Gates Corp. v. CRP Indus., Inc.
Gates Corp. v. CRP Indus., Inc.
2018 WL 4697326 (D. Colo. 2018)
August 10, 2018
Whitehair, J. Gregory, Discovery Master
Summary
The court ordered an in camera review of ESI to determine whether the attorney-client privilege and work product protections had been waived or stripped. The court directed the defendant to prepare a virus-free, single USB thumb drive containing a readable and word searchable version of the items, as well as an Excel spreadsheet of the underlying log, in native format and capable of being edited. The court also noted that the parties had been given the opportunity to present evidence and argument in support of their claims.
Additional Decisions
GATES CORPORATION, Plaintiff,
v.
CRP INDUSTRIES, INC., Defendant
v.
CRP INDUSTRIES, INC., Defendant
Civil Action No. 1:16-cv-01145-KLM
United States District Court, D. Colorado
Filed August 10, 2018
Whitehair, J. Gregory, Discovery Master
DISCOVERY MASTER’S PRELIMINARY REPORT AND RECOMMENDATION ON DEFENDANT CRP INDUSTRIES’ MOTION TO COMPEL PRODUCTION OF CERTAIN COMMUNICATIONS [#99]1
*1 This matter is before the undersigned as Discovery Master[2] on [Defendant CRP Industries’] Motion to Compel Production of Certain Communications [#99], Gates Corporation’s Response to Defendant’s Motion to Compel Production of Certain Documents [#116], and Defendant’s Reply Brief in Further Support of Motion to Compel Production of Certain Communications [#126], plus a single redaction designation [#132].[3]Having carefully reviewed the briefs and exhibits, the case docket, and applicable case law, and determining that oral argument would not materially assist review, the undersigned makes this Preliminary Report and Recommendation (“R&R”):
I. OVERVIEW
This case stems from the confessed criminal use of Gates’ confidential and proprietary data by Laura Bale, a one-time Gates employee and later CRP hire. CRP moves on three different grounds to strike the attorney-client privilege and work-product exemption claimed to cover several groups of Gates-logged documents:
(a) Failed joint-prosecution/common-interest claim: First, what will herein be called the “Category A1” set of Gates-logged materials, exchanged between Gates and the federal government during the years leading up to this suit,[4] under what Gates calls the “joint prosecution doctrine” (“JPD”) but which is perhaps better referred to as a “common-interest” exemption, along with a “Category A2” set similarly logged and tagged but not circulated by Gates to any outside entity;[5]
(b) Waiver because Gates placed privileged items “in issue”: Second, a “Category B” set of documents from 2012-14 that could lose their claimed protection depending upon whether there has been an “in issue” (or “at issue) waiver of privilege/work product;[6] and
(c) Both of the above, plus prejudicially late production: Lastly, a “Category C” set of third-party-subpoenaed, late-produced, and late-logged items first disclosed in Gates’ Privilege Log 5. See CRP Reply, Exh. 1 [#125-1] ).[7]
This latter group, being first disclosed during briefing on this motion, causes CRP great concern given that so many documents from the 2012-13 era suddenly appear, all marked privileged. Without filing a new motion, CRP asks in its Reply for complete in camera review of all of Category C; Gates has not sought the right of surreply.[8]
*2 Because CRP, as set forth in detail below, has made the showing necessary to trigger in camera review for the targeted documents in each Category, Gates shall deliver to the undersigned copies of all the listed items for in camera review, in the format described below, by Monday, August 20, 2018. The undersigned will then (a) assess, one-by-one if each item is facially privileged at all; and if so (b) assess whether one or more of the items should lose all or part of their protected status for the reasons raised by CRP.
