant market monitor tocontinue its investigation, andordering a suspension of JP Morgan’sMBR authority, without regard to theunderlying manipulationinvestigation, because of ‘‘thefundamental role of honesty andcandor in the Commission’s market-based rate regime’’). The Commissionhas also stated that ‘‘sellers [are]accorded a safe harbor under [Rule35.41(b)] to allow for reasonable,unforeseen differences regarding themeaning of our [materiality]requirement as it may be applied, i.e.,our rule will not be applied against aseller shown to have exercised duediligence.’’ Investigation of Terms andConditions of Public Utility Market-BasedRate Authorizations, Order onRehearing, 107 FERC � 61,175 at P 95(2004).

16. JP Morgan, Order SuspendingMBR Authority, 141 FERC � 61,131 atP 45 (citing Kourouma, 135 FERC �61,245 at P 21; Market BehaviorRules Order, 105 FERC � 61,218 atP 110).

17. FERC has adopted a case-by-caseapproach. See Market Behavior RulesRehearing Order 107 FERC � 61,175,Comm’n Brownell, Concurring, at P 1(‘‘The order appropriately rejectsrequests to provide specific guidanceon the application of this due diligencedefense. There is a wide range offactors relevant to establishingwhether a seller has exercised duediligence in a particular case – theexistence of procedures designed toprevent violations, the history ofseller’s enforcement of suchprocedures, and thepervasiveness of the violations, toname a few. Therefore, thedevelopment of precedent on thisissue is best left to case-by-caseadjudication.’’).

18. Although FERC has explicitlyrejected claims of due diligence insome instances, to date FERC has not


accepted any respondent’s duediligence defense in any written order.

19. Market Behavior Rules RehearingOrder, 107 FERC � 61,175, at P 67 and110.

20. See e.g. United States v. Van Allen,525 F.3d 814, 823 (7th Cir. 2008); UnitedStates v. Wenger, 427 F.3d 840, 853 (10thCir. 2005); United States v. Taglione, 546F.2d 194, 200 (5th Cir. 1977); Linden v.United States, 254. F.2d 560, 568 (4thCir. 1958).

21. See Seminole Energy Services, LLC,Docket No. IN09-9-000 (Staff Reportand Recommendation at 29), quoting

United States v. Peterson, 101 F.3d 375,381 (5th Cir. 1996), and citingfavorably Howard v. SEC, 376 F.3d1136, 1147-49 (D.C. Cir. 2004).

22. JP Morgan, Order SuspendingMarket-Based Rate Authority, 141FERC � 61,131 at P 27.

23. Id. at P 42.

24. Id. at P 43.

25. See e.g. SEC v. Lavin, 111 F.3d 921,933 (D.C. Cir. 1997) (attorney-clientprivilege cannot be used ‘‘both as asword and as a shield’’); IdealElectronic Security Co. v. InternationalFidelity Insurance Co., 129 F.3d 143, 151(D.C. Cir. 1997) (waiver occurs whereclient ‘‘places otherwise privilegedmatters in controversy’’); Elec.Workers Local No. 26 Pension TrustFund v. Trust Fund Advisors, Inc.,266 F.R.D. 1, 12 (D.D.C. 2010)


(asserting reliance on advice ofcounsel places attorney-clientcommunications at issue).

26. See Southern Cal. Gas Co. v. PublicUtilities Com., 50 Cal.3d 31 (Cal. 1990)(holding that respondent’s indicationthat they had sought and receivedadvice from counsel when evaluatingthe reasonableness of contract termsdid not act as an implied waiver of theattorney-client privilege, because thedefendant could establish its defense‘‘without disclosing its actual legaladvice’’).

27. Generally, disclosure to thegovernment provides broad subjectmatter waiver as to third parties. Seee.g. In re Subpoenas Duces Tecum, 738F.2d 1367 (D.C. Cir. 1984) (disclosureof investigative report and lawyernotes to SEC waived privilege, makingthe documents available to plaintiff-shareholders in a subsequent civilaction); Permian Corp. v. United States,665 F.2d 1214 (D.C. Cir. 1981)(disclosure of documents to the SECwaived privilege, making thedocuments discoverable by theDepartment of Energy in an unrelatedinvestigation). Although the existenceof a non-waiver agreement mayprotect against broad third-partywaiver, such agreements have notoften operated to do so – especially inrecent years. Compare e.g. Teachers Ins.and Annuity Ass’n of America v.Shamrock Broadcasting Co., Inc., 521F.Supp. 638 (S.D.N.Y. 1981)(recognizing ‘‘selective waiver’’ ofprivileged materials to thegovernment where ‘‘the right to assertthe privilege in subsequentproceedings is specifically reserved atthe time the disclosure is made’’); withe.g. In re Columbia/HCA HealthcareCorp. Billing Practices Litig., 293 F.3d289 (6th Cir. 2002) (rejecting ‘‘selectivewaiver’’ of privilege and workproduct protections); In re Merck & Co.,Inc. Sec., Deriv. & ERISA Litig., 2012WL 4764589 (D.N.J. Oct. 5, 2012)(rejecting ‘‘selective waiver,’’and holding that voluntaryproduction of privileged materials togovernment rendered the materials nolonger privileged, and collectingcases).



Documents

Avoiding the ‘Al Capone’ Trap: The Dangers of Supplying Inaccurate Information to FERC