Opinion
No. 2013-CV-119
10-28-2015
XTL-NH, Inc. v. New Hampshire State Liquor Commission and Exel, Inc.
ORDER
The Petitioner, XTL-NH, Inc. ("XTL"), has brought an action against the Respondents, the New Hampshire State Liquor Commission (the "Commission"), alleging that the bidding process for a liquor warehousing contract, in which XTL was an unsuccessful bidder, was unlawful under New Hampshire competitive bidding law. XTL now seeks to compel the Commission to produce all drafts of the January 16, 2013 Evaluation Committee ("EC") memorandum. The Commission objects, arguing that drafts of the EC memorandum are protected pursuant to the work product doctrine. XTL also seeks to prevent the Commission from raising the advice of counsel defense at trial, to which the Commission also objects. XTL's Motion to Compel Production of All Drafts of the January 16, 2013 Evaluation Committee Memorandum is DENIED, and XTL's Motion in Limine to Exclude Advice of Counsel Defense at Trial is GRANTED.
I
On March 28, 2012, the Commission released a Request for Proposal ("RFP") to solicit bids from vendors for a long-term warehousing contract. After receiving bids from several vendors, including XTL and Exel, Inc. ("Exel") the EC conducted an evaluation process pursuant to RSA 21-I:18. (Galdieri Aff. in Supp. Mot. Compel Produc. of All Drafts of EC Mem. [hereinafter Second Galdieri Aff.] Ex. A, at 2 & 6.) The EC drafted a memorandum detailing the information considered in the evaluation process and issued a final copy of the memorandum on January 16, 2013. (Id. at 1.) The memorandum specifically states it is the work of the EC, consisting of John Bunnell, Craig Bulkley, Geoge Tsiopras, and Peter Hastings, but that the Attorney General selected Attorney Stephen Judge of the Wadleigh, Starr & Peters law firm "to serve as legal counsel to the [Commission] and the EC." (Id.)
The memorandum underwent multiple revisions prior to the final January 16, 2015 draft. (Second Galdieri Aff. Exs. H & J.) On November 2, 2012, Bulkley sent Chairman Joseph Mollica and Commissioner Michael Milligan a draft of the memorandum. (Second Galdieri Aff. Ex. K.) Commissioner Milligan relied on the that draft when choosing the winning bidder. (Second Galdieri Aff. Ex. L, Milligan Dep. 111:19-127:16.) Chairman Mollica could not recall whether he reviewed the November 2, 2012 draft, but he relied on the EC's recommendation. (Second Galdieri Aff. Ex. M., Mollica Dep. 139:10-145:6.) On November 7, 2012, the EC recommended awarding the contract to Exel, and on November 20, 2012, with the Attorney General's approval, the Commission awarded the contract to Exel. (Second Galdieri Aff. Ex. A, at 42, 44.)
XTL then brought this action alleging that the Commission acted in bad faith when it failed to follow competitive bidding law by running an unlawful RFP process, failing to disqualify Exel's defective proposal, and engaging in improper contract negotiations with Exel. Thereafter, the parties engaged in discovery.
XTL propounded its first set of interrogatories and requests for production of documents on September 17, 2013, and the Commission responded by producing the final EC memorandum but declining to release the prior drafts under the work product doctrine and attorney-client privilege. (NHSLC's Obj. to Mot. Compel Produc. of All Drafts of EC Mem. Exs. 4 & 5.) XTL propounded a second set of interrogatories and requests for production of documents on February 24, 2014, and the Commission again asserted the drafts were protected. (Id. Exs. 6 & 7.) On May 12, 2014, the Commission produced a privilege log listing the drafts as protected by attorney-client privilege and the work product doctrine. (Second Galdieri Aff. Ex. J.) XTL did not request the listed drafts at that time or at any time before the close of discovery on December 5, 2014.
