Fuji Photo Film Co., Ltd (“Fuji”) seeks to depose Jeffrey I. Kaplan, Esq. (“Kaplan”), and to require production of certain documents from his file, in connection with his representation of Jazz Photo Corp. (“Jazz”). Kaplan also represented Jack C. Benun (“Benun”), at times jointly with Kaplan's representation of Jazz. Jazz, a Chapter 11 debtor, is presently under the control of Brian T. Moore (“Moore”), as liquidating trustee. Benun is currently a debtor in a Chapter 7 bankruptcy case. In immediate dispute are knotty attorney-client privilege issues.
*118 This adversary proceeding has a near decade-long history, with Benun and Jazz being pursued by Fuji for patent infringement. Fuji seeks to deny Benun a discharge and to except from any bankruptcy discharge (if one should issue) its claims against Benun. Fuji's claims to exception to discharge are (now) based upon 11 U.S.C. § 523(a)(6) (“willful and malicious injury ... to property....”). Denial of discharge would be grounded in 11 U.S.C. § 727(a)(2)(3) and (5) (transfer, etc. of estate property, failure, etc. to keep records, and failure to explain loss of assets).
Jazz, in liquidation following confirmation of a liquidating plan, had been a corporation whose stock was owned by Benun's family but which operated under his control. Kaplan is a patent lawyer whose representation of both
Benun and Jazz, variously, was in an array of litigation, regulatory/enforcement proceedings and appeals over the period of this odyssey. The Benun–Jazz–Fuji litigation trail, in summary form for present purposes, began with a Fuji-prompted investigation by the International Trade Commission (“ITC–I”). On June 28, 1999 the ITC adopted an administrative finding that the importing and sale of certain “Lens–Fitted Film Packages” (disposable cameras referred to as “LFFPs”) by Jazz and a number of other importers violated Fuji's patents. The Commission issued a General Exclusion Order and Order to Cease further infringement of Fuji's patents (hereinafter the “Cease and Desist Order”). Jazz (not Benun) and others appealed to the Federal Circuit (“Appeal I”). In significant part, the appeal centered on what manner of refurbishment of Fuji-patented disposable camera shells would be an allowable “repair,” as distinguished from an infringing “reconstruction.” Meanwhile, immediately on the heels of the 1999 ITC–I decision, Fuji sued Jazz, its Hong Kong subsidiary and Benun
in an infringement/damage action in the District Court for the District of New Jersey (“District Court I”). The chronology of these three matters is:
•ITC initial investigation (ITC–I)—March 18, 1998 to June 28, 1999;
• Fuji District Court patent suit (District Court I)—June 23, 1999 to March 18, 2003 (judgment date); and
•Appeal of ITC–I to Federal Circuit (Appeal I)—September 28, 1999 to August 21, 2001 (decision date).
Kaplan was counsel to Jazz in ITC–I and Appeal I, and counsel (along with co-counsel) to Jazz and Benun in District Court I.
Appeal I resulted in a lengthy opinion and, in effect, a manual of “how to” refurbish LFFPs so that the affirmative defense of “repair” could be advanced by Jazz and others.
There was a remand to the ITC for implementation of the decision, which, in turn, generated a request for comment by the ITC. On January 10, 2002 Kaplan responded for Jazz; Fuji's January 16, 2002 response included a request for an enforcement proceeding (as to the earlier Commission Cease and Desist Order), targeting not only Jazz, but also Benun
and Jazz's then president (Cossentino). Thus, Fuji alerted Kaplan (and the ITC) on January 16, 2002 to Fuji's intention to put Benun in further jeopardy, *119 beyond the then pending District Court I infringement action in which Kaplan had appeared for both Jazz and Benun. On September 24, 2002 the ITC did, in fact, accede to Fuji's request by initiating an enforcement proceeding against Jazz, Benun and Cossentino (“ITC–II”). Kaplan dutifully appeared on behalf of Jazz and Benun in ITC–II, and represented them throughout that proceeding, which concluded on or somewhat after January 14, 2005.
District Court I, long stayed pending the Federal Circuit's decision in Appeal I, resulted in a near $30 million judgment against Jazz, its Hong Kong subsidiary and Benun, jointly and severally. The judgment of March 18, 2003 (covering infringement only through the date of the decision in Appeal I, August 21, 2001) propelled Jazz and Benun into this court. Jazz filed a Chapter 11 petition on May 20, 2003, and Benun filed a like petition on July 2, 2003.
