February 16, 2011
TRAVELERS OF NEW JERSEY A/S/O MICHELLE MATSUK, SIMON HANIN, GLENDA HANIN, MELVIN HOLLOWAY, PLAINTIFFS-RESPONDENTS, AND LIBERTY MUTUAL A/S/O BRADLEY BISK, PLAINTIFFS,
GIL & FRANCINE WEISMAN, PRECISION CARS OF ATLANTIC CITY, R&S IMPORTS, RICH FIRE PROTECTION, DEFENDANTS-RESPONDENTS, AND MERCEDES BENZ USA, LLC, DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Law Division, Atlantic County, Docket No. L-16977-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued November 8, 2010 - Decided Before Judges Lisa, Sabatino and Alvarez.
By leave granted, appellant, Mercedes-Benz USA, LLC (MBUSA), appeals from the March 25, 2010 order requiring it to produce certain documents in discovery. MBUSA argued that the documents were protected from disclosure by the attorney-client privilege or under the attorney work product doctrine, or both. At the direction of the trial court, MBUSA prepared a privilege log and submitted it to the court together with the disputed documents. After an in camera review of the documents, the judge entered the order now before us, which required that all of the documents be turned over without redactions. The order contained stringent protective provisions designed to limit the intrusion on confidentiality.
MBUSA argues on appeal that (1) the court erred by compelling the production of the attorney-client privileged documents based on reasons unsupported by the law, (2) under the applicable legal standard, no justification exists for piercing the privilege, (3) the entry of a protective order and the trial court's reservation for a future admissibility determination, after an N.J.R.E. 104(a) hearing, do not justify the disclosure of privileged documents, and (4) alternatively, as to those documents protected by the work product doctrine, the court failed to protect against disclosure of mental impressions, conclusions and opinions.
We have not been furnished with the disputed documents. MBUSA takes the position that the judge made a finding that the documents fall within the attorney-client privilege and erred as a matter of law in ordering their disclosure for reasons that are legally untenable. Therefore, MBUSA deemed it unnecessary to furnish us with the documents. Respondents, of course, could not furnish the documents because they do not have them. However, they could have moved to require their production to us under seal as part of the appellate record. They did not do so. We could sua sponte request production of the documents from MBUSA or the trial court. However, we decline to do so because we conclude that the findings of the trial court are insufficient and a remand is necessary.
We are unable to discern, with any level of confidence, whether the court found some or all of the documents privileged, the basis upon which it ordered any privileged documents released, and whether it considered the applicability of the work product privilege and any redactions that it might require. Under these circumstances, our review of the documents and determination of the issues before us would require the exercise of original jurisdiction, see R. 2:10-5, which would be inappropriate and unwarranted. This issue should first be resolved by the trial court, with a fully developed record and sufficient factual findings and reasons for its decision. Accordingly, we vacate the March 25, 2010 order and remand for further proceedings.
The underlying litigation consists of sixteen separately filed actions which were consolidated in the trial court. The claims pertain to a fire which destroyed portions of the Crown Key Yacht Club condominium complex in Ventnor on September 16, 2005. No one was injured. The sixteen suits were brought by condominium unit owners or their insurers as subrogees for property damage. It is asserted that the fire completely destroyed one building and damaged the other building in the condominium complex, adversely affecting all forty-eight units and causing about $11.5 million in property damage.
One of the claimants' theories as to the cause and origin of the fire is that the 2003 Mercedes-Benz SL500 automobile owned by Gil and Francine Weisman ignited while parked in a carport or garage under the Weismans' unit in the condominium complex. The claimants contend that the Weismans' vehicle spontaneously ignited shortly after Mrs. Weisman parked it. It is also contended that the vehicle had front end damage, evidencing a recent accident. It is further contended (and denied by the Weismans) that smoke was seen coming from the vehicle at the time Mrs. Weisman parked it.
