Case of the Day: Masillionis v. Silver Wheaton Corp.


The case of the day is Masillionis v. Silver Wheaton Corp. (C.D. Cal. 2018). The case was for securities fraud. Silver Wheaton was a Canadian corporation whose shares traded on the NYSE. Masillionis claimed that Silver Wheaton had failed to disclose to investors a risk that Canada’s tax authority could reassess its tax liability for profits earned by its Cayman Island subsidiary. Via letters rogatory, he sought discovery of legal opinions Silver Wheaton’s accountants and auditors had received from its lawyers.

With regard to the legal opinions, the first question was which privilege law applied. Apparently in Canada, disclosure of the legal opinions to auditors and accountants did not destroy the privilege, at least where the client is not advancing advice of counsel as a defense to a claim, so the conflict of laws issue was important.

Silver Wheaton argued that Canadian privilege law should apply, because the auditors did their work in Canada, in accordance with Canadian accounting and auditing standards. But Silver Wheaton had retained the accountants and auditors for the purpose of filing financial statements with the SEC for purposes of compliance with US securities law. The judge summarized the law as follows:

Where alleged attorney-client communications occurred in a foreign country or involved foreign attorneys or proceedings, United States courts typically apply a “touch base” analysis, “first determin[ing] whether the communication involves or ‘touches base’ with the U.S. or foreign law, and then examin[ing] the applicable law for privilege.” Id. at 1019 citing Golden Trade, S.r.L. v. Lee Apparel Co., 143 F.R.D. 514, 520-21 (S.D.N.Y.1992). The inquiry into whether communications “touch base” with the United States is fact-specific and focuses on whether the communications have “more than incidental” connection with the U.S. Id. As a matter of comity, courts will defer to the country that has the “predominant” or “the most direct and compelling interest” in whether attorney-client communications should remain confidential, unless that foreign law is contrary to the public policy of the forum. Id., citing Astra Aktiebolag v. Andrix Pharmaceuticals, Inc., 208 F.R.D. 92, 97 (S.D.N.Y. 2002). The country with the predominant interest is either “the place where the allegedly privileged relationship was entered into” or “the place in which that relationship was centered at the time the communication was sent.” Id. Even when it involves foreign attorneys or a foreign proceeding, however, a communication “relating to legal proceedings in the United States, or that reflect[s] the provision of advice regarding American law” will be found to touch base with the United States and, therefore, be governed by American law. Gucci America, Inc. v. Guess?, Inc., 271 F.R.D. 58, 65 (S.D.N.Y. 2010).

Since the communications with the lawyers had a “more than incidental” connection with the United States, US privilege law applied. The judge, after reviewing the documents in camera, found that the privilege was waived and that the documents had to be produced.


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