Opinion
CIVIL ACTION NO. 01-5311.
June 23, 2003.
ORDER AND OPINION
I. Introduction
In this case, DVI Financial Services Inc. ("DVI") is suing ten related defendants to recover monies it alleges are owed to it under various medical equipment loans and leases, and associated guarantees. Two defendants, Ohio Heart and HeartNet, ("Defendants"), are actively litigating this case, and are involved in discovery.
The other defendants in this case are Florida Heart, LLC; Florida Heart-Orlando, LLC; Florida Heart-Sarasota, LLC; HeartNet II, LLC; Heartnet III, LLC; Maryland Heart, LLC; Ohio Heart-Akron, LLC; and Preventive Imaging Technologies, Inc.
DVI now moves for an order compelling responses to deposition questions, and document discovery of communications between defendants and a third-party known as Ambient Advisers, LLC ("Ambient"). For the reasons set forth below, DVI's motion will be granted.
II. Factual Background
Ambient is a corporate finance and consulting company which was retained by defendant Preventive Imaging Technologies, Inc., ("PIT"), and a third party, Imatron, Inc., to facilitate the sale of certain heart imaging centers owned by Defendants. Deposition Transcript of Gary Post, attached to DVI's Motion as Exhibit A, at pages 13, 15, 38.
In January, 2003, DVI served a document subpoena upon Ambient. Subpoena, attached as Exhibit J to DVI's Motion. Ambient's responsive production included written communications, primarily e-mails, between and among Defendants, their Ohio counsel, and Ambient. These included exchanges in which Post apparently discussed litigation strategy with David J. Richards, principle representative for PIT. E-Mail Exchange Attached as Exhibit L to DVI's Motion.
According to Gary Post, Ambient's director and sole owner, counsel for Defendants was aware that Ambient was producing documents under a subpoena from DVI, and even discussed the production with him. Post Deposition Transcript, supra, at 11. Defendants did not seek a protective order from the court, or otherwise try to stop DVI from obtaining the material.
In March, 2003, DVI deposed Post. Post Deposition Transcript,supra. At the deposition, DVI used as exhibits some of the communications Ambient provided involving Defendants. See, e.g., Post Deposition Transcript, supra, at 33-36, and e-mails attached to DVI's Motion as Exhibits K and L. Post answered questions based on these exhibits. Counsel for Defendants appeared at Post's deposition by telephone, although he did not represent Post. Id. at 9-10. He raised the issue of attorney work product protection as to one exhibit, stating: "For the record, I will make a work product objection here, but I guess since it has been produced there is not a whole lot I can do about it at this point. So you can ask questions — ."Id. at 499. It does not appear that Defendants' counsel made any other objection to the use, or discussion, of the exhibits.
Between April 1 and 3, 2003, DVI deposed Richards, as representative for PIT. Richards Deposition Transcript attached as Exhibit B to DVI's motion. On the final day of the deposition, DVI marked as exhibits a number of the documents produced by Ambient which were generated by Defendants or their counsel. According to DVI, Defendants' counsel failed to object to questions about some of these exhibits, including the one mentioned above which discusses litigation strategy. However, he did object to the marking often of the Ambient documents, and instructed Richards not to answer questions about these documents on the basis that they were protected either by the attorney-client privilege, or as attorney work product. Id.
Counsel for both sides eventually agreed that DVI would seek a judicial ruling on the applicability of the attorney-client privilege, and that DVI reserved the right to call Richards for additional questioning on the documents at issue, in the event of a favorable ruling. Id. at 850, 853.
III. Legal Standards
The Federal Rules of Civil Procedure are liberal with respect to discovery, permitting the requesting party to obtain even inadmissible material, so long as it is unprivileged, and "relevant to the claim or defense of any party." Fed.R.Civ.P. 26(b)(1); Hickman v. Taylor, 329 U.S. 495 (1947).
Federal Rule of Evidence 501 provides that, in a diversity action, a federal court must look to state law to determine whether a communication is privileged. For the attorney-client privilege to apply, Pennsylvania law requires a communication between an attorney and his client which relates to a fact of which the attorney was informed (a) by his client; (b) without the presence of strangers; and (c) for the purpose of securing legal opinion, advice or services. Rhone-Poulenc Rorer Inc. v. Home Indemnity Co., 32 F.3d 851, 862 (3d Cir. 1994). The privilege may not be for the purpose of committing a crime or tort. Id. Significantly, the privilege must also have been asserted and not waived. Id.
The party asserting the attorney-client privilege bears the burden of showing that all necessary factors are present. See Koen Book Distributors v. Powell, Trachtman, Logan, Carrle, Bowman Lombardo, P.C., 212 F.R.D. 283, 286 (E.D. Pa. 2002).