At deposition, members of the EC testified that the memorandum contained Attorney Judge's input. Bunnell believed the EC memorandum was "created by Mr. Bulkley with assistance from Mr. Judge." (Second Galdieri Aff. Ex. C, Bunnell Dep. 240:8-9.) Bulkley testified that drafting the memorandum "was a joint effort with the evaluation committee, with legal assistance coming from our legal counsel." (NHSLC's Obj. to Mot. Compel Produc. of All Drafts of EC Mem. Ex. 10, Bulkley Dep. 21:22-22:3.)
XTL sought to depose Attorney Judge based on his involvement in the bidding process. In its October 1, 2014 Order, the Court denied XTL's request finding that Attorney Judge's involvement in the bidding process was protected work product and XTL did not demonstrate that the relevant facts were either unobtainable or obtainable only with such unfairly prejudicial hardship. The Court noted Attorney Judge anticipated litigation would eventually occur as soon as he was retained, which was confirmed as early as April 2011 when Law Warehouses began alleging the Commission was attempting to replace it with a new vendor. (Order at 6, Oct. 1, 2014.)
Since the Court's October 1, 2014 Order, XTL has deposed Chairman Mollica, Commissioner Milligan, and EC members about Attorney Judge's role in the evaluation process. EC member Bunnell testified that he relied on Attorney Judge's advice to determine whether vendor proposals satisfied the RFP requirements and whether Exel's bid should be disqualified for certain defects, such as failing to identify a specific warehouse location. (Galdieri Aff. in Supp. Mot. Exclude Advice of Counsel Defense [hereinafter First Galdieri Aff.] Ex. A, Bunnell Dep. 49:9-51:10.) When asked for his personal opinion regarding whether Exel's application conformed to the RFP requirements, Bunnell responded, "To rely on legal counsel." (Id. 50:11-12.) Bunnell testified that the EC discussed the aforementioned issues, but counsel for the Commission advised Bunnell not to testify to any discussions he had with legal counsel. (Id. 52:15-22.) The following dialogue occurred later in the deposition:
Q: Okay. Now, many times today when you've been asked questions about why certain requests were allowed, you said you deferred to legal counsel.(Id. 360:5-361:1.)
A: Uh-hum.
Q: Did you understand that as a member of this four member evaluation committee you had to make an independent judgment about which proposal was best for the state?
A: Yes.
Q: So when issues like whether Exel's bid satisfied the RFP requirements or should have been disqualified because Exel did not identify a specific warehouse site, did you use your independent judgment about whether Exel should have been disqualified?
A: No.
Q: Why not?
A: I relied on legal counsel, as well as the other members of the committee.
EC member Tsiopras stated, "[T]he point of having legal counsel with us was to advise us that we were following and acting in accordance with the RFP, and we believe we did that." (First Galdieri Aff. Ex. B, Tsiopras Dep. 239:21-240:2.) Additionally, EC member Bulkley testified that he believed part of Attorney Judge's role was to "evaluate proposals and determine whether they were convincing or not." (First Galdieri Aff. Ex. D, Bulkley Dep. 102:4-15.) Commissioner Mollica testified that he relied on Attorney Judge's advice to determine whether a conversation between Bulkley, Attorney Judge, and an Exel employee should have been included in the final EC memorandum. (First Galdieri Aff. Ex. C, Mollica Dep. 146:19-147:10.)
XTL moves to compel the Commission to produce all drafts of the January 16, 2013 EC memorandum on the ground that the drafts are neither protected by the work product doctrine nor attorney-client privilege. XTL also moves in limine to prevent the Commission and its witnesses from relying on the advice of counsel defense at trial. The Commission objects to both motions.
II
In its Motion to Compel production of all drafts of the January 16, 2013 EC memorandum, XTL argues that the draft versions of the final EC memorandum are not subject to the work product doctrine. XTL contends both that the facts and opinions in the document are not those of an attorney but those of the EC and that the draft memoranda were not created in anticipation of litigation. XTL maintains the drafts are essential because it believes that the memorandum was substantially altered after the November 2, 2012 draft, which was the draft the Commission allegedly relied on to award Exel the contract, and that the final draft excludes certain communications between EC members and Exel.
