The opinion of the court was delivered by: Arpert, U.S.M.J
MEMORANDUM OPINION AND ORDER
This matter comes before the Court on Motion by Plaintiffs Graco, Inc. and Graco Minnesota, Inc. (collectively "Plaintiffs" or "Graco") to compel the production of documents or, in the alternative, for an in camera review of these documents [dkt. entry no. 465], returnable October 18, 2010. Defendants PMC Global, Inc., PMC, Inc., PMC Europe Investments, S.L., Denis S. Commette ("Commette"), and Gama Machinery USA, Inc. ("Gama USA") (collectively "Defendants" or "PMC") filed opposition on October 4, 2010. For the reasons stated herein, Graco's Motion is granted insofar as the Court will conduct an in camera review.
II. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Graco filed a Complaint [dkt. entry no. 1] on March 14, 2008 alleging "breach of contract and related duties" (see Pl.'s Complaint, dkt. entry no. 1 at 19-21), "tortious interference" (Id. at 21-23), "misappropriation of trade secrets and misuse of confidential business information" (Id. at 23-24), violation of the "Lanham Act" (Id. at 24-25), violation of the "New Jersey Fair Trade Act" (Id. at 25-26), "unfair competition" (Id. at 26), and "unjust enrichment" (Id.) related to its acquisition of Gusmer Corporation and Gusmer Europe (collectively, "Gusmer") from PMC by way of two (2) Stock Purchase Agreements ("SPA") (Id. at 7, ¶¶ 28-29). More specifically, Graco alleges that Gama USA, a Delaware corporation and PMC, Inc., subsidiary that "also does business as Gama-Europe and Garraf Maquinaria, S.A." (see Pl.'s Second Amended Complaint, dkt. entry no. 91 at 3,
¶ ), and Garraf Maquinaria S.A. ("Garraf"), a Spanish corporation with PMC affiliations that "also does business as Gama and Gama-Europe" (see Pl.'s Second Amended Complaint, dkt. entry no. 91 at 3, ¶ 7), "are manufacturing, marketing, and selling spare parts for Gusmer products without Graco's permission...and are using Graco Trade Secrets and Confidential Business Information to manufacture these spare parts" and "are directly soliciting the trade of current customers of Graco...using Graco Trade Secrets and Confidential Business Information". See Pl.'s Complaint at 17-18, ¶ 75, 81; see also id. at 17-18, ¶¶ 76-79, 82-86. Graco filed an Amended Complaint on July 24, 2008 [dkt. entry no. 36] and a Second Amended Complaint on May 22, 2009 [dkt. entry 91]. The Second Amended Complaint sets forth a list of infringing Gama USA and Garraf products then known to Graco. See Pl.'s Second Amended Complaint at 21, ¶ 93. Graco asserts that this is a "non-exclusive" list. [dkt. entry no. 499 at 3]
Graco has alleged that Commette and Carles Royo ("Royo"), Gusmer employees who worked for Graco after execution of the SPA, "participated in and received confidential communications relating to Graco's confidential strategy...which [was] designed to transform and integrate Gusmer operations into Graco's existing business" and "had access to highly sensitive confidential, non-public, proprietary information belonging to Graco and its subsidiaries" including "The Graco Trade Secrets and Confidential Business Information". See Pl.'s Complaint at 11, ¶¶ 43, 44. Thereafter, upon the end of Commette and Royo's employment relationship with Graco and the formation of Gama USA and Garraf, Graco alleges that Gama USA and Garraf developed "consulting relationships with...Commette and Royo" in order "to solicit and obtain the trade of customers" and that Commette and Royo "inevitably will have to disclose the Graco Trade Secrets and Confidential Business Information". Id at 14-17, ¶¶ 58-59, 63-65, 72-74. Importantly, Graco has asserted that PMC had more than an "arm's-length distributor relationship" with Garraf based upon its allegations that "PMC exercised control over Garraf's operations, helped Garraf to secure a 712,500€ loan from a PMC affiliated company, and agreed to purchase equipment from Garraf in order to provide it with operating revenue". See Pl.'s Br. at 3.