The work product doctrine is codified in Fed.R.Civ.Pr. 26(b)(c), which protects material "prepared in anticipation of litigation or for trial by or for another party or by or for that other party's representative (including the other party's attorney, consultant, surety, indemnitor, insurer or agent)." Here again, the burden is on Defendants to show that they are entitled to the protection of this rule. See Holmes v. Pension Plan of Bethlehem Steel Corp., 213 F.3d 124, 138 (3d Cir. 2000); Koen Book Distributors, supra.
IV. The Documents In Question
The following is DVI's description of the material in question. Defendants have not contradicted this description:
1. Plaintiff's Deposition Exhibit 96. This document was marked and used at Mr. Post's deposition without any objection from defendants' counsel. At Mr. Richards' deposition, defendants' counsel nevertheless took the position that this document contained attorney-client communications and work product.
2. Plaintiff's Deposition Exhibit 201. This document was also marked at Mr. Post's deposition and, although defendants' counsel claimed that it contained work product, he permitted DVI to question Mr. Post about its contents. At Mr. Richards' deposition, however, defendants' counsel took a different approach by objecting to th use of this document on attorney-client privilege grounds and instructing Mr. Richards not to answer.
3. Plaintiff's Deposition Exhibit 264 is a one-page e-mail from Ambient's files to William Kelly and Mark Merkle of Porter Wright [the law firm representing Defendants in Ohio] from David Richards, dated October 26, 2001, regarding DVI's legal positions in this case. Defendants posed an attorney-client privilege objection to this e-mail and would not even permit Mr. Richards to identify the document.
4. Plaintiff's Deposition Exhibit 265 is a two-page e-mail to Gary Post from David Richards, dated October 27, 2001, regarding Mr. Richards' litigation strategies. Although there are no lawyers listed as recipients of this e-mail, defendants objected to the use of this document on attorney-client privilege grounds and even refused to allow Mr. Richards to identify it.
5. Plaintiff's Deposition Exhibit 266 is a one-page e-mail to William Kelly of Porter Wright from David Richards (with a copy to Gary Post), dated October 27, 2001, regarding Mr. Richards' version of some of the facts in this case. Defendants posed an attorney-client objection to this e-mail and did not permit Mr. Richards to identify it.
6. Plaintiff's Deposition Exhibit 268 is a two-page document consisting of a printout of three e-mails from October 28-29, 2001, regarding Mr. Richards' bankruptcy and litigation strategies. Two of the e-mails involve David Richards, William Kelly and Gary Post, and one involves only Messrs. Post and Richards. Nevertheless, defendants claimed that the entire document was attorney-client privileged.
7. Plaintiff's Deposition Exhibit 271 is a four-page document containing a string of five related e-mails between and among David Richards, defendants' counsel (William Kelly and Mark Merkle) and Gary Post, dated October 31, 2001, regarding the sale of some of the imaging centers at issue in this case. Defendants instructed Mr. Richards not to answer questions on this document based on the attorney-client privilege and work product doctrine.
8. Plaintiff's Deposition Exhibit 273 is a one-page e-mail to Mr. Post from Mr. Richards, dated December 2, 2001, attaching, for Mr. Post's review, a one-page memorandum that Mr. Richards prepared for three of his attorneys concerning certain facts in this case. Defendants asserted attorney-client privilege and work product objections as to the memorandum.
9. Plaintiff's Deposition Exhibit 276 consists of a string of two e-mails, dated December 11, 2001, and an attached eighteen-page "Discussion Draft" of Defendants' Answer in this action. The first e-mail is to William Kelly and Mark Merkle from David Richards, and it discusses the draft Answer. In the second e-mail, Gary Post forwards the draft Answer and Mr. Richards' comments to another Ambient employee, David Ahn. Defendants asserted attorney-client privilege and work product objections with respect to the entire document.
10. Plaintiff's Deposition Exhibit 277 consists of a string of four related e-mails, dated January 4, 7 and 8, 2003, regarding the possible sale of imaging centers. In one of the e-mails, Mr. Post is sending a message to another one of Mr. Richards' Ohio lawyers, Myron Terlecky. Mr. Richards' lawyers were not listed as recipients of any of the remaining three e-mails. Defendant objected to the use of the document on attorney-client privilege and work product grounds.
V. Discussion
A. The Status of the Ten Listed Documents
The common factor undermining Defendants' claims of privilege is that each document was shared with Ambient, via Gary Post. (The one exception is the first e-mail mentioned above in item No. 9). In their response, Defendants have not denied that Ambient was a third party, disclosure to which constituted a waiver of the attorney-client privilege. Nor have they argued that Ambient was their agent or consultant in the sense that their correspondence with it would be entitled to protection under Fed.R.Civ.Pr. 26(b)(3).
