UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY
November 13, 1998
AMERICAN AGIP CO., INC.,
JUNELL CORP., PROLUBE INC., GARY T. JULIAN, GREGG BABCOCK, STEPHEN CISEK, WILLIAM HILLMAN, JOHN MILBY, JOHN O'BEIRNE, ROBERT POWERS, WILLIAM SWIFT, AND ANNA WHITLOCK,
The opinion of the court was delivered by: Robert B. Kugler United States Magistrate Judge
HONORABLE JEROME B. SIMANDLE
Presently before the Court is the application by Michael O. Adelman, Esquire, attorney for Plaintiff American Agip Co., Inc. ("Agip"), for an order compelling discovery regarding certain communications identified on Defendants' privilege log. The Court having considered the moving papers and the opposition thereto and for the reasons discussed below, Plaintiff's motion is DENIED.
The case arose when several Agip employees left that company and formed a new company, Defendant Prolube, Inc. ("Prolube"), which immediately began competing with Agip in the industrial lubricant market. See Complaint at ¶¶ 15-44. The complaint alleges, among other things, that Defendants breached their employment contract with Agip, Complaint at ¶¶ 50-52, breached their fiduciary duty to Agip, Complaint at ¶¶ 53-55, defamed Agip, Complaint at ¶¶ 56-58, engaged in tortious interference with contractual relations, Complaint at ¶¶ 59-64, and engaged in tortious interference with Agip's economic advantage, Complaint at ¶¶ 65-69. All causes of action allege violations of state law.
On or about March 25, 1998, Plaintiff served its First Request for Production of Documents and its First Set of Interrogatories on Defendants. Defendants served their responses to the discovery requests on or about May 29, 1998 and Defendants served their privilege log on September 25, 1998.
On August 24, 1998 the Court convened a telephone conference to resolve several discovery disputes. During that conference, I ordered the parties to submit letters outlining the disputed discovery together with their respective arguments. The Court convened an in-person conference on September 29, 1998 and the parties were heard on the record. On September 30, 1998 I issued an order i) compelling Defendant Junell Corp. ("Junell") and Plaintiff Agip to exchange customer lists; ii) compelling defendants to answer Interrogatory Numbers 2, 4, 5 and 6; and iii) asking the parties to submit briefs regarding the defendants' assertion of the attorney-client privilege as to certain conversations between defendants and their attorneys in and around April, May and June, 1997.
Defendants claim that the six communications between Defendants and their counsel listed on the amended privilege log are protected by the attorney-client privilege and that two are also protected by the work product doctrine. Plaintiff argues that the crime-fraud exception to the attorney-client privilege strips the communications of their privileged status and, therefore, Plaintiff should be permitted to seek discovery as to those communications.
After reviewing the parties' submissions, I concluded that I could not make a decision on the applicability of the attorney-client privilege, the work product doctrine or the crime-fraud exception based on the limited information provided on Defendants' privilege log. By letter dated October 16, 1998, I requested that Defendants provide the Court with an amended privilege log that complied with the requirements of Fed. R. Civ. P. 26(b) and Local Civil Rules 33.1(c) and 34.1. Counsel for Defendants provided the requested amended log to the Court on October 26, 1998.
According to Defendants' log, six privileged communications occurred between Defendants and their attorneys between April and June, 1997. On April 10, 1997, Defendants Gregg Babcock, Gary Julian and Robert Powers attended a "[m]eeting for initial advice regarding [the] enforceability of employment agreements and viability of engaging in competitive activities." Defendants claim that this communication is protected by both the attorney-client privilege and work product doctrine. On May 27, 1997 Defendants Gregg Babcock and Robert Powers attended a "[m]eeting to discuss [the] strategy and timing of engaging in competitive activity." Defendants assert the attorney-client privilege and work product doctrine as to this conversation as well. On June 12, 1997 Gregg Babcock participated in a "[t]telephone conversation to discuss [the] manner in which competitive activities could be pursued consistent with legal obligations." Defendants claim that this conversation is protected by the attorney-client privilege. On June 19, 1997 Gregg Babcock and Robert Powers participated in a telephone conversation and either received or wrote a memorandum discussing "the manner in which competitive activities could be pursued consistent with legal obligations." Defendants claim that the conversation and memorandum are protected by the attorney-client privilege. On June 24, 1997 Gregg Babcock and Robert Powers participated in a "[t]telephone conversation to discuss [the] manner in which competitive activities could be pursued consistent with legal obligations." Defendants claim that this conversation is protected by the attorney-client privilege. Finally, on June 25, 1997 Gregg Babcock and Robert Powers participated in a "[t]telephone conversation to discuss [the] manner in which competitive activities could be pursued consistent with legal obligations." Defendants claim that this conversation is protected by the attorney-client privilege.
