Opinion
C.A. No. 07C-05-171 CLS.
Submitted: August 16, 2007.
Decided: January 14, 2008.
Upon Consideration of Plaintiff's Motion for a Protective Order DENIED.
Michel Y. Horton, Michael J. Miguel, David S. Cox, Esquires, pro hac vice Morgan, Lewis Bockius LLP, Los Angeles, CA; Paul A. Zavnik, Esquire, pro hac vice, Morgan, Lewis Bockius LLP, Washington, DC; Robert K. Payson, Gregory Inskip, Esquires, Potter Anderson Corroon LLP, Wilmington, DE, Attorneys for Plaintiffs.
Richard D. Heins, Carolyn S. Hake, Esquires, Ashby Geddes, Wilmington, DE; James F. Jorden, Paul A. Fischer, Michael Valerio, Esquires, pro hac vice, Jorden Burt LLP, Washington, DC; Elizabeth A. Wilburn, Esquire, Blank Rome LLP, Wilmington, DE; Ian M. Comisky, Roger F. Cox, Kevin P. Dougherty, Esquires, pro hac vice, Blank Rome LLP, Philadelphia PA, Attorneys for Defendants.
TRIAL BY JURY OF TWELVE DEMANDED
Introduction
Plaintiff Wal-Mart Stores, Inc. is a large national retailer with over one million employees. Plaintiff Wachovia Bank of Georgia is the trustee of the Wal-Mart Stores, Inc. Corporation Grantor's Trust, specifically created to facilitate the corporate owned life insurance policies ("COLI") at issue. Following the purchase of these policies, Wal-Mart incurred substantial tax liability and now faces suits by employees. Plaintiffs allege that defendants, insurance providers and brokers, failed to reveal the risks associated with COLI.
Plaintiffs commenced this action in the Court of Chancery in 2002. Since then, the Supreme Court issued two decisions on the matter. The most recent Supreme Court decision, issued on June 6, 2006, left one remaining claim of common law fraud.
Discovery has been bifurcated in this case to enable the parties to parse the statute of limitations defense put forth by defendants. Presently before the Court is plaintiff's motion for a protective order.
Background
Wal-Mart Stores, Inc., a retail sales company with more than one million employees, purchased corporate owned life insurance ("COLI") policies for approximately 350,000 employees. From 1993 to 1995, Wal-Mart purchased the policies from defendants, insurance providers and insurance brokers. The policy plan sought to provide Wal-Mart employee benefits and generate revenue for the company through tax deductions.
In 1996, Congress passed legislation that eliminated most of the tax benefits of COLI policies. Shortly thereafter, the Internal Revenue Service began enforcement actions to disallow pre-1996 tax deductions. The IRS challenged Wal-Mart's COLI plan, and Wal-Mart incurred a substantial loss when it settled with the IRS in 2002. Finally, Wal-Mart employees and their estates also sued the company alleging that Wal-Mart did not have an "insurable interest" in the lives of employees. The employees alleged that Wal-Mart had no right to death benefits it received as a result of the COLI plan.
In September 2002, plaintiffs Wal-Mart and Wachovia Bank of Georgia filed the instant action against defendants in Chancery Court. The amended complaint alleged claims against all defendants for: (i) unjust enrichment and restitution against all defendants, (ii) breach of fiduciary duty against all defendants, (iii) equitable fraud against all defendants, (iv) breach of contract against all defendants, (v) negligence against the broker-defendants, (vi) violation of the Delaware Consumer Fraud Act against all defendants, and (vii) a declaration against all defendants requiring compensation for future losses incurred due to the failed COLI plans.
In November 2003, defendants moved to dismiss the amended complaint, and Chancery Court granted the motion based on 10 Del. C. § 8106, the applicable statute of limitations. However, the Delaware Supreme Court reversed and remanded, finding questions of fact precluded dismissal on statute of limitation grounds.
Following the Supreme Court decision, defendants renewed their motion to dismiss for failure to state a claim. Chancery Court granted dismissal on this basis. On June 6, 2006, the Delaware Supreme Court affirmed the Chancery Court's dismissal of equitable claims, but reversed on grounds that plaintiffs adequately pled common law fraud.
Vice Chancellor Lamb then entered a scheduling order to expedite the common law fraud claim. The scheduling order bifurcated statute of limitations discovery from discovery on the fraud claim. Subsequently, plaintiffs sought to transfer the litigation to this Court. On July 10, 2006, plaintiffs advised Chancery Court that it would seek to transfer the case to Superior Court and, thereafter, filed a motion to transfer and opening brief on August 10, 2006. Since transfer, this Court has determined that discovery shall continue in a bifurcated manner.