The judgment in District Court I was then appealed to the Federal Circuit by counsel other than Kaplan (Notice of Appeal filed April 9, 2003, “Appeal II”). However, on April 22, 2003 Kaplan filed a declaration in support of a stay pending appeal on behalf of both Jazz and Benun. Ultimately, on January 14, 2005 the judgment against Benun and Jazz was affirmed.
ITC–II was initially stayed by the bankruptcies. Eventually, the stays were lifted and
Kaplan was authorized by this court to continue to represent both Jazz and Benun in that enforcement proceeding. Things went badly there for the debtors. On July 27, 2004 the ITC adopted administrative findings that Jazz, with Benun's complicity, had again infringed Fuji's patents (now, after August 21, 2001). On the day of the Federal Circuit's January 14, 2005 affirmance (Appeal II), the ITC levied a $13,675,000 penalty (for violation of the 1999 Cease and Desist Order for the August 21, 2001 through December 12, 2003 period), jointly and severally, against Jazz and Benun. This amount is due the United States government; however, Fuji has filed claims in the Jazz and Benun bankruptcies based upon the ITC findings. The ITC–II penalty was appealed, again to the Federal Circuit (“Appeal III”), on Benun's behalf
(only) by Kaplan. Appeal III is pending.
Eventually, Jazz was rendered subject to liquidation (an ongoing post-confirmation process) and Benun's individual Chapter 11 case was converted. Jazz's liquidation plan was confirmed by an Order of May 13, 2005, and Benun's case was converted to one in Chapter 7 on March 11, 2005.
On or about May 16, 2005, Moore, Jazz's liquidating trustee, initiated a legal malpractice case against Jazz's lawyers (including Kaplan) for their alleged errors in defense in District Court I. After being removed from state court and “stopping off” in this court long enough to allow this court some limited insight into the claims, *120 this case moved (via withdrawal of the bankruptcy reference) to the District Court (“District Court II”). At some point during the pendency of District Court II, Benun, a nonparty, provided plaintiff Moore with a declaration. It alleged that Benun had requested that a certain legal theory be advanced in District Court I (based upon the view that Appeal I announced “new law” in requiring “first sale in the United States” as a prerequisite to the affirmative defense of permissible repair, and that the requirement should not have been applied retroactively in District Court I). Benun's alleged advice or request was said to have been ignored. Appeal II would not address the issue, deeming it to be waived as not having been raised in District Court I.
Kaplan, taking umbrage and seeking (in the name of his law firm, “KGGD”) to be relieved as Benun's counsel in Appeal III, advised the Federal Circuit in November 2005, as follows:
Here, withdrawal is mandated under Rule of Professional Conduct 1.7 because the representation of Benun in this appeal will be “materially limited ... by the lawyer's own interests.” KGGD will be introducing specific documents, and specific testimony, which will refute the declaration that Mr. Benun has submitted in the malpractice action.... Those documents and that testimony, much of which represents previously privileged communications between Mr. Benun and/or his former company, Jazz Photo Corp., and KGGD as counsel, will most definitely undermine the truthfulness and good faith of Mr. Benun, and will have a detrimental effect on Mr. Benun's rights in this Appeal on several other issues.... Indeed, KGGD is reluctant to disclose those specific documents and testimony presently for full consideration by this Court now, as mere disclosure of them would have a detrimental impact on Mr. Benun's rights. However, counsel believes that there are specific arguments to be made in this appeal that will be undermined and indeed refuted by the privileged information that KGGD will likely be submitting in the malpractice action, and by the arguments it will be making there, to refute Benun's declaration....
Siegal Declaration, Docket Entry 46, Ex. 2 at 3. Thus, in a forum where review of Benun's good faith effort to comply with the ITC Cease and Desist Order was a prominent issue, Kaplan signaled that privileged documents and his testimony would be contra.
Fuji, of course, quickly picked up on the attorney-client schism and the potential for proofs as to Benun's lack of good faith. Fuji's obvious hope is to use Kaplan's file and testimony to establish Benun's “willful and malicious” infringement of its patents for exception to discharge purposes in the immediate adversary proceeding.
This adversary proceeding was initiated by complaint filed on October 7, 2003. The case has moved slowly through discovery and motion practice. Now that trial is approaching, motion practice has intensified, including recent cross-summary judgment motions. These motions resulted in the excising of one of Fuji's causes (as to 11 U.S.C. § 523(a)(4)) and denial of the balance of both parties' motions.
The summary judgment cross-motions made it clear that Benun's conduct and state of mind (including the issues of “willful” and “malicious” injury per § 523(a)(6)) had to be addressed in specific blocks of time running from before the decision in District Court I, through interim points as marked by, e.g., the ITC–I determination, to the ITC–II determination (and perhaps beyond).