In its defense, PMC has maintained that "the foundation of Graco's misappropriation conspiracy hinges upon the premise that Royo and PMC violated respective non-compete agreements with Graco" but that "Royo does not have any non-compete obligations" based upon rulings made by Spanish courts and that "PMC does not have any non-compete obligations to Graco" based upon rulings made by this Court. See Def.'s Opp'n Br. at 1; see also Decl. of K. Joon Oh ("Oh"), Exhs. A-B; dkt. entry no. 81 at 28. PMC contends that Graco has failed to cite "any supporting facts...or allegedly false testimony" in order to bolster its claims that "PMC executives testified falsely about the timing of key communications", that "PMC executives denied the existence of a draft written investment agreement between PMC and Garraf", or that "PMC's witnesses also falsely testified they had no knowledge of the designs of the Garraf equipment". Id. at 1-2. PMC asserts that "Graco's conspiracy theory and its [claims] against PMC's executives do not relate to the privilege log issue raised by Graco's Motion". Id. at 2.
At issue here are "documents reflecting agreements, communications, and negotiations between PMC and Garraf". See Pl.'s Br. at 3. Graco claims that PMC originally "failed and refused to produce such documents" because "there was simply a lack of written documentation surrounding this relationship". Id. at 3-4. On July 20, 2010, however, Graco states that "PMC produced a new privilege log that disclosed more than 250 documents reflecting communications between Garraf and PMC...regarding the formation of their business relationship" and simultaneously "attempted to claw back some of the few documents regarding this relationship that...had [been] produced" based upon "a single communication ("Entry No. 7")...that...gave PMC a basis to withhold these documents by claiming that they are protected by the common-interest privilege". Id. at 4-5. On July 30, 2010, Graco states that "PMC produced an updated version of their...privilege logs...[that] revealed for the first time that as many as 122 documents that PMC had...withheld on grounds of attorney-client or work-product privilege were now being withheld by PMC solely under the guise of the common-interest privilege". Id. at 5. Graco maintains that "many of PMC's privilege assertions...are completely unsupportable". Id. at 5-6. Graco notes that it "has made every reasonable effort to assess the validity of PMC's privilege designations", including repeatedly requesting that PMC "provide information" about "70 previously unidentified individuals who sent or received documents that PMC [has] designated as privileged" and requesting that "PMC identify what entities the lawyers listed on Entry No. 7 represented and whether that representation is continuing". Id. at 6-7. Graco states that PMC's response to these requests "was insufficient to permit a proper privilege analysis". Id. at 7.
In its defense, PMC claims that it has "withheld communications among PMC, its legal counsel, and Royo or Manuel Moreno ("Moreno") reflecting PMC's legal advice about potential business arrangements with Royo, Moreno, and Garraf". See Def.'s Opp'n Br. at 2. PMC notes that some of these communications took place "before Graco's lawsuit" while others took place "after the case was filed". Id. PMC maintains that "these communications are based on underlying attorney-client communications or attorney work product" and that, although "Garraf has now been defaulted", the privilege "is not waived by virtue of any disclosure to Royo or Moreno because at the time all parties...had a common legal interest in structuring proposed business arrangements in a way that would comply with the law and avoid litigation". Id. at 2-3. PMC states that "the common interest is not hypothetical or speculative" as Entry No. 7 is "a legal memorandum on this very subject". Id. at 3. PMC notes that it has identified "all other pre-litigation communications withheld on the basis of the parties' common interest in exploring a potential working relationship that would avoid or mitigate this litigation risk based specifically on Entry No. 7". Id. PMC also points out that "Garraf and PMC entered into a joint defense agreement in this lawsuit that...protects their post-litigation legal communications". Id.
On September 24, 2010, Graco filed the instant Motion seeking a Court Order compelling the production of certain documents or, in the alternative, for an in camera review. See Pl.'s Proposed Form of Order, dkt. entry no. 465-1.