Plaintiff's Motion for a Protective Order
During the course of this litigation, plaintiffs have produced over 233,000 documents. Among those documents is the document at issue, the Smith Memo, which plaintiffs claim was inadvertently produced and does not fall within the scope of its "limited waiver." The document was marked "do not produce" by counsel, but, somehow was produced to defendants with a special Bates-number. Counsel for plaintiff clarified this special number signifies that the document was privileged. Plaintiff points to the stipulated agreement between the parties which contains a pull-back provision that states the inadvertent production of documents does not waive the assertion of the attorney-client privilege.Plaintiffs acknowledged a waiver of the attorney-client privilege at oral argument. But, it argues that waiver is limited temporally. It states that it has agreed to produce privileged documents up to three years prior to the date on which it brought suit against defendants. The balance, it claims, remains privileged.
Defendants point out that the document has a designated Bates number which indicates that it was designated as a privileged document by plaintiff. Defendants argue that this document was produced intentionally, along with others, in connection with plaintiff's waiver of the attorney-client privilege. In the alternative, defendant argues, the document is subject to an at-issue waiver. Additionally, defendant points to other documents produced by plaintiff which are also dated after September 3, 1999. Moreover, defendants argue that even if the document was not intentionally, but "regretfully" produced, it falls within the at-issue exception of the attorney-client privilege.
See Composite exhibit 3 to affidavit to defendant's opposition to plaintiff's motion for a protective order. Included is (1) correspondence from counsel to plaintiff regarding a court decision on the tax implications of COLI, dated September 27, 1999, (2) a document entitled, "IRS COLI dispute" which is marked privileged and was "prepared for counsel," dated October 1, 1999, (3) a "privileged and confidential" document dated October 13, 1999 which addresses legal strategies on COLI tax issues, (4) a COLI tax updated dated October 29, 1999, (5) a letter from Wal-Mart's tax department to counsel outlining the agenda for a teleconference with defendant AIG. Also attached are several hand-written memos, but it is unclear who authored the documents. Defendant represents that these documents are a sampling of privileged documents dated after September 3, 1999 produced by plaintiffs in discovery.
Wal-Mart says it inadvertently produced the Smith Memo. The Stipulation and Protective Order, entered into by the Chancery Court, states that "the inadvertent production shall not constitute a waiver or estoppel with regard to the claim of privilege." So, plaintiff can still claim privilege, but it remains for the Court to decide if the privilege applies or was waived. As far as the at-issue waiver is concerned, at oral argument, plaintiff's counsel sought to draw a line between what plaintiff knew of the COLI flaws and fraud and subsequent legal consultation, "including whether or not to bring litigation such as this one."
The Court finds the document was produced, at least initially, intentionally pursuant to plaintiff's own waiver. The Court does not find the waiver was temporally limited. Finally, the Court believes the document falls within the at-issue exception of the attorney-client privilege.
The Attorney-Client Privilege and Waiver
Rule 502 of the Delaware Rules of Evidence governs the attorney-client privilege. The party who claims the privilege bears the burden of proof. Waiver is a voluntary and intentional relinquishment of a known right. Since finding a waiver can produce harsh results, Delaware Courts will only find a waiver of the attorney-client privilege in rare instances. A party may waive the attorney-client privilege with intent or when a party's actions have the practical result of granting access to the opposing party.
Moyer v. Moyer, 602 A.2d 68 (Del. 1992).
Realty Growth Ins. v. Council of Unit Owners, 453 A.2d 450, 456 (Del.Supr. 1982).
Wolhar v. General Motors Corp., 712 A.2d 457, 463 (Del.Super. 1997).
A. Plaintiff's Argument that Production was Inadvertent
To support the contention that production was inadvertent and unintentional, plaintiffs point to the vast number of documents produced compared to its request that only one document, the Smith Memo, be returned. The Court does not find this argument to be persuasive for two reasons. First, the document was marked privileged by plaintiff's counsel, and yet was produced anyway. The Court finds this was pursuant to plaintiff's waiver. Second, Wal-Mart has produced multiple, additional documents which are confidential, attorney-client communications relating to this subject matter dated after September 3, 1999. B. Plaintiff's Claim that its Waiver of the Privilege was Limited
Supra n. 5; D.I. 73, exhibit 3.
Plaintiff admits that it has waived the attorney-client privilege with respect to the issue of defendant's statute of limitations defense. But, it claims the waiver is limited temporally. It claims the waiver is limited to three years before the date the case was filed — September 3, 1999. The basis suggested for this limitation is that plaintiff's knowledge of its rights three years prior to September 3, 1999 goes to whether it should have brought suit earlier than it did. Anything after this date, they argue, remains privileged.
