Apple wants appeals court bailout in privilege dispute over Tim Cook emails

People wearing face masks walk their dogs past an Apple store on a shopping street, after the lockdown placed to curb the coronavirus disease (COVID-19) outbreak was lifted in Shanghai, China June 1, 2022. REUTERS/Aly Song

(Reuters) – A fascinating, albeit grammatically hair-splitting, question of attorney-client privilege has reared up in a shareholder class action against Apple Inc.

In late 2018, as Apple mulled whether to tell shareholders that its earnings guidance was off by billions of dollars, CEO Tim Cook sent an email to Apple CFO Luca Maestri and general counsel Katherine Adams, asking for their views on a presentation Cook was going to make to the company’s board of directors. Maestri and Adams responded with their advice, according to a federal magistrate’s report and subsequent filings in the class action.

Not long after the email exchanges, Apple issued an extremely rare “letter to investors,” advising that Apple’s original estimate for revenues in the first quarter of 2019 was way off. The company had announced a projection of between $89 and $93 billion for the quarter. But Cook’s Jan. 2, 2019, letter to investors said Apple’s new guidance was for revenues of about $84 billion. Cook’s missive attributed the shortfall to “economic deceleration, particularly in Greater China.”

Apple’s share price fell from $157.92 to $142.19 after the disclosure. Predictably, shareholders sued, pointing, among other things, to a statement Cook made during a phone call with analysts in November 2018. When Cook was asked about declining prospects in emerging markets, the CEO acknowledged problems in some countries. But he specifically excluded China as a trouble spot. “Our business in China was very strong last quarter,” Cook assured analysts.

Cook’s statement is at the heart of the securities class action under way before U.S. District Judge Yvonne Gonzalez Rogers of Oakland. In November 2020, Rogers ruled that investors, represented by Robbins Geller Rudman & Dowd, could proceed with their claim that Cook’s statement about Apple’s business in China was fraudulent. Last February, Rogers certified a class of Apple shareholders.

The case has sped along. Apple’s lawyers at Orrick, Herrington & Sutcliffe moved for summary judgment earlier this month, arguing that no reasonable jury could find Cook’s statement to be false or made with fraudulent intent. Shareholders, meanwhile, moved to exclude Apple’s experts and to file an amended complaint to include information they obtained in discovery from the company.

But now Apple wants to pause the class action for an interlocutory appeal to the 9th U.S. Circuit Court of Appeals. Its rationale: Rogers erred when she upheld a magistrate judge’s order requiring Apple to turn over purportedly privileged documents, including — most notably, based on Apple’s brief — the email Cook sent to his CFO and GC in advance of the board meeting that presumably prompted the company to issue its revised revenue guidance in January 2019.

Apple insists its bid for 9th Circuit review is a matter of principle. A year ago, as I’ve reported, the 9th Circuit ruled in In re Grand Jury that attorney-client privilege does not protect documents whose primary purpose is to seek or provide business advice, even if the documents also anticipate litigation. The 9th Circuit said its test aligned with decisions from the 2nd, 5th and 6th Circuits, although the anonymous company and law firm that sought to shield their communications in the Grand Jury case subsequently told the U.S. Supreme Court, in a petition for review last April, that the 9th Circuit test is “incompatible” with holdings from the 7th and D.C. Circuits. (The justices are scheduled to consider the petition later this month.)

The 9th Circuit’s Grand Jury decision left open a question about whether privilege shields documents that have both a business and legal purpose if legal advice is a primary purpose of the communication but not necessarily the only primary purpose. The D.C. Circuit held in 2014’s In re Kellogg Brown & Root Inc that privilege applies when legal advice is a primary purpose for the document, but the 9th Circuit said in Grand Jury that it did not need to decide whether to adopt that more expansive view of privilege based on the facts of the case.

Apple has homed in on this unresolved point — a question, when you boil it down, about whether privilege applies whenever business advice is “a” primary purpose for communications or only when business considerations are “the” primary purpose.

Apple told Rogers that uncertainty about the 9th Circuit test has left companies in a bind. (The U.S. Chamber of Commerce advanced similar arguments to the Supreme Court in an amicus brief calling on the justices to review the 9th Circuit’s Grand Jury ruling.) “A CEO should be able to seek privileged legal advice from his general counsel without needing to spell out a precise ‘legal concern,’ even when the same email additionally requests feedback from other executives,” Apple said in an Aug. 5 brief arguing that U.S. Magistrate Joseph Spero should not have ordered the disclosure of Cook’s email to Maestri and Adams.

Rogers was notably unswayed in her terse Sept. 12 ruling confirming the magistrate’s order directing Apple to turn over the Cook email and other documents. The D.C. Circuit’s Kellogg test, Rogers wrote, is not the standard in the 9th Circuit, so Spero obviously did not err in applying the narrower Grand Jury standard.

Apple told Rogers in its brief requesting certification of an interlocutory appeal that its case is an opportunity for the 9th Circuit to clarify an important and unsettled legal question. It also insisted that the appeal will advance the securities class action (despite the late stage of the litigation) by determining whether shareholders are, as the magistrate ruled, entitled to additional discovery.

I’d love to know exactly what’s in the 2018 email from Cook to his top advisors, but Apple lead counsel, James Kramer of Orrick, declined to provide a statement on the privilege dispute. Robbins Geller’s Shawn Williams also declined. The shareholder firm pointed out in its brief urging Rogers to uphold the magistrate’s order that Spero actually reviewed the disputed document — and he determined that it is not shielded by privilege.

As of mid-afternoon on Wednesday, Rogers — who ordered Apple on Monday to turn over the documents specified in the magistrate’s order by today — has not responded to the company’s pitch for a 9th Circuit appeal.

Read more:

9th Circuit rejects broad privilege test for legal and business advice

Apple must face shareholder lawsuit over CEO Cook’s China sales comments

Apple accused in U.S. lawsuit of securities fraud over iPhone sales in China

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