The Commission objects, asserting both that XTL's Motion to Compel is untimely and that it fails on the merits because the evidence shows Attorney Judge assisted in preparing the memorandum. The Commission further maintains that XTL has neither demonstrated a critical need for the draft documents nor a lack of reasonable alternative means to obtain the information. The Commission emphasizes that XTL did not attempt to obtain the information in the draft EC memoranda by other means.
XTL's Motion to Compel is untimely because it was filed eight months after the close of discovery, even though XTL was aware of these documents well before the close of discovery. It is well within the Court's discretion to deny a Motion to Compel filed after the close of discovery. Super. Ct. R. 35(g). Denial of the Motion is particularly appropriate here where the case has been continued twice at XTL's request, once over the Commission's strenuous objection. At some point, this litigation must end.
Moreover, even if the Court were to consider the merits, the draft EC memoranda are protected by the work product doctrine. The work product doctrine protects "the mental processes of the attorney, providing a privileged area within which he can analyze and prepare his client's case." United States v. Nobles, 422 U.S. 225, 238 (1975). Work product is "the result of an attorney's activities when those activities have been conducted with a view to pending or anticipated litigation." Riddle Spring Realty Co. v. State, 107 N.H. 271, 274 (1966). The attorney's involvement "must have formed an essential step in the procurement of the data which the opponent seeks, and [the lawyer] must have performed duties normally attended to by attorneys." Id. Disclosure of work product may nonetheless be compelled "[i]f such relevant facts are unobtainable by other means, or are obtainable only under such conditions of hardship as would tend unfairly to prejudice the party seeking discovery." Id. at 275.
There is ample evidence showing the final EC memorandum was prepared with assistance of Attorney Judge in anticipation of litigation. EC member Bunnell believed the EC memorandum was "created by Mr. Bulkley with assistance from Mr. Judge." (Second Galdieri Aff. Ex. C, Bunnell Dep. 240:8-9.) EC member Bulkley testified that drafting the memorandum "was a joint effort with the evaluation committee, with legal assistance coming from our legal counsel." (NHSLC's Obj. to Mot. Compel Produc. of All Drafts of EC Mem. Ex. 10, Bulkley Dep. 21:22-22:3.) Critically, the Court's October 1, 2014 Order denying XTL's request to depose Attorney Judge specifically found Attorney Judge "anticipated litigation regarding the RFP and bidding process, and he prepared accordingly for the inevitable litigation that would arise." (Order at 10, Oct. 1, 2014.)
XTL has not demonstrated that the information in the draft EC memoranda is not obtainable by other reasonable means. To the extent XTL asserts the prior drafts varied substantially from the final draft, the Court notes that XTL was aware of those prior drafts, had the opportunity to depose EC members about those variations, and, in fact, did confront at least three deponents about those variations. (NHSLC's Obj. to Mot. Compel Produc. of All Drafts of EC Mem. Exs. 8, 9 & 10.). Therefore, XTL is not entitled to production of all drafts of the final January 16, 2013 EC memorandum.
III
XTL also moves in limine to prevent the Commission and its witnesses from relying on the advice of counsel defense at trial. XTL's complaint centers on its assertion that the Commission acted in bad faith when it failed to follow competitive bidding laws by running an unlawful RFP process, failing to disqualify Exel for defects in its proposal, and engaging in improper contract negotiations with Exel. Based on deposition testimony of several of the Commission's anticipated witnesses, XTL believes that one or more witnesses for the Commission will assert that they did not act illegally or in bad faith by taking those actions because they relied on advice of their legal counsel.
The Commission objects, asserting that it does not intend to rely on the advice of counsel defense at trial because it does not expect to elicit testimony that Attorney Judge made decisions regarding the scoring and evaluation of vendors' proposals. The Commission argues that the expected testimony will show the EC and the Commission were responsible for the final decisions, not Attorney Judge, and therefore the advice of counsel defense is inapplicable. But this claim is belied by the Objection itself:
Attorney Judge was present throughout the proceedings to ensure compliance and provide legal advice. The [Commission] does expect to elicit testimony that the EC relied upon Attorney Judge's guidance, and that reliance was to ensure that the EC and [Commission] proceeded in accordance with the law.(NHSLC's Obj. to XTL's Motion to Exclude Advice of Counsel Defense ¶ 13 (emphasis added).)