The parties have fully briefed the salient issues, so no further input is necessary during the undersigned’s in camera review period. As set forth below, given the applicable case law, it is anticipated that all of the Category A1 documents exchanged with the federal government will likely be recommended produced in the undersigned’s Final R&R on this issue, though not the uncirculated Category A2 items. At the same time, the Category B and Category C documents will likely retain their protection unless they reflect heretofore undisclosed factual content (not opinion or belief) related to actual or colorable support for a basis to sue CRP (aside from any well-known independent claims against Ms. Bale)..[9]
To avoid prejudice to Gates, if any of its logged and reviewed items are recommended to be produced in the Final Report and Recommendation, the undersigned will not actually publish them, either to CRP or to the public, and will impose a 21-day stay of any designations to ensure that the parties have an adequate opportunity to object if they wish under Fed. R. Civ. P. 53(f). In the event of objection, the stay will remain in effect pending a ruling by the district court.
II. FACTUAL BACKGROUND
A general chronology for this case is set out in Discovery Master’s Preliminary Report and Recommendation on Plaintiff Gates Corporation’s Motion to Pierce Attorney/Client Privilege [# 134] (“Preliminary R&R I”), also filed today, and incorporated herein by reference. Several additional events are relevant to the privileged status of the questioned documents:[10]
1. Gates learned that former-employee Laura Bale had accessed Gates’ proprietary database APA.mdb in February 2012. Gates’ Response to MTC [#116] at p. 2. In late March 2012, Gates chose to contact the FBI about this unauthorized breach of a Gates computer database. Id.
3. There is no record presented to the undersigned of any writtenagreement between Gates and the federal government to maintain secrecy or confidentiality in any of the exchanged documents; neither does Gates appear to urge that any of its withheld communications with the government recite or reflect an explicit confidentiality agreement. Rather, Gates appears to suggest that it was under some type of obligation to produce material to the government, see, e.g., Gates Corporation’s Response to Defendant’s Motion to Compel Production of Certain Documents [#116] at p. 2-3 (“Motion to Compel”) (“purely factual information was relayed upon the Government’s request”; Gates was “taking direction from the FBI”), though Gates was never subpoenaed in the case.
*3 4. According to entries in Gates privilege logs, during this time Gates’ outside counsel, George Matava and Tripp Lake, were in sustained contact with Gates’ in-house counsel Jeffrey Thurnau providing him updates on the status of the government investigation, to the extent known, with legal advice regarding same. See, e.g., id., Gates Privilege Log 4, Inclusive [#99-11] (Gates Privilege 1-2, 7-9, 46-48). These communications do not on this record appear to have been shared with the government, even though they are in some cases further privilege-logged by Gates with the designation “Joint Prosecution Doctrine.” See, e.g., Gates Privilege 48-64 [#99-11].
5. Separately, on July 10, 2012, CRP received a Department of Justice grand jury subpoena, referencing Ms. Bale and Mr. Hirschhorn, as well as Gates and several of its databases. Gates Motion to Pierce, Exh. 16 [#88-16]. CRP responded to the subpoena by letter to the DOJ from McCarter & English on August 2, 2012, with a single, five-page attachment. Id., Exh. 17 [#88-17].[12]
6. During 2013 and 2014, the FBI appears to have had little communication with Gates, and most of the emails between Gates’ counsel and the FBI during this period went unanswered. See, e.g., Gates Corporation’s Response to Motion to Compel, Exhs. 24-25 [#116-24, -25]. One FBI response in the record was silent about any information regarding the status of the case, or what the FBI was uncovering in its investigation. See id., Exh. 26 [#116-26].
7. It appears in this record that Gates was first introduced to the responsible federal prosecutor, Assistant U.S. Attorney Tonini, in November 2015. See id., Exhs. 28-29 [#116-28, -29]. Gates asserts that it then participated in a “privileged” conference call on November 10, 2015 among AUSA Tonini, Agent Schons, Gates, and Gates’ counsel. See id., Exhs. 30, 29 [#116-30, -29].