*121 By motion filed on shortened notice on January 26, 2006, Fuji, apparently energized by the recently developed split between Kaplan and Benun, sought access to Kaplan's files and to Kaplan as a deposition witness. The motion, heard on February 6, 2006, espoused three theories: that Benun, in asserting in discovery that he was or might be relying on early 1990's advice of counsel (not
Kaplan) to a now-defunct camera company controlled by Benun, opened the “advice-of-counsel” door; that Jazz's
legal malpractice suit against Kaplan had broadly stripped away Jazz's privilege (and presumably Benun's); and, that in a December 2005 document discovery session in Trustee Moore's offices, a significant letter from Kaplan to Jazz's president—not Benun—was discovered by Fuji's counsel. That letter was dated February 15, 2002 and, in most general terms, expressed Kaplan's view of “potential ‘holes' in our compliance” with the ITC's 1999 Cease and Desist Order, as impacted by the Appeal I decision of August 21, 2001. This court reviewed the letter and has readily concluded that it was legal advice of an extremely sensitive nature based in large part upon Kaplan's opinion.
Moore and Fuji disagreed fundamentally as to the December 2005 discovery ground rules. (Fuji was engaging in discovery in yet another case—its action against Ribi Tech,
a newly formed corporation owned by the Benun family and the current employer of Benun.) Moore contended that the February 15, 2002 letter was inadvertently made available in and among more than seventy-five boxes of Jazz documents he had just moved to new quarters (after closing down the Jazz facility), and
that there had been an understanding with Fuji's counsel that no attorney-client privilege was being waived by Moore in extending to Fuji the courtesy of document review. Fuji's counsel saw things differently. More generally, Moore and Fuji's counsel disagreed on the scope of waiver of the attorney-client privilege effected by Moore's malpractice suit against Kaplan.
It is apparent to this court that the Trustee did not intend to waive any aspect of Jazz's attorney-client privilege by permitting Fuji to review documents, nor did/does Moore believe that the effort to maximize assets in liquidation through the malpractice suit broadly waived that privilege. Nevertheless, as to the February 15, 2002 letter inadvertently left available for discovery, the Trustee did not choose to spend estate assets in expensive litigation with Fuji; by letter agreement of January 23, 2006, Moore (not “having a dog” in the Fuji–Benun fight) agreed with Fuji as follows:
As you are aware, the Liquidation Trust is currently pursuing the above mentioned malpractice claim against the Kaplan & Gillman and Dreier firms relating to their handling of the patent infringement trial before Judge Hochberg. This matter is being pursued for the benefit of creditors. I have been advised that under applicable law the filing of that malpractice claim effected at least a partial waiver of Jazz's privilege as to otherwise privileged communications with the defendants. Fuji and the Liquidation Trust appear to disagree as to the breadth of that waiver, which has given rise to potential motion practice over Fuji's ability to use in other proceedings a February 15, 2002 letter from Kaplan & Gilman to Jazz's then president and CEO (the “Kaplan Letter”). In the interest of avoiding unnecessary and costly motion practice, the undersigned agree as follows: (1) Fuji may use the Kaplan Letter in the context of other proceedings;
(2) Fuji's use of the Kaplan Letter in other proceedings shall not effect a waiver of the attorney-client privilege to the extent such a privilege still exists in view of the pending malpractice case; and (3) the Liquidation Trust and Fuji reserve their rights as to any future disputes on the issue of the attorney-client privilege.
Obviously, the Kaplan–Jazz–Benun interaction and relationship are fundamental to analysis of the attorney-client privilege here at issue. The Benun–Jazz relationship is likewise important; in formal terms, it varied. He was president of Jazz from its inception in 1995 to March 31, 1997. Then he served as “consultant” but not officer or director, through his consulting corporation, JCB. On October 1, 2003 during the pendency of Jazz's Chapter 11, he again became chief operating officer. There is, however, no doubt in the court's mind that Benun controlled Jazz from its origin until he was rendered subject to certain bankruptcy controls, and eventually displaced in bankruptcy.