A. Graco's Arguments in Support of the Motion to Compel
Initially, Graco asserts that "many of PMC's descriptions of the documents on their privilege logs are so thin as to render meaningful analysis nearly impossible...[and therefore] do not comply with Rule 26(b)(5)(A)" so as to prevent PMC from meeting its "burden to establish the validity of ...privilege designations". See Pl.'s Br. at 7-8.
1. Defendants are concealing non-legal business communications behind attorney-client and work-product privilege claims.
(a) The attorney-client privilege cannot protect Defendants' business communications from discovery.
Citing La. Mun. Police Employees Ret. Sys. v. Sealed Air Corp., 253 F.R.D. 300, 306 (D.N.J. 2008) and Leonen v. Johns-Mansville, 135 F.R.D. 94, 99 (D.N.J. 1990), Graco maintains that "communications with attorneys are privileged only if the predominant purpose and content of the communication is to aid in the provision of legal advice" as opposed "to business advice". Id. at 8. Graco contends that PMC "must show that the communications would not have been made but for the client's need for legal advice or services". Id. Graco argues that PMC "cannot meet that standard" because "on more than one occasion PMC invoked Paragraph 8 of the Protective Order to claw back purely business-related communications with PMC in-house attorneys and paralegals on grounds of attorney-client privilege". Id. Referencing a "draft investment agreement that PMC negotiated with Garraf" which PMC clawed back, Graco argues that "those documents were purely business-related and had no legal content at all" and, therefore, Graco "suspects that many of the hundreds of other attorney-client-privilege entries on PMC's privilege logs are similarly devoid of legal advice". Id. at 8-9.
Graco contends that "Defendants have asserted the attorney-client privilege over communications that were published to third parties outside the scope of any conceivable attorney-client relationship with their in-house counsel". Id. at 9. Referencing a letter dated August 12, 2010, Graco maintains that "Defendants are asserting privilege over communications with third parties who Defendants identify as consultants...[including] eleven communications involving Arnauld de Briey, ...a former employee and consultant to PMC in Europe[,]...Dr. Martin Wasserman, a former employee and consultant[,]...and Li Lil, Mark Kramer, and Troy Rudd, who they...describe as tax consultants to PMC". Id. Citing Sealed Air, 253 F.R.D. at 311 and 1 Edna Selan Epstein, The Attorney-Client Privilege and the Work Product Doctrine at 219 (5th ed. 2007), Graco argues that "such publication to non-attorney third parties generally constitutes waiver of attorney-client privilege...particularly...where...the party asserting the privilege has presented no evidence to satisfy its burden to show that the third parties were agents of the attorneys and that their involvement was necessary for the representation -- meaning that the agent evaluated the information and in a sense translated it into understandable terms for the non-expert attorney". Id. at 10. Graco maintains that "the mere fact that these communications may have later become beneficial to counsel's representation of the client does not render them privileged". Id. Graco argues that "PMC should be compelled to produce all documents withheld on the basis of attorney-client privilege that have a predominant purpose other than the provision of legal advice regardless of whether they were sent to or received by an attorney" or, at a minimum, "the Court should conduct [an] in camera review" of these documents "to determine which...are actually privileged". Id.
(b) Many of the documents over which Defendants assert the work-product privilege do not appear to be related to actual or anticipated litigation.
Citing FED. R. CIV. P. 26(b)(3), In re Cendant Corp. Sec. Litig., 343 F.3d 658, 662 (3d Cir. 2003), and 8 Charles A. Wright & Arthur R. Miller, Fed. Prac. & Proc. § 2024, at 359 (2d ed. 1994), Graco maintains that "the work-product doctrine applies only to documents and tangible things prepared in anticipation of litigation or for trial by or for another party or by or for that other party's representative". Id. at 11. Graco argues that "Defendants' logs suggest that they are...using the work-product doctrine in order to shield documents from discovery" that "have no apparent connection to anticipated or ongoing litigation". Id. Referencing a June 14, 2007 email and attachment between "former Gama president Commette and PMC executive T.C. Cheong" which PMC described as "communication re: employment agreement and employment contract letter agreement", Graco argues that these documents "appear to relate to a garden-variety employment agreement", "predate Graco's initiation of this litigation by many months", and do not merit "work-product" privilege protection. Id. Graco argues that "PMC should be compelled to produce all documents withheld on grounds of work-product privilege that were not prepared by or at the direction of an attorney in anticipation of litigation or for use at trial" or, in the alternative, the Court should conduct an in camera review of "PMC's purported work product". Id. at 12.
