Opinion
23018-18 23019-18
03-02-2022
ANADARKO PETROLEUM CORPORATION, ET AL., Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Elizabeth A. Copeland, Judge
These consolidated cases are calendared for trial at a Special Session of the Court beginning on July 11, 2022, in Washington, D.C. Among other Motions currently pending before the Court are:
(1) Respondent's Motion for Determination of Privilege Claim Pursuant to Fed.R.Civ.P. 26(b)(5)(B) (Docket Index No. 80) ("Motion for Determination of Privilege"), filed on July 8, 2021;
(2) Petitioners' Motion for Protective Order Pursuant to Rule 103 (Docket Index No. 87) ("Motion for Protective Order"), filed on July 26, 2021;
(3) Respondent's Notice of Objection to Motion for Protective Order Pursuant to Rule 103, filed on August 25, 2021 (Docket Index No. 109); and
(4) Petitioner's Reply to Notice of Objection to Motion for Protective Order Pursuant to Rule 103, filed on September 9, 2021 (Docket Index No. 111).
On October 21, 2021, the Court ordered additional briefing in response to the four motions outlined above and the following two additional filings were made:
(5) Petitioners' Response to Court's Order Regarding Additional Briefing on Federal Rules of Evidence 502(d) filed November 22, 2021 (Docket Index No. 127); and
(6) Respondent's Reply to Petitioners' Response to Court's Order Regarding Additional Briefing on Federal Rules of Evidence 502(d) filed December 21, 2021 (Docket Index No. 144).
These respective pleadings involve a discovery dispute between the parties about whether certain documents (the "Disputed Documents") are subject to a protective order issued on May 17, 2012, (the "May 2012 Order") by the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") under Federal Rule of Evidence 502(d). The May 2012 Order was issued in an adversary proceeding: Tronox Inc. v. Anadarko Petroleum Corp. (In re Tronox Inc.), Ch. 11 Case No. 09-10156 (ALG), Adv. No. 09-01198 (S.D.N.Y. May 11, 2011) (the "Adversary Proceeding"). According to Respondent, the Disputed Documents include three types of records: (1) documents produced by Petitioners during the examination of Petitioners' 2015 tax return; (2) documents produced by Petitioners during discovery in these consolidated cases, which Petitioners originally identified as "non-privileged" trial exhibits from the Adversary Proceeding in an October 27, 2020, letter to Respondent; and (3) deposition transcripts Respondent obtained from the publicly available court records site Public Access to Court Electronic Records ("PACER") from the Adversary Proceeding. The Disputed Documents were listed in "Exhibit 1" attached to Respondent's Motion for Determination of Privilege.
In the Adversary Proceeding the May 2012 Order modified two other existing protective orders, which orders described the process by which evidence and testimony could be exchanged or used in the Adversary Proceeding while remaining confidential and subject to the attorney-client privilege within certain parameters. The first protective order governed all discovery, including depositions and testimony, and allowed the parties to designate discovery materials that it believed in good faith were proprietary, confidential, and non-public information. This first protective order also demanded the parties submit and file confidential information with the Bankruptcy Court during trial under seal to avoid losing their confidential or privileged status by placing the information in a sealed envelope and labeling it "Confidential-Subject to Protective Order." Confidential discovery materials could lose their confidential or privileged status in the Adversary Proceeding under the following provision: "any information that the Designating Party files with the [Bankruptcy] Court in pleadings or otherwise shall no longer be deemed Confidential Discovery Materials unless the Designating Party has filed such information under seal pursuant to the procedures provided herein." Agreed Protective Order, In re Tronox Inc., Ch.11 Case No. 09-10156 (ALG) (S.D.N.Y. Mar. 16, 2009) (emphasis added). Furthermore, any confidential discovery materials were required to be destroyed within 30 days after the conclusion of the Adversary Proceeding.