The unit owners or their insurers (other than the Weismans) sued various parties, including the Weismans and MBUSA. They contend the Weismans' vehicle combusted due to a defect in the vehicle or faulty repair at a Mercedes-Benz dealership. The Weismans also brought an affirmative claim against MBUSA under the same theory.*fn1
The Weismans' vehicle was substantially destroyed in the fire, making it difficult for investigators and experts to ascertain what caused the vehicle to combust. Although the fire occurred more than five years ago, and although the parties have conducted extensive investigation and discovery, no party has yet produced an expert report. Plaintiffs produced information suggesting that the Weismans' SL500 model shared a number of relevant component parts with other Mercedes-Benz models.
Plaintiffs requested an order compelling MBUSA to provide records and reports regarding fires occurring in all such models to assist their proposed experts in analyzing the cause of this fire. Because of the severe damage to the Weismans' vehicle and the resulting difficulty in developing direct evidence, plaintiffs are attempting to develop a circumstantial case against MBUSA.
On August 28, 2009, the trial court entered an order compelling MBUSA to respond to certain discovery, including the production of "all internal fire investigation files" for the years 2001 through 2006 for all SL500 models as well as six other specified models in the "500" series. The order provided that counsel for MBUSA could remove any privileged documents from the files and prepare a privilege log to be submitted to the court for in camera review of redacted or removed items at the request of counsel for plaintiffs.
It appears that MBUSA identified about 100 car fires occurring in the designated models over the six-year period covered by the August 28, 2009 order.*fn2 MBUSA furnished plaintiffs with nearly 4000 pages of documents from its internal files pertaining to those car fires. It withheld or redacted fewer than 700 pages, which it claimed were protected by the attorney-client privilege or under the work product doctrine, or both.
Before describing the nature of the disputed documents, we note that MBUSA has produced paper discovery consisting of more than 52,000 pages (including the 4000 pages pertaining to the other car fires). Further, MBUSA has represented (and plaintiffs have not disputed) that it has also responded to voluminous written discovery and that plaintiffs have completed extensive discovery from various dealers who serviced the Weismans' vehicle, including a Florida dealer who repaired the vehicle after a significant collision. MBUSA has further represented (also without contradiction) that many experts have examined the Weismans' vehicle on plaintiff's behalf on numerous occasions and have conducted metallurgical and x-ray testing of vehicle components. Plaintiffs have also participated in more than twenty-eight depositions of police and fire personnel, residents, eye witnesses and dealer mechanics. Finally, MBUSA produced a management level engineer for two days of depositions.
We now describe the disputed documents. As we have stated, we have not seen them. However, the appellate record contains a lengthy and detailed certification of Mark H. Kelly, Esquire, in-house counsel for MBUSA, which described the documents and the circumstances under which they were generated. Kelly's certification was submitted to the trial court in support of MBUSA's request that it not be required to produce the withheld or redacted documents (except in redacted form).
Kelly, who has been employed as an attorney by MBUSA and its predecessors since 1987, explained that the MBUSA Legal Department made a policy decision many years ago to directly handle all matters involving allegations of car fires. This policy "resulted from the Legal Department's experience that there was a substantial likelihood that fire incidents would result in litigation." Accordingly, a standing directive was issued that all fire claims would be directed to the Legal Department for an investigation.
A technical employee, typically an engineer from MBUSA's Products Analysis Department, would be assigned to inspect the vehicle and submit a written report to the Legal Department. The reports generally contained background information and the investigator's opinion as to the cause of the fire and other information deemed important for the Legal Department's investigation and analysis. The Legal Department also developed a Fire Investigation Questionnaire, which the technical employee must complete and include with his or her report. We have not been furnished with a copy of the questionnaire, but Kelly explained that it was prepared by the Legal Department with input from the Product Analysis Department with the goal of providing sufficient information to enable the Legal Department to evaluate a claim and provide appropriate legal advice to MBUSA. A purpose of the questionnaire was to insure a uniform method of reporting such information to the Legal Department. The policy also requires the technical assistant to take photographs of the vehicle. The photographs are kept together as a master set for each inspection. A smaller subset is included with the report to assist the Legal Department in understanding the technical explanation in the report, which may refer to those particular photographs.