Since Defendants do not deny that Ambient and Post were third parties, DVI's arguments in that regard are largely beside the point. It is worth noting, however, that DVI has provided Post's deposition testimony in which he said that he saw himself as working for Imatron and even DVI, as much as for PIT, in seeking to arrange the sale of the heart imaging centers. Post Deposition Transcript, supra, at 300, 397, 470.
Instead, Defendants argue that any waiver of the attorney-client privilege, or their rights under the attorney work product doctrine, was involuntary. In extraordinary circumstances, such as expedited discovery or massive document exchanges, a limited inadvertent disclosure has been found not to constitute a waiver of privilege. Advanced Medical, Inc. v. Arden Medical Systems, Inc., Civ. A. No. 86-3059, 1988 WL 76128 at *2 (E.D. Pa. Jul. 18, 1988).
Here, however, the e-mails were intentionally forwarded to Post by Richards, with Richards' full knowledge of their contents. Even if a waiver of privilege was not intended, it is not clear that any privilege could be found to remain in these circumstances. In Simmons v. Children's Hospital of Pennsylvania, Civ. A. No. 01-5607, 2002 WL 31968951 (E.D. Pa. Jun. 24, 2002), an attorney intentionally forwarded a copy of an attorney-client communication to the counsel for the opposing party. She argued that her disclosure was inadvertent because she thought opposing counsel had already seen the document. The Honorable Clarence C. Newcomer found a waiver, nevertheless, because, by sending the communication without ensuring that it had already been disclosed, the attorney failed to take reasonable steps to preserve the privilege. Id. at *3.
Inadvertent or unintentional disclosures can result in a waiver of attorney work product protection, as well. The Court of Appeals for the Third Circuit has said: "In the case of inadvertent or involuntary disclosures, the party asserting the work product doctrine must pursue all reasonable means to restore the confidentiality of the materials and to prevent further disclosures within a reasonable period to continue to receive the protection of the privilege." In re Grand Jury (Impounded), 138 F.3d 978, 981 (3d Cir. 1998).
PIT willingly forward all of the material at issue to Ambient, and never asked for its return. Defendants took no action to prevent Ambient from producing the material to DVI, or to prevent DVI from questioning Post about it. They never sought judicial enforcement of the privilege. This was fatal to the claim of work product protection in In re Grand July (Impounded), where the party asserting the protection asked the opposing party for the return of certain documents but failed to turn to the court when the opposing party refused. Id. at 981-982.
In short, Defendants did not take the required reasonable actions to preserve any privilege to which they might otherwise have been found entitled. For that reason, all of the documents involving Defendants which DVI obtained from Ambient may be used in discovery.
B. Defendants' Production of Additional Documents
DVI also asks the Court to require Defendants to produce all documents in its possession "involving defendants and Ambient" that have been withheld on privilege or work product grounds. Defendants claim that there are only five such documents, and that they are available for in camera review.
As a corollary to the earlier part of this Opinion, I will direct Defendants to turn over to DVI within ten days all documents which are responsive to an appropriate DVI discovery request and which have already been disclosed to Ambient or to Gary Post. Any other responsive documents are a proper subject for a motion by Defendants for a protective order, under Fed.R.Civ.Pr. 26(c). If Defendants have no such documents, they may so state in a properly verified discovery response.
C. Richards' Continued Deposition
Defendants ask that they not be required to produce David Richards for additional questioning. They maintain that there is little Richards could tell DVI that is not already contained in the documents. They also argue that, since Richards has already been deposed by Defendants for three days, any additional time would constitute an undue burden.
It is evident, however, that the essence of the dispute underlying DVI's motion is whether DVI would be permitted to question Richards on the ten documents listed herein. As set forth above, the parties agree that the questions would be deferred until the Court ruled on the privilege issue. Having ruled that the material is not privileged, I will permit DVI to recall Richards for a fourth day of deposition, with questions limited strictly to the ten documents DVI has listed, as well as any additional documents Defendants may produce in accordance with the attached Order.
VI. Conclusion
For the reasons set forth above, I now enter the following:
ORDER
AND NOW, this day of June, 2003, upon consideration of DVI's Motion to Compel Defendants to Answer Deposition Questions and to Overrule Defendants' Attorney-Client Privilege and/or Work Product Claims as to Documents Involving Third-Party Ambient Advisers, LLC, docketed in this case as Document No. 53, and Defendants' response thereto, it is hereby ORDERED that DVI's Motion is GRANTED as specified below:
1. DVI is permitted to make use in discovery of all documents involving Defendants which were obtained by DVI from Ambient Advisers, LLC;
2. Defendants are directed to turn over to DVI within ten days of the date of this Order all additional material they possess which is responsive to a DVI discovery request, and which has already been disclosed to Ambient Advisers, LLC, or Gary Post;
3. Defendants are to submit party representative David Richards to an additional day of deposition, the subject of which is strictly limited to questioning on the ten documents at issue in this motion, and on any documents which Defendants may produce in response to Part 2 of this Order.