A
The claim of bad faith is central to XTL's claim for damages. If the Commission violated the competitive bidding laws as XTL claims, the measure of damages depends on whether the State acted in bad faith. Under New Hampshire law, a bidder may be entitled to damages under a theory of promissory estoppel if that bidder reasonably relied on a public entity's promise to award the contract to the lowest responsible bidder that submits required information by the stated deadline. Marbucco Corp. v. City of Manchester, 137 N.H. 629, 632-33 (1993) (citing Restatement (Second) of Contracts § 90 (1979)). A disappointed bidder asserting a promissory estoppel claim is generally limited to damages sustained by justifiable reliance on the promise to conduct a fair bidding process. Id. at 634. "If a disappointed low bidder complies with all requirements of the bid instructions but is deprived of the contract through some conduct of the awarding authority tantamount to bad faith . . . then the recovery of lost profits should be the measure of damages." Id.
B
The Commission has never explicitly asserted in any pleading an affirmative defense of good faith. Where a party puts the legal advice he has received into issue, for example, a defendant denying culpability based upon what an attorney told him, an explicit waiver of the privilige occurs. See, e.g., In re Grand Jury Subpoena, 341 F.3d 331 (4th Cir. 2003), cert. denied, 541 U.S. 982 (2002). "It is well settled law that in certain circumstances a party's assertion of factual claims can, out of consideration of fairness to a party's adversary, result in the involuntary forfeiture of privileges for matters pertinent to the claims asserted." iHearsafe, LLC v. Ingemi, Merrimack County Superior Ct., No. 10-C-5011 (Sept. 1, 2010) (Order, McNamara, J.) (quoting Lugosch v. Congel, No. 1:00-CV-0784, 2006 U.S. Dist. LEXIS 53116, at *86 (N.D.N.Y. Mar. 7, 2012)).
But apart from an explicit waiver, "where a party raises a claim which in fairness requires disclosure of the protected communication, the privilege may be implicitly waived." Chevron Corp. v. Pennzoil Co., 974 F.2d 1156, 1162 (9th Cir. 1992) (emphasis added). For example, "[a] defendant may . . . waive the [attorney-client] privilege by asserting reliance on the advice of counsel as an affirmative defense." Rhone-Poulenc Rorer, Inc. v. Home Indem. Co., 32 F.3d 851, 863 (3d Cir. 1994). It has been observed:
In these cases, the client has made the decision and taken the affirmative step in the litigation to place the advice of the attorney in issue. Courts have found that by placing the advice in issue, the client has opened to examination facts relating to that advice. Advice is not in issue merely because it is relevant, and does not necessarily become in issue merely because the attorney's advice might affect the client's state of mind in a relevant manner. The advice of counsel is placed in issue where the client asserts a claim or defense, and attempts to prove that claim or defense by disclosing or describing an attorney-client communication.Id.
The principle of fairness underlies the doctrine of implicit waiver. "We are told that we cannot have our cake and eat it too (although we are never told by those who use the metaphor what the point of having cake at all is, if you can't eat it)." E.S. Epstein, The Attorney-Client Privilege and the Work Product Doctrine 507-08 (5th ed. 2007). This notion of fairness "implicates only 'the type of unfairness to the adversary that results in litigation circumstances when a party uses an assertion of fact to influence the decisionmaker while denying its adversary access to privileged materially potentially capable of rebutting the assertion.'" In re Cty. of Erie, 546 F.3d 222, 229 (2d Cir. 2008) (quoting John Doe Co. v. United States, 350 F.3d 299, 306 (2d Cir. 2003)). 2015).