The second protective order amended the procedures that kept discovery materials confidential or privileged. In addition to the provision in the first protective order, the second order required the parties to produce a privilege log of all discovery materials that the designating party deemed in good faith as confidential or privileged. If a designating party inadvertently disclosed confidential or privileged discovery material, it was required to claw back the information pursuant to paragraph six of the first protective order, which required written notice to the opposing party. Again, this second protective order reiterated the following from the first protective order: "any information that the Designating Party files with the [Bankruptcy] Court in pleadings or otherwise shall no longer be deemed Confidential Discovery Materials unless the Designating Party has filed such information under seal pursuant to the procedures provided in the First Protective Order." Second Agreed Protective Order, In re Tronox Inc., Ch.11 Case No. 09-10156 (ALG) (S.D.N.Y. Dec. 23, 2010) (emphasis added). This order also echoed the first order by requiring that confidential discovery materials be destroyed within 30 days after the conclusion of the Adversary Proceeding.
The May 2012 Order, at issue here, denied Petitioners' motions to file pretrial briefs under seal and required them to refile the briefs unredacted. This order also required all evidence to be filed in open court without confidentiality restrictions absent any further order but allowed the parties to preserve attorney-client privilege under Federal Rules of Evidence 502(d) and (f). If read with the first two protective orders and the hearing transcript described in the following paragraph, the May 2012 Order only protected confidential information that remained sealed-not materials made public at trial or revealed in testimony provided in open court.
The transcript from the Adversary Proceeding shows the Bankruptcy Court Judge issued the May 2012 Order because very few documents and testimony were privileged. Respondent attached the May 2012 pre-trial hearing transcript to his Motion for Determination of Privilege as Exhibit 16; a portion of that hearing transcript is as follows:
The Court: … I have reviewed the pretrial briefs that the parties have submitted which are filed publicly in redacted form. I can't see anything in those briefs that is confidential today[, ] and I think that it is appropriate since we are going to have an open courtroom that the confidentiality provisions be modified or eliminated in large part going forward.
So I am going to direct the parties to file their pretrial briefs in full publicly.
We have an open courtroom. We are not closing it for testimony and therefore, I think all evidence will be taken publicly and with only one exception.
… that is Tronox and Kerr-McGee using the names in the generic sense, both parties have a joint defense privilege, they do have continued interests in common and as to those documents I think we will consider the issue of confidentiality on a case-by-case basis. But it seems to me that that will be a handful of documents. Hopefully, they won't be needed in this case.
…
Most of what we are talking about took place quite a few
years ago as I am sure the defendants will continually remind me and as I said, I don't believe that as a general principle we should designate any longer anything as confidential.
So that is my ruling with regard to the documents or testimony that is coming in immediately.(Docket Index No. 80, exhibit 16) (emphasis added). According to the Bankruptcy Court Judge, the pretrial briefs contained no privileged material, and the parties were to notify the Bankruptcy Court Judge when privileged documents or testimony were at issue so that he could rule on a case-by-case basis as to whether they were privileged. With the exception of the pre-trial briefs that the Bankruptcy Court Judge had ruled were not privileged, Petitioners have provided no evidence to this Court that they notified the Bankruptcy Court Judge and received a ruling on whether any Disputed Documents were privileged.
At issue here is whether the Disputed Documents are protected from the waiver of privilege pursuant to the May 2012 Order issued under Federal Rule of Evidence 502(d) or whether Petitioners waived privilege in the Adversary Proceeding by allowing the Disputed Document to be filed and discussed in open court without seal.
Notably in Petitioners' response to our October 21, 2021, Order, they identified certain Disputed Documents not previously made public, and indicated there could be additional such documents (the "Protected Information"). The identified documents were bates numbered as follows: IRS_0019525 through IRS_0019527, IRS_0081671 through IRS_0081673, IRS_0091695, IRS_0019528 through IRS_0019529, IRS_0081674 through IRS_0081675, and IRS_0091698 through IRS_0091699.
Importantly, Federal Rule of Evidence 502 applies to discovery, not to evidence voluntarily made public at trial. The purpose of Federal Rule of Evidence 502 is twofold: (1) resolve discovery disputes about inadvertent or subject matter waivers of attorney-client privilege when disclosures occur; and (2) reduce litigation costs for protecting against waiver of attorney-client privilege. Fed.R.Evid. 502 advisory committee's notes. This rule "is designed to enable a court to enter an order that … allow[s] the parties to conduct and respond to discovery expeditiously, without the need for exhaustive pre-production privilege reviews, while still preserving each party's right to assert the privilege to preclude use in litigation of information disclosed in such discovery." Statement of Congressional Intent Regarding Rule 502 of the Federal Rules of Evidence, 154 Cong. Rec. H7817-H7819 (daily ed. Sept. 8, 2008), reprinted in Fed.R.Evid. 502 advisory committee's notes subdivision (d) (emphasis added). It also does not alter common law doctrines of privilege and waiver.