Under the Federal Rules of Civil Procedure, all non-privileged relevant information is discoverable. Fed. R. Civ. P. 26(b)(1). "When a party withholds information otherwise discoverable under these rules by claiming that it is privileged or subject to protection as trial preparation material, the party shall make the claim expressly and shall describe the nature of the documents, communications, or things not produced or disclosed in a manner that, without revealing information itself privileged or protected, will enable other parties to assess the applicability of the privilege or protection." Fed. R. Civ. P. 26(b)(5). Similarly, the Local Civil Rules for this District require a party withholding information to assert the applicable privilege with specificity. See Local Civil Rules 33.1(c), 34.1 and 36.1(b). "The Third Circuit has rejected 'broadside invocation[s] of privilege' which fail to designate with particularity the specific documents or file to which the claim of privilege applie[s].'" Torres v. Kuzniasz, 936 F. Supp. 1201, 1208-09 (D.N.J. 1996) (quoting United States v. O'Neill, 619 F.2d 222, 225 (3d Cir. 1980)). Defendants, therefore, are required to make express assertions of privilege, describe the privileged material in such a way as to enable the Court and their adversary to determine the validity of the asserted privilege and identify specific documents or information as to which they are asserting a privilege.
The burden of establishing the existence of a privilege falls on the party asserting the privilege. See In re Bevill, Bresler & Shulman Asset Management Corp., 805 F.2d 120, 126 (3d Cir. 1986); Torres, 936 F. Supp. at 1208. Here the burden is on Defendants to assert an applicable privilege.
Because privileges obstruct the search for truth by shielding from discovery otherwise relevant information, privileges are disfavored in the law. See Payton v. New Jersey Turnpike Auth., 148 N.J. 524, 538, 691 A.2d 321, 328 (1997) (citations omitted); In re Grand Jury Subpoena Duces Tecum, 112 F.3d 910, 918 (8th Cir. 1997) (citations omitted). The Court will analyze Defendants' claims of privilege with this consideration in mind.
Plaintiff claims that the six conversations described above are discoverable under the crime-fraud exception to the attorney-client privilege. Before turning to this issue, the Court must first address whether any of these communications are privileged or subject to the work product doctrine under the applicable law in this case. Applicable Law
Rule 501 of the Federal Rules of Evidence provides, in pertinent part:
Except as otherwise required by the Constitution of the United States or provided by Act of Congress or in rules prescribed by the Supreme Court pursuant to statutory authority, the privilege of a witness . . . shall be governed by the principles of the common law as they may be interpreted by the courts of the United States in the light of reason and experience. However, in civil actions and proceedings, with respect to an element of a claim or defense as to which State law supplies the rule of decision, the privilege of a witness . . . shall be determined in accordance with State law. Fed. R. Evid. 501.
Plaintiff alleges in its complaint that Defendants committed various violations of state law. Therefore, state law will provide the rule of decision for all of plaintiff's claims. See In re Ford Motor Co., 110 F.3d 954, 965 (3d Cir. 1997) (applying Pennsylvania law to determine privilege issues in a diversity case); Rhone-Poulenc, 32 F.3d at 861-62 & n. 1. This Court's jurisdiction is based upon diversity of citizenship, 28 U.S.C. § 1332. See Complaint at ¶ 1. It appears from the complaint that some combination of New Jersey, Pennsylvania and/or New York law will govern the rights and obligations of the parties in this case. Both Plaintiff and Defendants appear to agree that New Jersey law should govern the applicability of privileges and exceptions to those privileges here. Additionally, I find that there is no substantive difference among the three possibly applicable states' laws. Therefore, I will apply New Jersey law to the applicability of the attorney-client privilege.