It is these reports, including the questionnaires and photographs, that MBUSA claimed were privileged, together with communications, including correspondence, emails, and the like to and from the Legal Department involving these investigations and reports.
MBUSA expressly waived its asserted privilege with respect to the photographs, and produced all of them as to all of the other car fires. It also produced many other records and reports from these files. As we stated, a total of nearly 4000 pages were produced from these files. However, it redacted or withheld many of the communications and the reports (including the questionnaires).
In the privilege log, counsel for MBUSA asserted attorney-client privilege with respect to the investigation reports because they "set forth the observations of the investigator and may also contain his findings and opinions as to the cause of the fire as well as an explanation for the bases for such findings and opinions. . . . These reports are also attorney work product." Counsel further stated that the questionnaires were privileged because they were prepared "at the request of counsel in anticipation of litigation." Finally, counsel contended that the privileged attorney-client communications were "contained within other documents produced and they ha[d] been redacted as noted on the Privilege Log."
MBUSA's overriding contention, in the trial court and before us, has been that it "is well justified in treating fire claims in a class of their own and in having its legal counsel involved in the initial stages to properly prepare its defense to any fire claim." These incidents are relatively few, and experience has shown that they almost always result in litigation (or at least a claim and a threat of litigation). Kelly certified that "from the Legal Department's experience . . . there was a substantial likelihood that fire incidents would result in litigation." Indeed, MBUSA argues that "as this case well illustrates, the real parties in interest in fire matters are usually insurance companies." Motor vehicles, especially luxury vehicles, are almost always insured, as they are legally required to be. Further, structures that may also be damaged by car fires, typically homes and, in this case, a condominium complex, are also usually insured. Therefore, subrogation claims against the manufacturer of the car are the rule rather than the exception.
After conducting an in camera review of the disputed documents, the trial judge wrote a letter to all counsel, dated March 25, 2010, by which he transmitted the order of the same date compelling production of all of the documents. The order did not recite the reasons for which it was issued. The letter informed counsel of "some of [the judge's] concerns" that induced him to issue the order, and set forth these findings and reasons in support of the order:
1. While the Court is very sensitive to the need to protect confidential communications and views them as the bedrock of our profession, the Court is also mindful of the "essential purpose" of the general limitation on compelling production of privileged communications. We are not talking about privileged communications in this proceeding but, rather, privileged communications in other proceedings where facts may have been unearthed and discussed relevant to the Plaintiffs' claims.
2. The Court's review of the documents submitted by MB-USA is that of a layperson. It's critical that an expert review these documents and advise counsel whether there are substantial similarities between what occurred with the Weisman vehicle and the other vehicles manufactured by MB-USA which resulted in claims involving fires. Counsel's opinion regarding such similarities is of limited value to the Court, as is my own review.
3. As noted by our Supreme Court in Dixon v. Rutgers, 110 N.J. 432, 446 (1988), "Since it results in the exclusion of evidence, the doctrine of privileged Communication runs counter to the fundamental theory of our judicial system that the fullest disclosure of the facts will best lead to the truth and ultimately to the triumph of justice." As was said by the Court in Wagi v. Silver Ridge Park West, 243 N.J. Super. 547, 556 (1989), "To the extent that the privilege results in the suppression of evidence, it is at war with the truth and must be strictly anchored to its essential purpose."
4. The Court's Order is, in part, impacted by the number of parties affected by the Weisman's car fire and the aggregate losses flowing from it. If the Court were to permit MB-USA to erect a wall of confidentiality around the investigation reports of hundreds of fires involving similar models of Mercedes Benz, the credibility of this entire litigation might be eroded. As stated by Justice Felix Frankfurter in Offutt v. United States, 348 U.S. 11, 14 (1954), "Justice must satisfy the appearance of justice."
