In re LTV Sec. Litigation

In re LTV Sec. Litigation

Opinion

 [*598]  ORDER RE ATTORNEY-CLIENT, WORK-PRODUCT AND SPECIAL OFFICER PRIVILEGES

This securities fraud class action is being prosecuted by a certified class of buyers and sellers of various securities of LTV, Inc. against LTV, its steel subsidiary, Jones [**2]  & Laughlin Steel Co. ("J&L"), LTV's accountants, Ernst & Whinney ("E&W") (formerly Ernst and Ernst) and various individuals who served as officers, directors or underwriters of LTV and J&L (during the three-year period of questioned accounting.) See In re LTV Securities Litigation, 88 F.R.D. 134 (N.D.Tex.1980).

The class alleges violations of the federal securities laws in connection with open market transactions in eight classes of LTV securities over a three year period beginning in 1974 and ending on July 17, 1978. At the core of the consolidated complaint is the claim that Defendants engaged in a "scheme and conspiracy" to defraud shareholders by overvaluing the inventories of J&L through a series of accounting manipulations.

LTV has refused to disclose certain information sought by the class, asserting both attorney-client and work-product privileges. The disputed discovery includes answers to deposition questions put to LTV's Vice President-Controller James F. Powers and documents submitted for in camera inspection. Anticipating additional claims of privilege, the class also requests a framework for future discovery.

Hiring Lawyers

The timing of LTV's decision to consult [**3]  counsel in response to the events triggering this lawsuit bears closely on the validity of its current claims of privilege. Davis, Polk and Wardwell ("Davis Polk"), a New York City law firm, was hired near November 8, 1977, an engagement apparently triggered by service of SEC subpoenas on LTV, J&L  [*599]  and E&W. Davis Polk represented LTV during the SEC's investigation of LTV's methods of accounting for inventories of J&L Steel and superintended an intensive examination of LTV's files and financial procedures. LTV's Senior Vice President and General Counsel, G. Emmett Smith, Esq., his staff, and counsel for E&W, the Pittsburg law firm of Kirkpatrick, Lockhart, Johnson & Hutchison ("Kirkpatrick Lockhart") worked together in this task.

LTV's Vice President-Controller James F. Powers assisted, at the specific direction of LTV's chief executive officer. Powers' assignment included aiding attorneys in understanding the accounting in addition to reviewing certain prior financial statements of LTV and J&L. Powers was not employed by LTV during the period of questioned procedures, having joined LTV in July, 1977.

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