During the discovery process, Federal Rule of Evidence 502(b) allows the disclosing party to claw back inadvertent disclosures of privileged discovery materials. Potomac Elec. Power Co. v. United States, 107 Fed.Cl. 725, 729-30 (2012). "Notwithstanding the easing of the waiver doctrine brought about by the enactment of [Fed. R. Evid.] 502(b), the Rule 'does not remove the parties' responsibility to take reasonable precautions against [the] disclosure of privileged documents." Id. at 730 (quoting Williams v. District of Columbia 806 F.Supp.2d 44, 49 (D.D.C. 2011)). As Federal Rule of Evidence 502 and the first and second protective orders in the Adversary Proceeding state, Petitioners were required to take reasonable precautions like objecting or filing a motion to strike as to privileged documents or testimony given in open court.
To avoid waiving privilege, the privilege holder is required to prevent the disclosure of privileged evidence or testimony in open court without seal. To protect a claim of privilege, the party making the claim must timely object or move to strike the privileged evidence while also stating the specific grounds for the objection. Fed. R. Evid.. 103(a)(1). A failure to timely object or request the court to strike privileged materials or testimony from the public record could result in a waiver of the privilege.
Federal Rule of Evidence 502 does not protect intentional waivers nor certain inadvertent waivers. The rule states that subject matter waiver may occur if the waiver is either (a) intentional or (b) inadvertent where the privilege holder failed to take reasonable steps to prevent disclosure. Fed.R.Evid. 502(a)-(b). Inadvertent disclosures can occur by failing to object to the use of privileged materials or testimony at trial without seal. Furthermore, voluntary or intentional disclosures of privileged attorney-client communication to a third party waives the privilege as to the disclosed communication itself. See Chevron v. Penzoil Co., 974 F.2d 1156, 1162 (9th Cir. 1992). Consequently, an objection or motion to strike before the privileged information or materials are made public is necessary to preserve attorney-client privilege. Presumably, the reason for the Bankruptcy Judge's request to address privilege on a case-by-case basis in the Adversary Proceeding was an attempt to ensure the parties did not waive privilege.
According to the United States Court of Federal Claims, a broad protection order under Federal Rule of Evidence 502(d) that preserves privilege for intentional disclosures to third-parties is overbroad because it nullifies the "all purposes, all forums" waiver rule:
the 'all purposes, all forums' rule precludes a party from 'pick[ing] and choos[ing] among his opponents, waiving the privilege for some and resurrecting the claim of confidentiality to obstruct others, or to invoke the privilege as to communications whose confidentiality he has already compromised for his own benefit.' In re Steinhardt Partners, L.P., 9 F.3d 230, 235 (2d Cir. 1993) (quoting Permian Corp. v. United States, 665 F.2d 1214, 1221, 214 U.S.App.D.C. 396 (D.C. Cir. 1981)). Neither work product nor attorney-client privilege is 'designed for such tactical employment.'
Permian, 665 F.2d at 1221 (discussing attorney-client privilege); see also In re Steinhardt, 9 F.3d at 235 (noting that courts have extended Permian's reasoning to work product privilege as well).Potomac Elec. Power Co., 107 Fed.Cl. at 728. We agree with this rationale.
Based on the foregoing, here, as to the Disputed Documents that were entered into evidence during the Adversary Proceeding and made public, we will not extend the Bankruptcy Court's May 2012 Order. However, as to those documents not put into evidence during the Adversary Proceeding but exchanged, we will extend the May 2012 Order in this proceeding. Thus, Petitioners' Motion for Protective Order, filed on July 26, 2021, will be granted in part. As such, this Order will protect those documents not yet proffered as evidence or in this Court's record but identified in Petitioners' response to our October 21, 2021, Order as Protected Information further identified by bates stamps: IRS_0019525 through IRS_0019527, IRS_0081671 through IRS_0081673, IRS_0091695, IRS_0019528 through IRS_0019529, IRS_0081674 through IRS_0081675, IRS_0091698 through IRS_0091699, and any other documents exchanged in discovery that were not otherwise introduced as evidence in the Adversary Proceeding.