5. The question of what information will ultimately be admissible at trial is a long way from being ripe. The Court will need to examine both parties' expert reports and then conduct an Evidence Rule 104 hearing concerning the reports and proffered testimony. Notwithstanding the Order or any opinions expressed herein, the Court will scrutinize the facts of any other incidents which Plaintiffs' experts believe support a defect or causation to insure that the evidence is similar in kind and probative to the circumstances before the Court.
After MBUSA filed a motion for leave to appeal, the judge issued a supplemental statement of reasons pursuant to Rule 2:5-1(b). He basically restated the same rationale, said the order was structured so as to minimize access to the records, and added this:
While the Court appreciates the sensitivity of these documents and respects the claims of privilege presented, a review of many items of correspondence issued by in-house corporate counsel for MB-USA contained no more than a veneer of "attorney-client privilege." Many items for which privilege is asserted were fairly routine communications regarding claims that had been made.
We begin our analysis by laying down some basic principles. Confidential communications between client and attorney in the course of a professional relationship are privileged. N.J.S.A. 2A:84A-20; N.J.R.E. 504(1); In re Envtl. Ins. Declaratory Judgment Actions, 259 N.J. Super. 308, 312-13 (App. Div. 1992) (quoting United Jersey Bank v. Wolosoff, 196 N.J. Super. 553, 561-62 (App. Div. 1984)). It is the oldest privilege for confidential communications known to the common law. Upjohn Co. v. United States, 449 U.S. 383, 389, 101 S. Ct. 677, 682, 66 L. Ed. 2d 584, 591 (1981). The privilege protects a client's freedom to consult an attorney in confidence. In re Richardson, 31 N.J. 391, 396 (1960).
Communication, where it is made in the course of a professional relationship, shall be presumed to have been made in professional confidence unless knowingly made within the hearing of some person whose presence nullified the privilege. N.J.R.E. 504(3). The burden of proof is on the person asserting the privilege to show that the consultation was a professional one. L.J. v. J.B., 150 N.J. Super. 373, 378 (App. Div.), certif. denied, 75 N.J. 24 (1977). The privilege is not restricted to legal advice, but is limited to situations in which lawful legal advice is the object of the relationship. In re Gonnella, 238 N.J. Super. 509, 512 (Law Div. 1989). Also, the privilege can extend to non-attorneys, as in the case of necessary intermediaries and agents. State v. Davis, 116 N.J. 341, 361 (1989), superseded by constitutional amendment and statute on other grounds, as recognized in State v. Cruz, 163 N.J. 403, 412 (2000).
Where documents are prepared as part and in furtherance of the duties of in-house counsel, who was retained to provide professional legal advice to a corporation, the documents are subject to the attorney-client privilege unless an exception applies. Nat. Util. Serv., Inc. v. Sunshine Biscuits, Inc., 301 N.J. Super. 610, 615 (App. Div. 1997). Sunshine Biscuits involved the disclosure of a memorandum written by in-house counsel to the company's corporate controller, which discussed possible claims against the company under a contract and recommended corporate action, investigation of the claim and consideration of a buyout. Id. at 613. We ultimately determined that the crime-fraud exception applied to the memorandum, but first discussed the scope of the privilege. Id. at 615, 618-19.
In a case generally similar to the case before us, an explosion and fire at a chemical waste disposal plant killed six people and injured many others. Macey v. Rollins Envtl. Servs. (N.J.), Inc., 179 N.J. Super. 535, 536-37 (App. Div. 1981). At the request of counsel, a project engineer working for the defendant company wrote a ten-page statement concerning the incident, which the plaintiffs sought in discovery. Id. at 537-38. The trial court found the statement constituted professional communication between an attorney and his client, but ordered its production for public policy reasons. Id. at 538. We reversed and held that the trial judge erred when he ruled that [the project engineer's] statement concerning the fire and explosion ofDecember 8, 1977, prepared at the behest of andfor his employer's general counsel, was not protected fromdisclosure by the attorney-client privilege. The privilege unquestionably extends to corporations which must act throughagents, including its officers and employees. The necessity forfull and open disclosure between corporate employees andin-house counsel ... demands that all confidential communications beexempt from discovery. [Macey, supra, 179 N.J. Super. at540.]
