Wang v. Zymergen Inc.

Background

The court addressed a discovery dispute about whether the Underwriter Defendants’ assertion of the statutory due-diligence defense waived attorney-client privilege. Attorney-client privilege generally protects confidential communications between a client and lawyer concerning legal advice. Plaintiffs challenged entries in the privilege logs maintained by the Zymergen Defendants and the Underwriter Defendants.

The order resolved the dispute only as to the Underwriter Defendants because the court identified factual differences among the defendant groups. The court received joint submissions and supplemental briefing, held a hearing, and privately reviewed a substantial sample of documents containing the Underwriter Defendants’ privilege redactions.

Due-Diligence Defense

Under Section 11 of the Securities Act, the due-diligence defense requires defendants to prove that, after a reasonable investigation, they had reasonable grounds to believe and did believe that statements in the registration statement were not materially misleading. The court explained that the defense is evaluated under a negligence standard and that underwriters must show that their own actions—not merely the actions of their lawyers—demonstrated a reasonable investigation.

The parties recognized a distinction between a lawyer acting as a legal adviser and a lawyer participating as a factual investigator. The Underwriter Defendants said their counsel, WSGR, had both roles during the Zymergen initial public offering. They argued that WSGR’s factual-investigation role was relevant to the due-diligence defense, while its legal advice was not. They also pointed to their production of thousands of nonprivileged communications with WSGR, including more than 1,000 communications concerning pre-IPO diligence, and said their privilege claims covered only discrete redactions involving requests for or provision of legal advice.

Court’s Analysis

The court applied the statutory language holistically rather than isolating the defense’s “belief” component. It identified the relevant question as whether the Underwriter Defendants conducted a reasonable investigation and, following that investigation, reached a reasonable belief about the accuracy of the disclosure statements.

The court held that if the defense is supported by counsel’s participation in the investigation, documents reflecting that participation—including communications about what the defendants learned during the investigation—are discoverable. But counsel’s participation in the investigation does not necessarily create a broader waiver covering all attorney-client communications arising from the investigation.

The court’s in-camera review supported that conclusion. The approximately 80 disputed privileged documents contained only 12 unique redactions. The court found that the redactions were discrete and specific statements reflecting questions or responses about legal advice. Communications from counsel concerning the factual investigation had been produced, while occasional discussions reflecting legal advice remained redacted.

Ruling

The court found no waiver of attorney-client privilege resulting from the Underwriter Defendants’ assertion of the due-diligence defense. The order did not resolve the privilege dispute as to the Zymergen Defendants, but it stated that they would be held to the same standard: they must conduct a rigorous review of documents claimed to be privileged, produce nonprivileged communications with counsel concerning the investigation, and limit redactions to legal advice.