Because we are only granting Petitioners' protective order in part, they will be required to respond to Respondent's Motion for Determination of Privilege, filed on July 8, 2021.
Upon due consideration, it is
ORDERED that Petitioners' Motion for Protective Order is granted in part as any document exchanged in this proceeding that was not previously entered into evidence in the Bankruptcy Court Adversary Proceeding described above. Under Rule 103(a) and Fed.R.Evid. 502(d) and (f), the disclosure in this proceeding of any such documents or testimony protected by this Order shall not waive any applicable joint attorney-client or work product privilege or protection in any other federal or state proceeding. This Court will revisit the issue of attorney-client or work product privilege on a case-by-case basis as to the documents intended to be introduced into evidence at trial. Petitioners' Motion for Protective Order is denied in all other respects. It is further
ORDERED that, pursuant to Rule 103 and Fed.R.Evid. 502(d), the following terms shall govern Petitioners' production of documents protected in the first ordered paragraph:
(a) No Waiver by Disclosure. Subject to the provision of this Order, if Respondent discloses Protected Information in connection with this pending litigation that Petitioners thereafter claim to be privileged or protected, the disclosure of that Protected Information will not constitute or be deemed a waiver or forfeiture in this or any other proceeding of any claim of privilege or
work product protection that Petitioner would otherwise be entitled to assert with respect to the Protected Information and its subject matter.
(b) Notification Requirements and Claw Back. If Petitioners discover privileged information or work product for which they did not intend to waive their applicable privilege or protection, Petitioners must promptly notify Respondent by written notice within three business days of their intent to "claw back" the document. The written notice must identify the communication or information and the privilege or protection asserted and explain why the privilege or protection is applicable, including but not limited to why Petitioners have the right to assert the claimed privilege. If Petitioners claim that only a portion of material is privileged or protected, Petitioners shall provide, along with the notice, a redacted copy of the material. Upon such notification, Respondent must-unless he contests the claim of attorney-client privilege or work product protection in accordance with paragraph (c)- promptly (i) notify Petitioners that he will make best efforts to identify and return, sequester, or delete the Protected Information and any reasonably accessible copies he has; (ii) not use the Protected Information until the claim is resolved; and (iii) take reasonable steps to retrieve the Protected Information if he disclosed it before being notified. All such claw back requests must be made on or before June 22, 2022.
(c) Contesting Claim of Privilege or Work Product Protection. If Respondent contests the claim of attorney-client privilege or work product protection, Respondent must-either prior to trial or during trial by oral or written motion-move the Court for an Order compelling disclosure of the information. Upon request by either party, the Court may seal portions of the record to further protect any applicable attorney-client privilege or work product protection.
(d) Stipulated Time Periods. The parties may, subject to the Court's approval, stipulate to time period limitation for clawing back Protected Information set forth in paragraph (b) or contesting attorney-client privilege or work product protection claims set for the in paragraph (c).
(e) Attorney's Ethical Responsibilities. Nothing in this Order overrides any attorney's ethical responsibilities to refrain from examining or disclosing materials that the attorney knows or reasonably should know to be privileged, regardless of the identity of the privilege holder, and to inform the other party that such materials have been produced.
(f) In Camera Review. Nothing in this Order limits the rights of any party to petition the Court for an in camera review of the Protected Information.
(g) Voluntary and Subject Matter Waiver. This Order does not preclude Petitioners from voluntarily waiving the attorney-client privilege or
work-product protection that they may be able to raise as to certain documents in the Protected Information. The provisions of Federal Rule of Evidence 502(a) apply when Petitioners use or indicate that they may use information produced under this Order to support a claim or defense.
(h) Disqualification. Review of the Protected Information by Respondent's trial team will not disqualify any member of the trial team from representing Respondent in this matter. Instead, the remedy available to Petitioners is contained in this Order-namely the claw back of any Protected Information.
(i) Binding Effect. Pursuant to Fed.R.Evid. 502(e), this order is binding only on the parties to this litigation. It is further,
ORDERED that, given the limited scope of the protections set forth in the first ordered paragraph above, Petitioners shall respond on or before March 28, 2022, to Respondent's Motion for Determination of Privilege Claim Pursuant to Fed.R.Civ.P. 26(b)(5)(B).