Many cases state that the "[t]he privilege which protects attorney-client communications may not be used both as a sword and a shield." Chevron Corp., 974 F.2d at 1162 (citing United States v. Bilzerian, 926 F.2d 1285, 1292 (2d Cir. 1991)). But this simile is not quite apt, because here the Commission does not seek to assert the privilege offensively. --------
Courts generally hold that merely placing state of mind at issue where there is other evidence of a defendant's state of mind is not an implicit waiver. McKee v. PetSmart, Inc., 71 F.Supp. 3d 439, 443 (D.Del. 2014). But as a general rule, "raising an affirmative defense that tangentially makes relevant advice of counsel, such as a defense of good faith which may on occasion be predicated on a party's understanding of what the law was, may be sufficient to his constitute a waiver of the privilege for the party asserting the affirmative defense." Epstein, supra, at 532; see generally Cox v. Adm'r, U.S. Steel & Carnegie, 17 F.3d 1386, 1419 (11th Cir. 1994) ("Having gone beyond mere denial, affirmatively to assert good faith, the defendant injected the issue of its knowledge of the law into the case and thereby waived the attorney-client privilege.").
If a party relies upon the on advice of counsel to defend against a claim of bad faith, the attorney's advice becomes a relevant factual issue probative of the defendant's state of mind. "[T]he assertion of a good-faith defense involves an inquiry into state of mind, which typically calls forth the possibility of implied waiver of the attorney-client privilege." In re Cty. of Erie, 546 F.3d 222, 228-29 (2d Cir. 2008). The court in Vicinanzo v. Brunschwig & Fils, Inc. observed:
Where a party intends to rely at trial on the advice of counsel as a defense to a claim of bad faith, that advice becomes a factual issue, and opposing counsel is entitled to know not only whether such an opinion was obtained but also its content and what conduct it advised. A party who intends to rely at trial on the advice of counsel must make a full disclosure during discovery; failure to do so constitutes a waiver of the advice-of-counsel defense.739 F. Supp. 891, 894 (S.D.N.Y. 1990).
It is true that the mere denial of bad faith is not sufficient to waive a claim of privilege. See generally In re Brand Name Prescription Drugs Antitrust Litig., No. 94-C-497, 1995 US Dist. LEXIS 12041, at *3 (N.D.Ill. Aug. 18, 1995). The key to the existence of implied waiver is "whether a testimonial use is being put in the litigation at issue to privileged communication." Epstein, supra, at 535. If not, there is no implied waiver, "even if some portion of privileged information may have been revealed by a party without a testimonial use for another purpose—such as to ward off prosecution." Id.
In Martin Marietta Materials, Inc. v. Bedford Reinforced Plastics, Inc., the court concluded that merely asserting against the plaintiff a counterclaim of inequitable conduct was insufficient to gain access to privileged communications. 227 F.R.D. 382, 396 (W.D. Pa. 2005). However, in defending against the counterclaim, the court concluded the plaintiff had affirmatively injected an implied advice of counsel defense in response to deposition questions of one of the plaintiff's representatives. Id. Similarly, in United States v. Bilzerian, that the defendant acted with criminal intent was a central element of the claim against the defendant, which the defendant sought to refute by introducing testimony that he attempted in good faith to comply with the securities laws. 926 F.2d 1285, 1291-92 (2d Cir. 1991). The defendant contended that such testimony would not amount to an advice of counsel defense. Id. The court, however, held that the defendant put his state of mind and understanding of the law at issue by asserting that he acted in good faith, and the conversations with his attorney about the legality of the transactions at issue were therefore directly relevant to understand his basis for believing his actions were legal. Id. at 1294.
Here the Commission is attempting to put privileged information to testimonial use. As in Martin Marietta Materials and Bilzerian, the Commission seeks to introduce testimony that its witnesses relied on Attorney Judge's advice to ensure the bidding process was lawful, the effect of which is to affirmatively rebut XTL's claim of bad faith liability. (NHSLC's Obj. to XTL's Motion to Exclude Advice of Counsel Defense ¶ 13.) At heart, the issue is relevance: a Commission member's testimony that he complied with counsel's advice is not relevant to show that he acted in good faith unless the trier of fact knows what the attorney advised.