On the other hand, an internal investigation, although conducted by or participated in by an in-house attorney, will not be protected by the attorney-client privilege if the attorney's role is not "for the purpose of preparing for litigation or providing legal advice, but rather for some other purpose." Payton v. N.J. Tpk. Auth., 148 N.J. 524, 551 (1997). In Payton, an employee who alleged sexual harassment contended that her employer failed to timely and thoroughly respond to her internal complaint of harassment. Id. at 533-34. The employer claimed it took steps to investigate the claim both prior to and immediately after plaintiff initiated the litigation, and the employer raised an affirmative defense stating it had effectively remedied the harassment. Ibid. In light of this affirmative defense, the plaintiff sought production of materials relating to the investigation to gauge the adequacy of the employer's response. Id. at 534.
The Court determined that the actions of the employer were not covered by the privilege because the purpose of the internal investigation was "to comply with its internal policies and fulfill its legal duty under Lehmann [v. Toys 'R' Us, Inc., 132 N.J. 587 (1993)]." Id. at 551. Thus, because internal remediation is independently required, the employer did not clearly establish that the attorneys involved in the investigation were "truly or primarily acting in their legal capacities." Ibid.
The attorney-client privilege is not absolute. If communications are found to be protected by the privilege, they may nevertheless be ordered to be revealed where there is an overriding public concern. Wolosoff, supra, 196 N.J. Super. at 563. Our Supreme Court has developed a three-part test to determine when the privilege must yield to important societal concerns. In re Kozlov, 79 N.J. 232, 243-44 (1979).
To pierce the attorney-client privilege, a party must show
(1) there is a legitimate need of the party to reach the evidence sought to be shielded, (2) the evidence sought is relevant and material to the issue before the court, and (3) the information or evidence could not be secured from any less intrusive source. Ibid. To satisfy the third prong, the party seeking to pierce the privilege must show "'by a fair preponderance of the evidence including all reasonable inferences that * * * the information * * * could not be secured from any less intrusive source.'" Id. at 244 (quoting In re Farber, 78 N.J. 259, 276-77, cert. denied sub nom. N.Y. Times Co. v. New Jersey, 439 U.S. 997, 99 S. Ct. 598, 58 L. Ed. 2d 670 (1978)). Where a party seeking to pierce the privilege has exhausted all reasonable alternative means of obtaining the information, the court must "balance the gravity of the public's interest" in obtaining the information against "the client's legitimate expectations of confidentiality" when he or she consulted with the attorney. In re Nackson, 114 N.J. 527, 538 (1989). Application of the Kozlov test contemplates factual circumstances "so grave" that the "privilege must yield to the most fundamental values of our justice system." Id. at 532.