The Court is not persuaded by this argument because while Delaware has not directly addressed this issue, case law from other jurisdictions has found that there can be no temporal limitation by the parties after a waiver is made. Moreover, plaintiffs own language regarding the waiver indicates that it extended to COLI-related matters, but never addressed the temporal limitation that it now presents to the Court. Plaintiffs have characterized the nature of the waiver as a recognition of the at issue exception based upon the Court's focus on "inquiry notice" of COLI-related risks. As such, "Wal-Mart has elected to produce attorney-client documents relating to COLI." This was a voluntary and intentional relinquishment of a known right. The Smith Memo addresses these very issues; therefore, it falls within plaintiff's own stated waiver.
Defendants point the Court to the following authorities: Bank Brussels Lambert v. Credit Lyonnais, 1995 WL 598971 at *3; Smith v. Alyeska Pipeline Serv. Co., 538 F.Supp. 977, 982 (D.Del. 1982).
Plaintiffs' answering brief in opposition to defendant's motion to compel discovery, dated April 16, 2007.
The Court also notes that defendants assert plaintiffs have not objected to discovery requests seeking documents after this time period as protected by the attorney-client privilege; plaintiff has not produced any documents refuting this claim.
Finally while September 3, 1999 is three years before the case was brought by plaintiffs, their knowledge and understanding of potential claims on December 6, 1999 (the date of the Smith Memo) is highly relevant because plaintiff's response to the statute of limitations defense is tolling.
C. The At-Issue Exception to the Attorney-Client Privilege
The at-issue exception to the attorney-client privilege has been recognized by the Delaware Supreme Court. "The courts of this State have refused to allow a party to make bare, factual allegations, the veracity of which are central to resolution of the parties' dispute, and then assert the attorney-client privilege as a barrier to prevent a full understanding of the facts disclosed." However, finding a waiver is both rare and discretionary because of the wide-ranging and often harsh implications of such a decision. In Delaware, a party cannot make allegations, which are pivotal to the dispute, and then assert the attorney-client privilege to shield information that provides full understanding of that pivotal issue.
Tackett v. State Farm Fire and Cas. Ins. Co., 653 A.2d 254, 259 (Del. 1995).
Id. See also Princeton Ins. Co. v. Vergano, 883 A.2d 44, 59-60 (Del.Ch. 2005).
Wolhar v. GMC, 712 A.2d 457, 463 (Del.Super. 1997).
Tacket, 653 A.2d at 259.
The at-issue waiver requires the party seeking the information to meet exacting standards and the Court's decision is to be based on fairness. The at-issue exception creates waiver of the attorney-client privilege when either the party put the communication itself at issue, or when the issue raised by the party cannot be resolved without examining the attorney-client protected communication. This is a two-part test, the information at issue must relate to "the pivotal issue in the current litigation and the need for the material must be compelling." Typically, compelling need is shown when the information is unavailable elsewhere.
Id.
The most obvious example being an attorney malpractice suit.
Fitzgerald v. Cantor, 1999 WL 64480 (Del.Ch.).
Williams Union Boiler v. Travelers Indem. Co., 2003 WL 22853534 (Del.Super.).
Fitzgerald, at *2.
The Court notes that plaintiffs have acknowledged the issue and have based their waiver upon the `at issue' limitation of the attorney-client privilege. But, plaintiff argues that its legal consultations with counsel on whether to bring litigation do not fall within the at-issue exception. The Court disagrees.
The issues at hand are the statute of limitations defense and the underlying fraud claim. Thus far in this litigation, the statute of limitations has played an important role. So much so, discovery has been bifurcated, so that the first phase of discovery relates to the statute of limitations defense and plaintiff's response of tolling. While plaintiffs did not inject the statute of limitations into the litigation, their argument in response is that the statute was tolled. The statute of limitations and its potential tolling involves an inquiry into the plaintiff's knowledge of a potential claim. It is true that the basis of that knowledge may have been colored by representations from defendants, but the issue of plaintiff's knowledge of potential claims remains important to the inquiry. The statements contained within this document go to the core of plaintiff's consideration of a claim nearly three years prior to its bringing suit.
The Smith memorandum is also pivotal to the underlying issue of common law fraud. It directly discusses the reliance of plaintiffs upon defendant's representations in purchasing the COLI plans.
As for the second inquiry, compelling need; defendants need for the document is compelling as it addresses the "feasibility of making a claim against [defendants]," making it key to the statute of limitations defense. The document also states "[plaintiff] did not rely on the insurance companies' representations with respect to the deductibility of the interest it paid and would not be making such a claim if this issue were litigated." While other documents cited demonstrate plaintiff's awareness of the tax-related issues with COLI, none address plaintiff's consideration of a legal claim against defendants. Neither do the other documents directly disclaim reliance upon defendant's representations in making the initial COLI purchases. As such, there is a compelling need for these documents.
Conclusion
For the foregoing reasons, plaintiff's motion for a protective order is DENIED.
IT IS SO ORDERED.