The work product doctrine, however, is a protection and not a privilege. See C. Wright, A. Miller & R. Marcus, Federal Practice and Procedure: Civil 2d § 2023 (West 1994). Therefore, federal law, as codified in Fed. R. Civ. P. 26(b)(3), governs its applicability even in cases where the court's jurisdiction is based on diversity of citizenship. See Maertin v. Armstrong World Indus., Inc., 172 F.R.D. 143, 147 (D.N.J. 1997) (citing United Coal Companies v. Powell Construction Co., 839 F.2d 958 (3d Cir. 1988); Varuzza v. Bulk Materials, Inc., 169 F.R.D. 254, 257 (N.D.N.Y. 1996) (citations omitted). The Court will apply federal law to Defendants' assertions of work product protection.
The Attorney-Client Privilege
Defendants claim that each of the six communications at issue here are protected by the attorney-client privilege. The privilege applies to confidential communications between an attorney and his client in the context of the attorney providing legal advice in his capacity as a lawyer. See Fellerman v. Bradley, 99 N.J. 493, 493 A.2d 1239 (1985). The attorney-client privilege is the oldest of the privileges for confidential communications known to the common law. . . . Its purpose is to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice. The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer's being fully informed by the client. Upjohn Co. v. United States, 449 U.S. 383, 389 (1981) (citations omitted). See also Fellerman, 99 N.J. at 498, 493 A.2d at 1241 (1985); In re Grand Jury Proceedings, 604 F.2d 798, 802 (3d Cir. 1979) ("The attorney-client privilege is designed to encourage clients to make full disclosure of facts to counsel so that he may properly, competently, and ethically carry out his representation."). "Its protections are the result of the judicial recognition that the public is well served by sound legal counsel based on full and candid communication between attorneys and their clients." Fellerman, 99 N.J. at 502, 493 A.2d at 1244.
In Upjohn, the Court refused to create a bright-line rule by which to evaluate the applicability of the attorney-client privilege. 499 U.S. at 396-97. Rather, the Court indicated that the determination of its applicability must be made on a case-by-case basis. See id. Accord Payton v. New Jersey Turnpike Auth., 148 N.J. 524, 539, 691 A.2d 321, 328 (1997).
In New Jersey, the attorney-client privilege has been codified in Rule 504 of the New Jersey Rules of Evidence. Rule 504 provides, in pertinent part: [C]ommunications between lawyer and his client in the course of that relationship and in professional confidence, are privileged, and a client has a privilege (a) to refuse to disclose any such communication, and (b) to prevent his lawyer from disclosing it, and (c) to prevent any other witness from disclosing such communication. . . . The privilege shall be claimed by the lawyer unless otherwise instructed by the client or his representative. . . . N.J.R.E. 504(1), N.J.S.A. 2A:84A-20.
New Jersey courts have interpreted the privilege broadly. See Fellerman, 99 N.J. at 499, 493 A.2d at 1242. "For a communication to be privileged it must initially be expressed by an individual in his capacity as a client in conjunction with seeking or receiving legal advice from the attorney in his capacity as such, with the expectation that its content remain confidential." Fellerman, 99 N.J. at 499, 493 A.2d at 1242 (citations omitted).