Finally, "[t]here is no time limit on the attorney-client privilege." Rivard v. American Home Products, Inc., 391 N.J. Super. 129, 154 (App. Div. 2007). The privilege is indefinite in duration and survives the termination of the attorney-client relationship. Gonnella, supra, 238 N.J. Super. at 512-13. The privilege survives the death of the client. Swidler & Berlin v. United States, 524 U.S. 399, 407, 118 S. Ct. 2081, 2086, 141 L. Ed. 2d 379, 386 (1998) ("Knowing that communications will remain confidential even after death encourages the client to communicate fully and frankly with counsel."); see also N.J.S.A. 2A:84A-20(1) ("Where a corporation or association is the client having the [attorney-client] privilege and it has been dissolved, the privilege may be claimed by its successors, assigns or trustees in dissolution.").*fn3
We now address the trial judge's findings in light of the scant record with which we have been provided. As we said earlier in this opinion, we cannot tell from the judge's findings whether he found any or all of the disputed documents covered by the attorney-client privilege. In paragraph one of his March 25, 2010 letter, the judge twice referred to the documents as "privileged communications." However, he did not expressly say that he found them to be privileged or why. In paragraph three of that letter, the judge set forth some general principles declaring that the exclusion of evidence based on privilege impedes a search for the truth. It could be implied from these comments that the judge deemed the disputed materials privileged. However, it is far from clear. In paragraph four of that letter, the judge adverted to the number of parties affected by the fire and the large amount of the aggregate losses flowing from it. This might suggest an application of the Kozlov test, which would be applicable only if privilege was first found to exist and consideration was being given to piercing the privilege because of a compelling public need. Again, however, it is not clear.
In his supplemental statement of reasons, the judge referred to "fairly routine communications" among the disputed documents and said that many of them possessed nothing more than a "veneer" of attorney-client privilege. We do not know which or how many of the communication documents (presumably correspondence, emails, and the like) the judge was referring to, whether the redactions made by MBUSA were appropriate or excessive in some or all of them, and, ultimately, whether some or all of them qualified for the attorney-client privilege.
We also note an overriding factor. Plaintiffs have not requested the investigation file pertaining to the Weismans' car fire that occurred in this case. This seems like an implicit recognition that the materials are privileged. But no one has raised that issue on appeal. This brings us to the distinction the court made between privileged materials in other proceedings as opposed to privileged materials in this proceeding. We are aware of no authority distinguishing between the two. The underlying purpose of the privilege, to foster frank and open communication between client and attorney with the knowledge that the communication is privileged and will forever remain confidential (unless waived or pierced from compelling public policy reasons), would be defeated by such a rationale.
As a foundation for its assertion of privilege, MBUSA relies on Kelly's certification. The key provision in that certification is the statement that, based upon the experience of the Legal Department, "there was a substantial likelihood that fire incidents would result in litigation." The statement does not contain further detail. For example, it does not specify what number of the approximately 100 car fires it identified between 2001 and 2006 resulted in law suits or claims against MBUSA.
In a case where documents are claimed to be privileged, the trial court, after conducting an in camera review of the disputed documents "must 'make specific determinations regarding [the] plaintiff's access to them, including an expression of reasons for the court's rulings.' The trial court must examine each individually, and explain as to each document deemed privileged why it has so ruled."*fn4 Seacoast Builders Corp., supra, 358 N.J. Super. at 542 (quoting Payton, supra, 148 N.J. at 550). "When stating the reasons for nondisclosure, a judge should 'state with particularity the facts, without disclosing the secrets sought to be protected, that . . . persuade the court to seal the document or continue it under seal.'" Rosenberg v. State, Dep't of Law & Pub. Safety, 396 N.J. Super. 565, 581 (App. Div. 2007) (quoting Hammock v. Hoffmann-LaRoche, Inc., 142 N.J. 356, 382 (1995)). Conclusory statements will not suffice. Ibid.
If it is determined that the documents, or any of them, fall within the attorney-client privilege, then, in evaluating whether the privilege should be pierced, a Kozlov analysis is required. In this case, such an analysis would include, among other things, exploration of MBUSA's representations to us in its appellate brief that the documents it has produced from the fire investigation files include (1) intake information regarding fire claims, (2) police reports, fire reports, and investigation reports submitted to MBUSA by insurers, exports,or attorneys, (3) correspondence between MBUSA and vehicle owners, insurers, attorneys, or other claimants, (4) a variety of other documents, and (5) photographs from claimants, as well as photographs taken by MBUSA employees. If these assertions are substantiated, they would run contrary to the judge's characterization that MBUSA was erecting "a wall of confidentiality around the investigation reports."
The order of March 25, 2010 is vacated and the matter is remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.