2nd Circuit agrees: no subpoena for reporter’s notes

Friday, February 17, 2012

Relying on New York’s shield law, the 2nd U.S. Circuit Court of Appeals on Feb. 15 upheld a trial judge’s decision to quash a subpoena directed at former Wall Street Journal reporter Jesse Eisinger.

At issue in Baker v. Goldman Sachs & Co. was the shield law’s protection of unpublished information, such as reporters’ notes. Under the statute, journalists can be required to disclose unpublished information only if the subpoenaing party shows the information is “highly material and relevant” or “critical or necessary” to the party’s claim and not obtainable elsewhere.

The subpoenaing parties in Baker were Janet and James Baker, who in 2000 hired Goldman Sachs to advise them regarding a merger of their company, Dragon Systems, with Lernout & Haupsie (“L&H”). According to the Bakers, Goldman Sachs failed to investigate L&H’s finances and client base adequately. As a result, the Bakers claimed, they lost their entire $300 million investment when L&H filed for bankruptcy within months of the merger.

After filing suit, the Bakers subpoenaed Eisinger, who was part of a team of reporters who wrote a series of articles about L&H for the Wall Street Journal. In those articles, the Journal reported that L&H had drastically overstated the extent of its client base. The Bakers sought to depose Eisinger to show how easily Goldman Sachs could have obtained the same information.

Federal district judge Barbara Jones quashed the subpoena, holding that questioning Eisinger about the articles inevitably would lead to questions about unpublished information and his newsgathering process and that such testimony would not be relevant to the Bakers’ claims.

On appeal, the Bakers’ attorney changed his position and said that, if allowed to question Eisinger, the only substantive question he would ask would be whether the published information was accurately reported. Though acknowledging that the cross-examination related to this question could seek information protected by the shield law, the Bakers’ attorney argued that this possibility should not prohibit him from asking for unprotected information.

The 2nd Circuit disagreed and affirmed Judge Jones’ ruling.

“[U]nder the New York statute,” the court wrote, “the application of the privilege turns on the subject matter of the inquiry and does not distinguish between direct and cross-examination. … Appellants’ position, if adopted, would undermine the privilege.”

“If the proposed question was allowed to be asked and answered on the ground that it sought information outside the protected area, the cross-examiner could then easily overcome the privilege by showing a critical need to establish Goldman’s defense to the inferences to be drawn from the answer,” the court continued. “The result would turn the statute on its head by allowing an evasion of the privilege through a question deliberately framed to be (supposedly) outside the scope of the privilege to have the effect of compelling testimony on cross-examination within the privilege. We decline to follow a route leading to this result.”

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