President Donald Trump's long-time personal attorney Michael Cohen, center, exits a New York court on April 16, 2018 in New York City. Getty Images

A judge considering whether to appoint a special watchdog to review legal files related to President Donald Trump ordered prosecutors and attorneys for Trump's own lawyer, Michael Cohen, to appear in court Thursday. U.S. District Judge Kimba Wood said Wednesday that she wants an update from prosecutors on the progress in their turning over to Cohen's lawyers a set of materials seized from him April 9 by FBI agents. She also asked in an order that both prosecutors and lawyers for Cohen and Trump "be prepared" to weigh in on how a watchdog – "should one be appointed" – would review Cohen's files to prevent violation of attorney-client privilege for his clients. Those files include ones related to Trump and other clients of Cohen, who is under criminal investigation by the United States Attorney's Office for the Southern District of New York.

Prosecutors involved in the case have not actually looked at the files yet because of an ongoing dispute about how they should be handled. The files include copies of electronic hard drives searched at Cohen's home, office and a hotel room where he was staying in Manhattan, as well as paper records. Some of the files relate to a $130,000 payment Cohen made to porn star Stormy Daniels right before the 2016 presidential election in exchange for what Daniels has said was her silence about an alleged sexual encounter with Trump. At issue is the risk that the files contain information that those prosecutors would be legally barred from using in the case because they are protected by attorney-client privilege. That privilege, as a rule, prevents confidential legal discussions between lawyers and their clients being disclosed to a third-party.

A filter team or a special master

Prosecutors handling Cohen's case have said that to avoid that risk they want to have a so-called filter team review the files. That team, made up of prosecutors not connected to the case, would determine which files were protected by client privilege, and hold them back from the other files turned over to prosecutors investigating Cohen. Cohen's lawyers and attorneys for Trump wanted to be the ones to get first crack at determining which files should be kept hidden from prosecutors. Wood rejected that request last week at a court hearing in Manhattan, even as she told prosecutors to start turning over copies of the records that were seized to Cohen. But she is still mulling whether to appoint a "special master" to handle some, if not all, of the file review to determine where client privilege exists. Prosecutors, who still oppose a special master being appointed, last week gave Wood the names of three retired federal magistrate judges they would like to see as special master if she decides one is needed. Cohen's lawyers submitted the names of four former prosecutors from the Southern District for that post. Wood on Wednesday also asked that lawyers for Cohen, Trump and the Trump Organization submit letters describing what resources they will have available to review Cohen's files for privilege claims, "and to produce such materials to a Special Master." The judge told those lawyers to have, by late Wednesday afternoon, a description of those resources to help speed up the "production of non-privileged materials" and other aspects of the review.

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