At the February 6, 2006 hearing on Fuji's application for access to Kaplan and Kaplan's files, Fuji's motion was conditionally denied (including denial of use sub judice
of the February 15, 2002 letter). The condition was Benun's required waiver of an “advice-of-counsel” defense; if Benun chose to advance that defense, Kaplan would, within reason, become fair discovery game for Fuji; otherwise, Kaplan would be off limits based upon this Court's view of: (i) Benun's privilege; (ii) Jazz's limited waiver of its privilege through the malpractice case (privileged documents and testimony there to be walled off from Fuji here, without impairing either Kaplan's defense or Jazz's affirmative legal malpractice case); and (iii) the February 15, 2002 letter as being advice implicating Benun's privilege,
not waivable by joint-privilege holder Jazz following unintended disclosure. Benun almost immediately waived advice of counsel as a defense. Fuji promptly moved—again on short notice—for reconsideration.
E. Eisenberg v. Gagnon.
10The joint defense or common interest corollary to the attorney-client privilege remains effective even if the interests of the privilege holders begin to diverge without becoming explicitly adversarial. Eisenberg v. Gagnon, 766 F.2d 770, 787 (3d Cir.1985), (precedent acknowledged positively in BBS, 805 F.2d at 126, and throughout Grand Jury 2001 ), involved an action for securities law violations and common law negligence concerning the marketing of tax shelters. Multiple attorneys and their clients were engaged in joint defense. An attorney, Wasserstrom, who was the primary proponent of the scheme, his law firm, and the law firm's insurer, each had separate counsel assigned by the law firm's insurer. At issue was production of correspondence between a principal of the law firm and the insurer's attorney, correspondence which contained the principal's position that information known to Wasserstrom should have been disclosed to investors (as well as that principal's ideas for certain trial strategy). 766 F.2d at 787. In disallowing production, the court observed that the parties' interests “largely coincided” and therefore:
This situation is not governed by those cases holding there is no privilege for communications with another's attorney *131 where the parties [sic] interests are completely adverse and it is clear that the statements were not made in the expectation that the relationship was confidential....
766 F.2d at 787–88 (emphasis added; internal citations omitted).
12“There is authority for the proposition that a party can waive the attorney client privilege by asserting claims or defenses that put his or her attorney's advice in issue in the litigation.
” Rhone–Poulenc, 32 F.3d at 863 (emphasis added). Rhone–Poulenc, not a legal malpractice case but rather a drug liability and insurance coverage case, explains:
Thus, in a patent suit, where an infringer is alleged to have acted willfully,
the advice of the infringer's lawyer may be relevant to the question of whether the infringer acted with a willful state of mind. However, the advice of the infringer's counsel is not placed in issue, *132 and the privilege is not waived, unless the infringer seeks to limit its liability by describing that advice and by asserting that he relied on that advice.
When the advice of counsel is asserted as a defense by the infringer, the patent owner may explore facts that would make it more probable than not that the infringer did not rely in good faith on that advice, including for example, what the advice was, when it was given, whether the alleged infringer's conduct suggests he had relied on the advice and whether he had knowledge of facts that would have led him to believe it would not be reasonable to rely on that advice.
32 F.3d at 863 (emphasis added) (referencing Underwater Devices Inc., v. Morrison–Knudsen Co., 717 F.2d 1380 (Fed.Cir.1983)).
In Rhone–Poulenc, the court found that the plaintiffs did not waive the attorney-client privilege by suing for coverage or by putting their state of mind in issue, that is, they did not “interject[ ] the advice of counsel as an essential element of a claim” in their case. 32 F.3d at 864. See also
Remington Arms Co. v. Liberty Mut. Ins. Co., 142 F.R.D. 408, 413 (D.Del.1992) (decrying the degeneration of the attorney-client privilege into a “general balancing test.” Id. at 414). In the immediate discharge-related adversary proceeding, Benun has specifically waived advice of counsel allegations alluded to in earlier discovery and/or motion practice. (The actual assertion related to an historic event involving Benun and another camera company—not Jazz—and another attorney—not Kaplan.) Therefore, Benun has not “put his ... attorney's advice in issue” sub judice.
As to Jazz's malpractice case against Kaplan, Fuji would posit that Jazz's actions in District Court II are sufficient to erode all
privilege as to Kaplan's testimony and files. By extension, Fuji would argue that Benun's declaration regarding his request that the “new law” contention be advanced in District Court I denies Benun the attorney-client privilege.
But these arguments overgeneralize. Surely Kaplan
can, within the bounds of ethical propriety, defend himself against the Moore/Jazz malpractice claims by exposing in that case
otherwise privileged matter; in so doing, he is permitted to respond specifically to the Benun declaration.