Testimony in several depositions indicates that the advice of legal counsel was so inextricably linked to the Commission's witnesses' knowledge of the law as to render it unfair to allow the Commission to rely on that testimony without waiving attorney-client privilege. EC member Bunnell testified that he relied on legal counsel in determining whether Exel's bid should have been disqualified for several different reasons. (First Galdieri Aff. Ex. A, Bunnell Dep. 49:9-51:10.) Significantly, when asked what his personal opinion was regarding whether Exel's application conformed to the RFP requirements, Bunnell responded, "To rely on legal counsel." (Id. 50:11-12.) Perhaps more telling was Mr. Bunnell's testimony that he did not use his independent judgment but instead relied on legal counsel when determining whether Exel should be disqualified for failing to identify a specific warehouse site. (Id. 360:5-361:1.) EC member Tsiopras believed "the point of having legal counsel with us was to advise us that we were following and acting in accordance with the RFP." (First Galdieri Aff. Ex. B, Tsiopras Dep. 239:21-240:2.) Additionally, EC member Bulkley believed part of Attorney Judge's role was to "evaluate proposals and determine whether they were convincing or not." (First Galdieri Aff. Ex. D, Bulkley Dep. 102:4-15.) In seeking to avoid Attorney Judge's deposition, the Commission emphasized that Attorney Judge was hired as an attorney to advise the Commission and the EC on how to proceed through the bid process. (NHSCL's Obj. to XTL's Mot. to Depose Attorney Judge ¶ 25.)
The Commission attempts to draw a fine line between affirmatively asserting the advice of counsel defense and merely allowing witnesses to testify that they relied on Attorney's Judge's advice to ensure the process proceeded lawfully. According to the Commission, this distinction is rooted in the fact that intended testimony will show that the decisions were not made by Attorney Judge, but were independently made by the EC and the Commission while Attorney Judge provided counsel as to those decisions.
But the entire point is that Attorney Judge provided, and the Commissioners took, legal advice. As the court noted in Edwards v. KB Home, a case in which the defendant sought to avoid liability under the Federal Fair Labor Standards Act ("FLSA") by asserting that decision to classify employees was made in good faith:
[T]he defenses requires [sic] a good faith belief about the lawfulness of a classification decision. Communications from lawyers—whose very job is to advise the company on the lawfulness of its policies—concerning the company's classification decision necessarily influence the reasonableness of any belief the company has about the lawfulness of its policy. Otherwise, why seek legal advice (which isn't cheap) at all? And as a psychological matter, it seems very difficult, if not impossible, for a witness to
compartmentalize his reliance on what he may have independently understood regarding the law and what he was told by attorneys.No. 3:11-CV-00240, 2015 U.S. Dist. LEXIS 93584, at *8-9 (S.D. Tex. July 18, 2015); see also Scott v. Chipotle Mexican Grill, Inc., 67 F. Supp. 3d 607, 616 (S.D.N.Y. 2014) (quoting Leviton Mfg. Co. v. Greenberg Traurig LLP, No. 09 Civ. 8083, 2010 U.S. Dist. LEXIS 128849 (S.D.N.Y. Dec. 6, 2010)) (rejecting that the advice of counsel defense could be used "in such a way as to remove its state of mind from being at issue," because the legal advice given "may well demonstrate the falsity of its claim of good faith belief," inevitably putting state of mind at issue); Wang v. Hearst Corp., No. 12-CV-793, 2012 U.S. Dist. LEXIS 179609, at *7-8 (S.D.N.Y. Dec. 19, 2012) ("Defendant's assurance that it would 'limit any good faith defense to one in which the state of mind was not formed on the basis of legal advice' amounts to little more than semantics.").
In sum, XTL is not entitled to production of all drafts of the January 16, 2013 EC memorandum pursuant to the work product doctrine. It follows that the Commission and its witnesses are not entitled to rely on the advice of counsel defense, because the Commission has not waived its attorney-client privilege; it may have its confection of attorney client privilege, but it may not eat it too. XTL's Motion to Compel Production of All Drafts of the January 16, 2013 Evaluation Committee Memorandum is DENIED, and XTL's Motion in Limine to Exclude Advice of Counsel Defense at Trial is GRANTED.
SO ORDERED
10/28/15
Date
s/Richard B . McNamara
Richard B. McNamara
Presiding Justice