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In reWeatherford Int'l Secs. Litig.

United States District Court for the Southern District of New York

November 5, 2013, Decided; November 19, 2013, Filed

11 Civ. 1646 (LAK) (JCF)





In this discovery motion, the plaintiffs challenge the defendants' assertion of privilege and work-product protection over documents relating to two investigations  [*4] of the tax accounting and internal controls of defendant Weatherford International, Ltd. ("Weatherford"). The motion to compel is granted in part and denied in part.


In March 2011, "Weatherford announced that it would restate its earnings for 2007 through the third quarter of 2010 because it had identified a material weakness in internal control over financial reporting for income taxes. The [c]ompany ultimately concluded that it had understated its 2007-2010 tax expense by $500 million" and announced the first of three restatements of its prior period financial statements. In re Weatherford International Securities Litigation, No. 11 Civ. 1646, 2013 U.S. Dist. LEXIS 110928, 2013 WL 4007531, at *1 (S.D.N.Y. Aug. 5, 2013) (internal quotation marks omitted). This allegedly caused its stock price to fall precipitously, and spawned not only this putative class action, which was filed approximately one week after Weatherford's announcement of the restatement, but also other civil litigation. In re Weatherford, 2013 U.S. Dist. LEXIS 110928, 2013 WL 4007531, at *1. (Declaration of Robert A. Rayne dated Oct. 17, 2013 ("Rayne Decl."), ¶ 2). In this case, the claims that survived the defendants' motion to dismiss relate to allegedly false statements  [*5] made about the quality of Weatherford's internal controls. In re Weatherford, 2013 U.S. Dist. LEXIS 110928, 2013 WL 4007531, at *1; see also Dobina v. Weatherford International Ltd., 909 F. Supp. 2d 228, 245-48, 258-59 (S.D.N.Y. 2012).

As noted above, this discovery dispute centers on documents relating to two investigations. The first -- referred to by the parties as the "Valenzuela Investigation" (Plaintiffs' Motion to Compel Documents Withheld as Privileged and/or Work Product ("Pl. Memo."), at 1) or the "Tax Investigation" (Declaration of William Jacobson dated Oct. 17, 2013 ("Jacobson Decl."), ¶ 3) -- commenced in February 2012, when a tax manager named Phillip Valenzuela contacted Ernst & Young LLP ("Ernst & Young"), which had been hired by Weatherford to audit its 2007-2010 financial statements. He raised issues about, among other things, withholding tax on internal transfer pricing and potential tax liability related to a reorganization in Cyprus. (Excerpts from Deposition of Steven Gyeszly dated June 5, 2013 ("Gyeszly Dep."), attached as Exh. F to Pl. Memo., at 113-14, 116; Amended Complaint, ¶ 40). In re Weatherford, 2013 U.S. Dist. LEXIS 110928, 2013 WL 4007531, at *1. Weatherford retained the firm Latham & Watkins LLP ("Latham")  [*6] -- which had already been representing the company in relation to an SEC investigation and in certain civil litigation, including this case -- to assist in conducting the investigation. (Jacobson Decl., ¶¶ 1-4; Rayne Decl., ¶ 2). Latham shared some information with Ernst & Young, and William Jacobson, Weatherford's co-general counsel, reported on the progress of the investigation to Weatherford's Audit Committee. (Jacobson Decl., ¶ 7). The Valenzuela Investigation culminated in a meeting in March 2012 between Latham attorneys and SEC personnel at which the investigation's findings were communicated.1 (Gyeszly Dep. at 135-36; Jacobson Decl., ¶ 8). Later, portions of the interview notes of attorneys from Latham and Weatherford were shared with Davis, Polk & Wardwell, LLP ("Davis Polk"), which had been retained as counsel to Weatherford's Audit Committee in connection with the second relevant internal investigation, the "Audit Committee Investigation." (Jacobson Decl., ¶ 9; Rayne Decl., ¶ 4; Pl. Memo. at 1).

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2013 U.S. Dist. LEXIS 170559 *


Subsequent History: Motion granted by, in part, Motion denied by, in part In re Weatherford Int'l Secs. Litig., 2013 U.S. Dist. LEXIS 176278 (S.D.N.Y., Dec. 16, 2013)

Prior History: In re Weatherford Int'l Secs. Litig., 2011 U.S. Dist. LEXIS 72569 (S.D.N.Y., July 6, 2011)


documents, audit committee, Memo, work product, disclosure, work product protection, waived, investigations, auditor, anticipation of litigation, common interest, privilege log, government agency, courts