The Work Product Doctrine
Defendants claim that the April 10 and May 27, 1997 communications are protected from disclosure by the work product doctrine as well as the attorney client privilege. The work product doctrine protects from disclosure documents "prepared in anticipation of litigation." Maertin, 172 F.R.D. at 148 (citing Conoco, Inc. v. United States Dep't of Justice, 687 F.2d 724, 730 (3d Cir. 1982)). The doctrine provides an independent basis upon which the litigants may rely for protection of an attorney's trial preparation thoughts and materials. Hickman v. Taylor, 329 U.S. 495, 497 (1947). The work product doctrine protects from disclosure those documents and other tangible things that a party or a party's representative prepares in anticipation of litigation, in recognition of the need for a lawyer to "work with a certain degree of privacy, free from unnecessary intrusion by opposing parties and their counsel." Id. at 510-11. The doctrine covers the "written material obtained or prepared by an adversary's counsel with an eye toward litigation," and it includes: "interviews, statements, memoranda, correspondence, briefs, mental impressions, [and] personal beliefs. . . ." Bogosian v. Gulf oil Corp., 738 F.2d 587, 592 (3d Cir. 1984).
The work product doctrine is narrower than the attorney-client privilege in that it can be pierced in some circumstances if the party seeking the information can demonstrate a "substantial need" for the information. See Fed. R. Civ. P. 26(b)(3). *fn1
Defendants generally assert work product protection in their amended privilege log for the April 10 and May 27 communications. Because the doctrine applies only to documents and other tangible things, I assume that Defendants are claiming protection for the "notes of counsel" referenced on the log, and not to the general discussions at the meeting.
Application of the Privileges to Defendants' Communications
Defendants claim that all six communications are protected by the attorney-client privilege and that two of the communications are also protected by the work product doctrine.
Because each communication is different and the work product doctrine is asserted for some but not others, the Court will analyze the communications seriatim.
1. The April 10, 1997 Communication
Defendants describe the April 10 communication as a "[m]eeting for initial advice regarding enforceability of employment agreements and viability of engaging in competitive activities." Defendants assert that both the attorney-client privilege and the work product doctrine protect this communication from Plaintiff's discovery requests.
I find that Defendants adequately have asserted the work product doctrine. The discussion of engaging in a particular course of business conduct in light of possible litigation is protected by the work product doctrine even though there is no pending legal action. See United States v. Adlman, 134 F.3d 1194, 1202 (2d Cir. 1998); Vanguard Savings and Loan Assoc. v. Banks, 1995 WL 555871, *4 (E.D. Pa. Sept. 18, 1995).
Defendants also claim that this communication is protected by the attorney-client privilege. Defendants assert that this communication was for initial "advice" regarding their employment agreements. Additionally, Defendants claim that they discussed the "viability of engaging in competitive activities" at this meeting. I will assume that the substance of the meeting was legal advice regarding their potential liability for engaging in competitive activities against their soon-to- be former employer, as opposed to a general discussion about the economic wisdom of starting their own business. I find that Defendants have asserted adequately the attorney-client privilege as to this communication. Plaintiff may not seek discovery regarding the April 10, 1997 communication.
2. The May 27, 1997 Communication
Defendants claim that they attended a meeting "to discuss strategy and timing of engaging in competitive activity" on May 27, 1997. Defendants assert the attorney-client and work product protections as to this communication as well.
For the same reasons discussed above, I find that this communication also is protected by the work product doctrine.
Additionally, it appears from the description that Defendants sought and received legal advice from their lawyer regarding their contemplated business plans. Accordingly, I find that this communication is protected by the attorney-client privilege. Plaintiff may not seek discovery regarding this communication.
3. The June 12, 1997 Communication
Defendants' amended privilege log indicates that the June 12 communication was a telephone conversation at which Defendants discussed with counsel the manner of competing against Plaintiff "consistent with [their] legal obligations." Defendants assert that this communication is protected by the attorney-client privilege.
It appears from this description that defendants sought and received legal advice from their counsel regarding their contemplated business activity. Accordingly, I find that this communication is protected by that attorney-client privilege. Plaintiff may not seek discovery from Defendants regarding this communication.
4. The June 19, 1997 Communication
The description of the June 19 communication is similar to the June 12 description except that it indicates a memorandum was prepared in connection with this telephone conference. Accordingly, for the reason discussed in the section above, I find that this communication and the memorandum are protected by the attorney-client privilege. Plaintiff may not seek discovery regarding this communication.