2. Defendants have improperly withheld documents based upon the common-interest doctrine.
Citing Sealed Air, 253 F.R.D. at 309, In re Teleglobe Comm. Corp., 493 F.3d 345, 364 (3d Cir. 2007), and Cooper Health Sys. v. Virtua Health, Inc., 259 F.R.D. 208, 213 (D.N.J. 2009), Graco maintains that "the common-interest doctrine is not a separate, freestanding privilege" but is "instead an exception to the general rule that voluntary disclosure of an attorney-client communication to a third party waives the attorney-client privilege". Id. at 12. Graco contends that "the common-interest doctrine allows attorneys representing clients with substantially similar legal interests to share otherwise privileged information without waiving the underlying privilege". Id. Citing Teleglobe, 493 F.3d at 363-66, Graco argues that is is PMC's burden to show that the common-interest doctrine applies based upon circumstances where "(1) the underlying communications are otherwise privileged, (2) both parties are represented by different attorneys and the communications are between those attorneys, and (3) the parties share a substantially similar legal interest". Id. at 12-13.
(a) The documents over which Defendants assert the common interest doctrine are not subject to any underlying privilege.
Citing Cooper Health, 259 F.R.D. at 213, Graco maintains that "the common-interest doctrine only applies when an underlying privilege is established". Id. at 13. Graco notes that "the communications over which PMC [has] asserted the common-interest doctrine appear to be primarily business related rather than for purposes of securing legal advice or in anticipation of litigation" and claims that PMC has "clawed back non-privileged, business-related documents under the guise of the common-interest doctrine". Id. Referencing "Entry Nos. 72 and 73 on the revised June 3, 2010 log which [are described] as 'Communication to counsel re: distributor agreement'", Graco argues that PMC withheld these documents based upon "attorney-client, work-product, and common-interest privileges" without a description indicating that "a client was seeking or receiving legal advice". Id. Graco represents that PMC "provided similar descriptions for many other log entries...withheld pursuant to the common-interest doctrine". Id. Graco states that "the vast majority of documents PMC [has] withheld under the common-interest doctrine are described as 'Document in connection with Entry No. 7' or 'Communication based on or in connection with Entry No. 7'" and argues that "those descriptions provide no indication that a client was seeking or receiving legal advice nor do they provide any details from which to evaluate the privilege". Id. at 14. Citing Cooper Health, 259 F.R.D. at 214, Graco argues that the "common-interest doctrine cannot apply" because the documents PMC clawed back "appear to have been business-related communications that were not privileged in the first instance". Id.
(b) The communications were not between PMC and Garraf attorneys.
Citing Teleglobe, 493 F.3d at 364-65, Graco notes that "in addition to requiring the underlying documents to be privileged, the common-interest doctrine requires that both parties be represented by different attorneys in the subject communication" in order to "allow attorneys to coordinate their clients' criminal defense strategies". Id. at 14. Graco maintains that PMC's logs "show that no attorney represented Garraf in the communications withheld based on the common-interest doctrine" but rather, in most instances, "Garraf negotiated through Carles Royo or...Manuel Moreno", neither of whom "served as legal counsel in these communications". Id. at 15. Graco points out that "Garraf repeatedly claimed that Carles Royo was neither an employee nor an agent of any party, including Garraf itself -- a position that if credited would eviscerate any argument that communications on which he was copied were privileged". Id. Graco argues that because "the subject communications were not between legal counsel for PMC (on the one hand) and legal counsel for Garraf (on the other), the common-interest doctrine does not apply". Id. Even if PMC "shared an attorney with Garraf and thus those communications were protected under the joint privilege", Graco argues that the "joint privilege does not apply" because "Garraf and PMC were on opposite sides of the business negotiations that are the subject of these documents and therefore their interests were not identical" pursuant to Teleglobe, 493 F.3d at 366. Id.
