Partner Michael H. Rogers and Associate Stephen C. Boscolo are the authors of the insightful article “When a Party Wants to Have Its Cake and Eat it Too: Applying Sword-and-Shield Waiver in Federal Securities Litigation” published by New York Law Journal. In light of a recent ruling in In re FirstEnergy Corp., which “is notable not only for what the Sixth Circuit held, but what it did not,” this article analyzes the use of sword-and-shield waivers and their impact on securities litigation.
Observing that “securities litigation cases often present paradigmatic illustrations of sword-and-shield waiver,” Michael and Stephen define the doctrine, analyze notable securities cases to discuss its scope and case law on its application, and offer both plaintiff and defendant perspectives.
As the authors note, a “sword-and-shield waiver is a type of implied privilege waiver, where a court determines, as a matter of fairness, that a party waives privilege by putting potentially-designated material ‘at issue’ in a litigation.” When a party relies on third-party communications as evidence or an assertion of affirmative defense but withholds related communications as privileged, fairness requires allowing the opposing side to examine those underlying materials. In short, a litigant must choose between using evidence as a “sword” or protecting it as a “shield”—it cannot do both.
Illustrating the application of the sword-and-shield doctrine in the securities litigation context, the authors point to In re Anadarko Petroleum Corporation Securities Litigation (S.D. Tex. 2023), where the court “held when a party chooses to rely on third-party audit, diligence, or investigatory materials as a defense, it thereby waives any assertion of privilege over those materials.”
The authors also address Sheet Metal Workers Nat'l Pension Fund v. Bayer Aktiengesellschaft (N.D. Cal. 2024) where defendants asserted they “relied on third party attorneys’ advice in conducting due diligence, yet nevertheless asserted privilege over communications with those very third parties.” The court held that privilege was waived over this communication under the sword-and-shield doctrine.
However, in Utesch v. Lannett Co., Inc. (E.D. Pa. 2020), the court concluded that “the sword-and-shield doctrine does not apply when parties disclaim reliance on exculpatory evidence.”
Michael and Stephen note that these cases present takeaways for securities litigation practitioners: “First, courts have made clear that a party affirmatively placing a third party’s opinion, investigation, or audit at issue in a litigation forecloses the assertion of privilege over related communications. Second, what it means to put a subject matter ‘at issue,’ such that a party is deemed to have waived privilege, often depends on the scenario.”
In contrast, the court in In re FirstEnergy Corp. was noticeably silent on the sword-and-shield issue. “Although the defendant proffered the information obtained from its internal investigation as part of its defense in the underlying litigation, the Sixth Circuit did not discuss whether [the] defendant had waived privilege by affirmatively introducing the very evidence it simultaneously sought to protect.”
Ultimately, “reliance on a third party can be an important defense in securities class action litigation.” However, the authors warn, “parties that invoke such reliance may do so at their own peril.” “From the plaintiff’s perspective, a party asserting reliance on a third party as an affirmative defense—or any affirmative act putting that third party’s communications at issue—presents an opportunity to challenge assertions of privilege under sword-and-shield waiver. From a defendant’s perspective, parties should carefully consider a decision to assert reliance on a third party, as it may result in corresponding privilege waiver,” they conclude.
Partner Michael H. Rogers and Associate Stephen C. Boscolo are the authors of the insightful article “When a Party Wants to Have Its Cake and Eat it Too: Applying Sword-and-Shield Waiver in Federal Securities Litigation” published by New York Law Journal. In light of a recent ruling in In re FirstEnergy Corp., which “is notable not only for what the Sixth Circuit held, but what it did not,” this article analyzes the use of sword-and-shield waivers and their impact on securities litigation.
Observing that “securities litigation cases often present paradigmatic illustrations of sword-and-shield waiver,” Michael and Stephen define the doctrine, analyze notable securities cases to discuss its scope and case law on its application, and offer both plaintiff and defendant perspectives.
As the authors note, a “sword-and-shield waiver is a type of implied privilege waiver, where a court determines, as a matter of fairness, that a party waives privilege by putting potentially-designated material ‘at issue’ in a litigation.” When a party relies on third-party communications as evidence or an assertion of affirmative defense but withholds related communications as privileged, fairness requires allowing the opposing side to examine those underlying materials. In short, a litigant must choose between using evidence as a “sword” or protecting it as a “shield”—it cannot do both.
Illustrating the application of the sword-and-shield doctrine in the securities litigation context, the authors point to In re Anadarko Petroleum Corporation Securities Litigation (S.D. Tex. 2023), where the court “held when a party chooses to rely on third-party audit, diligence, or investigatory materials as a defense, it thereby waives any assertion of privilege over those materials.”