5. The June 24, 1997 Communication
The June 24 description is substantively similar to the June 19 description. Therefore, for the reasons discussed above, I find that the June 24 communication is protected by the attorney-client privilege. Plaintiff may not seek discovery regarding this communication.
6. The June 25, 1997 Communication
The description of the June 25 communication is identical to that of the June 24 description. Therefore, for the reasons discussed above, I find that this communication is protected by the attorney-client privilege. Plaintiff may not seek discovery regarding this communication.
The Crime-Fraud Exception
Plaintiff argues that it is entitled to inquire into the communications listed on Defendants' privilege log because the crime- fraud exception to the attorney-client privilege strips the communications of their protected status. Plaintiff's argument is unpersuasive. I find that Plaintiff has failed to meet its burden to establish the applicability of the crime-fraud exception.
The attorney-client privilege is not absolute and must give way to other policy considerations in certain circumstances. See Fellerman, 99 N.J. at 502, 493 A.2d at 1244; In re Nackson, 114 N.J. 527, 537, 555 A.2d 1101, 1106 (1989); In re Grand Jury Proceedings, 604 F.2d 798, 802 (3d Cir. 1979). One such circumstance is when the attorney's advice is sought in furtherance of a crime or fraud--the crime-fraud exception. See C. Wright and K. Graham, Federal Practice and Procedure: Evidence § 5501 (West 1986). "The crime-fraud exception to the [attorney-client] privilege represents a statutory recognition of a situation in which the purpose of the privilege would not be served by its enforcement." Fellerman, 99 N.J. at 503, 493 A.2d at 1244. Its purpose is "to assure that the 'seal of secrecy' between lawyer and client does not extend to communications 'made for the purpose of getting advice for the commission of a fraud' or crime." United States v. Zolin, 491 U.S. 554, 562 (1989) (quoting Clark v, United States, 289 U.S. 1 (1933) and O'Rourke v. Darbishire,  A.C. 581). "Thus, when a client seeks the aid of an attorney for the purpose of committing a fraud, a communication in furtherance of that design is not privileged." Fellerman, 99 N.J. at 503, 493 A.2d at 1244-45.
The crime-fraud exception, like the attorney-client privilege, has been codified in New Jersey. The New Jersey Rules of Evidence provide, in pertinent part: "Exceptions. Such privileges shall not extend (a) to a communication in the course of legal service sought or obtained in aid of the commission of a crime or fraud." N.J.R.E. 504(2)(a), N.J.S.A. 2A:84A-20.
The concept of "fraud" used in the exception is broader than the traditional definition of tortious fraud. See Fellerman, 99 N.J. at 503, 493 A.2d at 1245; Nackson, 114 N.J. at 234, 555 A.2d at 1104. "There is no reason to believe that the use of the word 'fraud' in [the exception] is to be limited to conventional notions of tortious frauds. Acts constituting fraud are as broad and as varied as the human mind can invent. Deception and deceit in any form universally connote fraud." Fellerman, 99 N.J. at 503, 493 A.2d at 1245 (quoting In re Callan, 122 N.J. Super. 479, 496, 300 A.2d 868 (Ch. Div.), aff'd, 126 N.J. Super. 103, 312 A.2d 881 (App. Div. 1973), rev'd on other grounds, 66 N.J. 401, 331 A.2d 612 (1975)); see also Pavin, 202 N.J. Super. at 264, 494 A.2d at 838 (App. Div. 1985) (citations omitted). The policy underlying the attorney-client privilege is limited to situations where the client seeks lawful advice from his lawyer. See id. at 504, 493 A.2d at 1245.