Citing Cooper Health, 259 F.R.D. at 214 and Teleglobe, 493 F.3d at 364, Graco maintains that "even if Garraf had been represented by counsel the common-interest doctrine would not apply if that attorney was not a party to the communications in question" as the "common-interest doctrine does not extend to communications between non-attorneys who simply have a joint interest". Id. at 15-16. Graco contends that in order to be protected, "the communications must be amongst attorneys" meaning that "they must be shared with the attorney of the member of the community of interest". Id. at 16. Citing Teleglobe, 493 F.3d at 365, Graco claims that "the requirement that the communication be amongst attorneys exists to prevent the disclosing party from using the common-interest doctrine as a post hoc justification for its impermissible disclosures to third parties" and, therefore, the "common-interest doctrine...supplants the waiver rule only when attorneys, not clients, decide to share information in order to coordinate legal strategies". Id. Although PMC may argue that "New Jersey law does not require the communications to be between counsel" pursuant to LaPorta v. Gloucester County Bd. of Chosen Freeholders, 340 N.J. Super. 254, 262 (App. Div. 2001), Graco notes that "the Third Circuit's and the District of New Jersey's decisions in Teleglobe and Cooper Health...were decided after the LaPorta case and both rejected LaPorta's determination that the communication may be between counsel for a party and an individual representative of the other party". Id. Citing U.S. v. Schwimmer, 892 F.2d 237, 244 (2d Cir. 1989), Graco argues that "LaPorta does not change the rule that both parties must be represented by counsel" and, therefore, "because Garraf was not represented by counsel the common-interest privilege cannot apply". Id.
Graco contends that "PMC [has] withheld numerous documents based upon the common-interest doctrine that were never sent or received by an attorney for Garraf" and PMC has "presented no evidence even suggesting that Garraf was represented by counsel while these communications were occurring". Id. at 17. As such, Graco argues that the "common-interest doctrine is inapplicable and any underlying privilege was waived by publishing these documents to Garraf". Id. Citing Cooper Health, 259 F.R.D. at 215, Graco maintains that "this is true even if these non-attorneys were communicating about legal matters" because the doctrine is inapplicable when individuals exchange "non-privileged information at a time when they were not acting as an agent or consultant for different attorneys". Id. Graco argues that PMC has "offered nothing to show that they were exchanging privileged information with Garraf" and have not "shown that Garraf was represented by counsel or that the Garraf representatives who sent or received these communications were acting at the direction of or as agents for any such attorneys". Id.
(c) Defendants cannot establish a common interest.
Graco claims that "PMC cannot establish...the existence of substantially similar legal interests shared by the parties to communications". Id. at 18. Graco maintains that PMC's "core defense in this litigation is that Gama USA and Commette were involved in an arm's length distributorship arrangement with Garraf and that they had no knowledge of or control over Garraf's inner workings". Id. Citing Sealed Air, 253 F.R.D. at 310 and Cavallaro v. United States, 153 F. Supp. 2d 52, 61 (D. Mass. 2001), aff'd on other grounds, 284 F.3d 236 (1st Cir. 2002), Graco notes that "this distinguishes the present case from Sealed Air, in which the court observed that...privileged information exchanged during a merger between two unaffiliated businesses would fall within the common-interest doctrine", as PMC has "insisted from the outset that their dealings with Garraf were strictly at arm's length and that the companies were and remain entirely separate". Id. Assuming this to be the case, Graco states that "Garraf and PMC were adverse to one another in negotiations at the time of the communications in question" and their primary interest would have been "in securing the most favorable possible terms for themselves". Id. Citing Teleglobe, 493 F.3d at 365, Graco argues that while PMC and Garraf "might arguably have shared some mutual interest in the success of the enterprise, their interests would not have been so substantially similar as to permit application of the common-interest doctrine even if it were otherwise applicable". Id.