The Rules of Professional Conduct of the American Bar Association, as revised by the New Jersey Supreme Court and *133 adopted by the District Court of New Jersey pursuant to L. Civ. R. 103.1(a), limit the extent to which an attorney may disclose attorney-client privileged information in the attorney's own defense, after the attorney's conduct has been placed in issue. RPC 1.6 provides in relevant part:
(a) A lawyer shall not reveal information relating to representation of a client unless the client consents after consultation, except for disclosures that are impliedly authorized in order to carry out the representation, and except as stated in paragraphs (b), (c), and (d)....
(2) to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client, or to establish a defense to a criminal charge, civil claim or disciplinary complaint against the lawyer based upon the conduct in which the client was involved .... (Emphasis added.)
Consider the following statement in Greig v. Macy's Northeast, Inc., 1 F.Supp.2d 397, 401 (D.N.J.1998):
Although a former client certainly has to accept the fact that ... confidences will be revealed to some extent once she asserts a claim of malpractice against her former attorney, she should not be forced into a situation where these confidences are revealed to her adversaries, who are still involved in pending litigation and whose knowledge of her confidences would cause her the greatest harm.
In the immediate matter Benun is not suing Kaplan. Nevertheless, Kaplan cannot be handcuffed in his defense to Jazz's malpractice claims; hence the clear solution is to allow Kaplan's limited disclosures (the scope of which can only be a matter of speculation at this time) in District Court II—not in Fuji v. Benun. To give Fuji, Benun's constant antagonist, license to hunt for Kaplan's insights and advice derived from representation of Benun in the patent infringement case (District Court I) and the enforcement proceeding (ITC–II) “would cause ... the greatest harm” to Benun. And, it would abrade both the attorney-client privilege and the intent of the RPCs.
This court concludes as follows:
1. Fuji's discovery demand goes to the heart of the attorney-client relationship. It seeks disclosure of the longtime attorney's advice proffered during the pendency of litigation and enforcement proceedings. It would have that disaffected attorney reveal that which he considers would “impeach the truthfulness of statements, testimony, or proceedings” of Benun, as well as Benun's “good faith in ... proceedings.” Jazz's infringement and Benun's knowledge of it, as well as other key and sensitive testimony is sought in a deposition of Kaplan. All of the discovery demanded by Fuji through Kaplan is prima facie
2. Jazz, now controlled by Trustee Moore, has struggled to maintain (not waive
) its attorney-client privileges. It has not joined in Fuji's current discovery effort. There is no overt adversarial relationship between Jazz/Moore and Benun at this time. Therefore, there is no policy need to strip Benun of his attorney-client privilege as to Kaplan's insights, advice and files, vis-à-vis Jazz.
3. Benun and Jazz had been inseparable in their defense of District Court I (infringement/damages) and ITC–II (enforcement of the Cease and Desist Order); their joint representation by Kaplan establishes the privilege of each in matters of common interest.
4. Jazz was Benun's alter ego
at least to May 2003, and their jeopardy for Jazz's patent infringement has been joint throughout the period for which discovery is sought. Moreover, Jazz's infringement and Benun's inducement of Jazz to infringe, central to District Court I and ITC–II, bear directly on the immediate case.
5. Jazz cannot waive Benun's privilege in the key and sensitive disclosure that Fuji seeks; Benun's privilege, under the circumstances of this case and at least insofar as the Fuji discovery demand details, extends to Kaplan's communications with Jazz officers other than Benun. Benun's privilege specifically extends to the February 15, 2002 Kaplan Letter dealing with “Compliance with the Cease and Desist Order.” This letter of advice and attorney opinion is also work product and as such, should be protected from discovery.
6. Jazz's initiation of a legal malpractice suit against Kaplan (and Benun's support thereof with a statement) does not waive Benun's attorney-client privilege in the Fuji-sought disclosure sub judice.
Privilege issues arising out of the attorney-client relationship are to be decided on a case-by-case basis. The conclusions in this case are, of course, a function of the specific and complex history of the Jazz–Benun–Fuji dispute. That began before 1999 and continues into the immediate adversary proceeding. Until recently, Kaplan was Benun's principal advocate and defender. Benun and Fuji battle on, with *136 intent to infringe now being the central issue. If, in the latter days of this odyssey, Kaplan should be allowed to become allied with Fuji and serve both as a source of inside information and a witness bearing on his longtime client's credibility and good faith, the essence of the attorney-client privilege shall have been sacrificed. Fuji must prove its case as to Benun's intent to induce infringement (if it can) by evidence adduced other than through the attorney who engineered the Jazz–Benun defense to ITC–II and who filed the answering pleading for both of them in District Court I.
Fuji's motion is denied. The court will issue its implementing order.