Plaintiff has the burden of coming forth with credible non- privileged evidence that would support a reasonable belief that the crime-fraud exception strips the privileged material of its protection. See United States v. Zolin, 491 U.S. 554, 574-75 (1989); Haines v. Liggett Group, Inc., 975 F.2d 81, 95 (3d Cir. 1992). The Plaintiff "must present evidence which, if believed by the fact-finder, would be sufficient to support a finding that the elements of the crime-fraud exception [are] met." Haines, 975 F.2d at 95-96. Accord National Utility Service, Inc. v. Sunshine Biscuits, Inc., 301 N.J. Super. 610, 618, 694 A.2d 319, 324 (App. Div. 1997) (quoting Restatement (Third) of the Law Governing Lawyers § 132 comment a) (holding that the party seeking discovery has the burden of establishing the exception's applicability). *fn2
Plaintiff has failed to meet its burden. In support of its motion for application of the crime-fraud exception, Plaintiff cites to Judge Simandle's findings of likelihood of success on the merits on Plaintiff's claims of theft of trade secrets, breach of fiduciary duty and interference with economic advantage. Additionally, Plaintiff cites New Jersey case law that holds that each of these causes of action are "wrongful acts" under New Jersey law. Plaintiff then makes a quantum logical leap to the conclusion that since Defendants' actions constitute "wrongful acts" and Defendants communicated with their lawyer prior to the alleged commission of the wrongful acts, then those communications are ipso facto subject to the crime-fraud exception. Stated in another form, Plaintiff's argument is the logical equivalent of: (Wrongful Act) (Prior Communication with Counsel) = (Crime-Fraud). Plaintiff's syllogism is missing a key element--proof that Defendants sought legal advice from counsel for the purpose of committing the fraud and that Defendants actually used that advice in furtherance of the fraud. See Fellerman, 99 N.J. at 503, 493 A.2d at 1244-45 ("[W]hen a client seeks the aid of an attorney for the purpose of committing a fraud, a communication in furtherance of that design is not privileged.") (emphasis supplied). Plaintiff fails to appreciate that the "party seeking disclosure must show not simply probable cause to believe that fraud has been committed, but that there is probable cause to believe that the communication between attorney and client . . . was in furtherance of the fraud." In re In-Store Advertising Securities Litigation, 163 F.R.D. 452, 459 (S.D.N.Y. 1995). Stated in another way by the Third Circuit:
The seal [of secrecy] is broken when the lawyer's communication is meant to facilitate future wrongdoing by the client. Where the client commits a fraud or crime for reasons completely independent of legitimate legal advice communicated by the lawyer, the seal is not broken, for the advice is, as the logicians explain non causa pro causa. The communication condemned and unprotected by the attorney-client privilege is advice that is illicit because it gives direction for the commission of future crime or fraud. The advice must relate to future illicit conduct by the client; it is the causa pro causa, the advice that leads to the deed. Haines, 975 F.2d at 90.
Plaintiff has failed to produce to the Court any evidence whatsoever that the advice sought from counsel was for the purpose of committing wrongful acts, and that the advice received was used in furtherance of those acts. Simply pointing to the proximity in time between the "wrongful acts" and the communication with counsel does not satisfy Plaintiff's burden. Plaintiff has not shown that the advice lead to the deeds.
I find that the crime-fraud exception to the attorney-client privilege does not apply to the communications described in Defendants' amended privilege log. Plaintiff may not seek discovery regarding the April 10, May 27, June 12, June 19, June 24 and June 25, 1997 communications listed on the amended log. Conclusion
For the reasons discussed above, the Court holds that the April 10 and May 27, 1997 communications between Defendants and their counsel are protected from disclosure by the work product doctrine. The Court further holds that the April 10, May 27, June 12, June 19, June 24 and June 25, 1997 communications are protected by the attorney-client privilege. Plaintiff may not seek discovery regarding any of the communications listed on Defendants amended privilege log.
THIS MATTER having been brought upon application before the Court by Michael O. Adelman, Esquire, attorney for Plaintiff American Agip Co., Inc. ("Agip"), for an order compelling discovery regarding information on Defendants' amended privilege log; and the Court having considered the moving papers; and the opposition thereto; and for the reasons discussed in the accompanying letter opinion;
IT IS this _____ day of November, 1998 hereby
ORDERED that the Plaintiff's motion is DENIED.
ROBERT B. KUGLER United States Magistrate Judge
cc: Hon. Jerome B. Simandle