Graco states that "PMC's sole argument...appears to be that at the time they were working with Carles Royo to found the Gama enterprise, they...shared a common interest in avoiding future litigation against Graco which was sufficient to shield their communications from discovery". Id. at 18-19. Graco argues that the "broad-reaching scope of the common-interest privilege that PMC advocate[s] would render most communications among conspirators, especially those regarding the potential illegality of their plans, non-discoverable". Id. at 19. Citing United States v. Kapnison, 743 F.2d 1450, 1456 (10th Cir. 1984), cert. denied, 471 U.S. 1015 (1985), United States v. Nixon, 418 U.S. 683 (1974), and In re Qwest Communications Intern. Inc., 450 F.3d 1179, 1185, (10th Cir. 2006), cert. denied, 549 U.S. 1031 (2006), Graco maintains that "the common-interest privilege is...not intended to be used in this way" because, otherwise, "it would swallow the general rule that discovery is liberal and privileges must therefore be narrowly construed". Id. Further, Graco contends that PMC's argument "is further complicated by the fact that the vast majority of...communications in question were with Carles Royo", an individual that "Garraf persistently claimed throughout this litigation...was neither an employee nor a managing agent". Id. at 20. Graco argues that it "strains credulity for PMC to assert that they shared a common interest with an individual who allegedly was not an agent of the company against which [it was] negotiating". Id.
Citing Nidec Corp. v. Victor Co. of Japan, 249 F.R.D. 575, 579 (N.D. Cal. 2007), United States v. Bergonzi, 216 F.R.D. 487, 495 (N.D. Cal. 2003), and Cooper Health, 259 F.R.D. at 215, Graco maintains that PMC "cannot prove...that the principal purpose of their communications was to further a legal interest in preventing litigation" as PMC has "made no showing that communications between PMC and Garraf or Royo were made in the course of formulating a joint legal strategy". Id at 20-21. Instead, Graco claims that these communications "appear to have been for the primary purpose of developing a working or business relationship" and, therefore, PMC's "privilege claims...fail because they simply did not share a common interest of the sort that would support the assertion of privilege". Id. at 21. Citing Cooper Health, 259 F.R.D. at 212, 214-15, and Teleglobe, 493, F.3d at 356-57, Graco argues that PMC "should be compelled to produce all of the approximately 400 documents that [it has] withheld on the basis of the common-interest doctrine or that cross-reference Entry No. 7" or, in the alternative, "the Court should conduct [an] in camera review of those documents to determine which of them are in fact privileged". Id.
3. The potential applicability of the crime-fraud exception warrant in camera review.
Graco maintains that "even if PMC could show that these communications were otherwise privileged, [an] in camera review is necessary to determine whether they are...discoverable under the crime-fraud exception". Id. at 22. Citing In re Grand Jury Subpoena, 223 F.3d 213, 217 (3d Cir. 2000) and Ocean Spray Cranberries, Inc. v. Holt Cargo Systems, Inc., 345 N.J. Super. 515, 522 (Law Div. 2000), Graco states that "the crime-fraud exception applies when an attorney's advice is used to aid the commission of a fraud" and is established by showing that "(1) the client was committing or intending to commit a fraud or crime, and (2) the attorney-client communications were in furtherance of that alleged crime or fraud". Id. Graco notes that "fraud" does not necessarily mean "tortious or criminal fraud" and "may encompass virtually all kinds of deception and deceit even though they might not otherwise warrant criminal or civil sanctions" including "deception made in the course of litigation". Id. Graco claims that "PMC has countered many of [its] factual allegations with sworn testimony and representations to the Court that later proved false", including testimony about the timing of key communications with Carles Royo and PMC's ownership of a Garraf facility", "the existence of a draft written investment ...