The authors also address Sheet Metal Workers Nat'l Pension Fund v. Bayer Aktiengesellschaft (N.D. Cal. 2024) where defendants asserted they “relied on third party attorneys’ advice in conducting due diligence, yet nevertheless asserted privilege over communications with those very third parties.” The court held that privilege was waived over this communication under the sword-and-shield doctrine.
However, in Utesch v. Lannett Co., Inc. (E.D. Pa. 2020), the court concluded that “the sword-and-shield doctrine does not apply when parties disclaim reliance on exculpatory evidence.”
Michael and Stephen note that these cases present takeaways for securities litigation practitioners: “First, courts have made clear that a party affirmatively placing a third party’s opinion, investigation, or audit at issue in a litigation forecloses the assertion of privilege over related communications. Second, what it means to put a subject matter ‘at issue,’ such that a party is deemed to have waived privilege, often depends on the scenario.”
In contrast, the court in In re FirstEnergy Corp. was noticeably silent on the sword-and-shield issue. “Although the defendant proffered the information obtained from its internal investigation as part of its defense in the underlying litigation, the Sixth Circuit did not discuss whether [the] defendant had waived privilege by affirmatively introducing the very evidence it simultaneously sought to protect.”
Ultimately, “reliance on a third party can be an important defense in securities class action litigation.” However, the authors warn, “parties that invoke such reliance may do so at their own peril.” “From the plaintiff’s perspective, a party asserting reliance on a third party as an affirmative defense—or any affirmative act putting that third party’s communications at issue—presents an opportunity to challenge assertions of privilege under sword-and-shield waiver. From a defendant’s perspective, parties should carefully consider a decision to assert reliance on a third party, as it may result in corresponding privilege waiver,” they conclude.
Partner Michael H. Rogers and Associate Stephen C. Boscolo are the authors of the insightful article “When a Party Wants to Have Its Cake and Eat it Too: Applying Sword-and-Shield Waiver in Federal Securities Litigation” published by New York Law Journal. In light of a recent ruling in In re FirstEnergy Corp., which “is notable not only for what the Sixth Circuit held, but what it did not,” this article analyzes the use of sword-and-shield waivers and their impact on securities litigation.
Observing that “securities litigation cases often present paradigmatic illustrations of sword-and-shield waiver,” Michael and Stephen define the doctrine, analyze notable securities cases to discuss its scope and case law on its application, and offer both plaintiff and defendant perspectives.
As the authors note, a “sword-and-shield waiver is a type of implied privilege waiver, where a court determines, as a matter of fairness, that a party waives privilege by putting potentially-designated material ‘at issue’ in a litigation.” When a party relies on third-party communications as evidence or an assertion of affirmative defense but withholds related communications as privileged, fairness requires allowing the opposing side to examine those underlying materials. In short, a litigant must choose between using evidence as a “sword” or protecting it as a “shield”—it cannot do both.
Illustrating the application of the sword-and-shield doctrine in the securities litigation context, the authors point to In re Anadarko Petroleum Corporation Securities Litigation (S.D. Tex. 2023), where the court “held when a party chooses to rely on third-party audit, diligence, or investigatory materials as a defense, it thereby waives any assertion of privilege over those materials.”
The authors also address Sheet Metal Workers Nat'l Pension Fund v. Bayer Aktiengesellschaft (N.D. Cal. 2024) where defendants asserted they “relied on third party attorneys’ advice in conducting due diligence, yet nevertheless asserted privilege over communications with those very third parties.” The court held that privilege was waived over this communication under the sword-and-shield doctrine.
However, in Utesch v. Lannett Co., Inc. (E.D. Pa. 2020), the court concluded that “the sword-and-shield doctrine does not apply when parties disclaim reliance on exculpatory evidence.”
Michael and Stephen note that these cases present takeaways for securities litigation practitioners: “First, courts have made clear that a party affirmatively placing a third party’s opinion, investigation, or audit at issue in a litigation forecloses the assertion of privilege over related communications. Second, what it means to put a subject matter ‘at issue,’ such that a party is deemed to have waived privilege, often depends on the scenario.”
In contrast, the court in In re FirstEnergy Corp. was noticeably silent on the sword-and-shield issue. “Although the defendant proffered the information obtained from its internal investigation as part of its defense in the underlying litigation, the Sixth Circuit did not discuss whether [the] defendant had waived privilege by affirmatively introducing the very evidence it simultaneously sought to protect.”
Ultimately, “reliance on a third party can be an important defense in securities class action litigation.” However, the authors warn, “parties that invoke such reliance may do so at their own peril.” “From the plaintiff’s perspective, a party asserting reliance on a third party as an affirmative defense—or any affirmative act putting that third party’s communications at issue—presents an opportunity to challenge assertions of privilege under sword-and-shield waiver. From a defendant’s perspective, parties should carefully consider a decision to assert reliance on a third party, as it may result in corresponding privilege waiver,” they conclude.