8. The record before the undersigned (without yet knowing the content of the withheld documents Gates exchanged with the government) indicates that Gates did not learn from its government communicationsthe details of CRP’s potential involvement (beyond that of Ms. Bale)[13]until Mr. Tonini shared the factual portion of DOJ’s draft Bale plea agreement with counsel for Gates in March 2016. See Gates Privilege 27-28, 64-67 [#99-11]. Though the full extent of the November 10, 2015 “privileged” telephone conference and any reference there to CRP are not disclosed in this record.
9. The FBI and the Colorado U.S. Attorney’s Office completed their investigation in the spring of 2016. Order [#78] at p. 4.
10. Based upon the submitted record, one key focus of Gates’ communications with the DOJ in 2015-16 was beneficial to Gates: the calculation of a proper amount of restitution to be paid to Gates resulting from Ms. Bale’s criminal conduct. See, e.g., Gates Privilege Log 4, Inclusive [#99-11], at passim.
11. On May 11, 2016, in the case of United States of America v. Laura Bale, No. 1:16-cr-00112-WJM, Ms. Bale pleaded guilty (“Bale Plea”) to one count of unauthorized access to a protected computer (a Gates’ database). Scheduling Order [#23], Undisputed Facts ¶ 10. She and the government (with the consent of Gates) agreed that she would pay restitution to Gates in the amount of $79,800.00. Plea [#88-15], at pp. 5-6.[14]
12. Gates filed this case on May 17, 2016. Complaint [#1]. After a first motion to dismiss and a follow-on amended complaint, CRP filed a second motion to dismiss arguing (for the second time) that Gates’ claims were barred by the applicable statute of limitations. See Defendant CRP Industries, Inc.’s Rule 12(b)(6) Motion to Dismiss [#54].
13. In response, Gates argued “in the alternative” that CRP’s motion should be denied because the McCarter & English letters of 2012 and 2013 supported a claim for “equitable tolling.” See Gates’ Response to CRP Industries, Inc’s [Second] Motion to Dismiss [#55], at pp. 13-17.
*4 14. Gates prevailed and the second Motion to Dismiss was denied on November 28, 2017. Order [#78]. CRP thereupon answered Gates’ Amended Complaint and asserted the statute of limitations as one of its affirmative defenses. See Defendant’s Answer to Second Amended Complaint, Affirmative/Separate Defenses, And Jury Demand [#86] at p. 12. No further reply pleading was required of or made by Gates. SeeFED. R. CIV. P. 7(a). Gates has yet to aver an independent tortious misrepresentation (or equivalent) claim in this action.
15. The undersigned assumes that the DOJ has been apprised of CRP’s motion to publish all items exchanged between Gates and the FBI/U.S. Attorney’s Office, and that the DOJ has chosen not to intervene or comment in this action.
II. PROCEDURAL SETTING
CRP has moved on three fronts under Fed. R. Civ. P. 26 and 37 to break the attorney-client privilege and work-product exemptions claimed by Gates in over 100 documents:
• first, that there is no “joint-prosecution”/”common-interest” exemption available in this jurisdiction for any of the Category A1 documents exchanged with the FBI/DOJ by Gates in this context, or for the uncirculated JPD items in Category A2 (and Category C);[15]
• second, that Gates has put “in issue” through affirmative pleading or argument at least two key withheld documents (and arguably others) in Category B and Category C, thus waiving their facial privilege/exemption;
• and third, that all of the Category C documents were produced so late and with such meager excuse for delay that they forfeit their otherwise available privilege. CRP Reply [#126] at pp. 10-11.[16] (This latter “prejudicially late” argument, being brought without an originating motion or full argument from both sides, and possibly mooted by the first two grounds, is respectfully denied at this time, without prejudice.)
III. ANALYSIS
*5 CRP argues that, at a minimum, every communication actually exchanged between Gates and the federal government (Category A1) lacks any protection recognized in this district and should thus be disclosed and published. The undersigned provisionally agrees, subject to in camerareview to assess whether an enforceable DOJ confidentiality agreement might have been sought or struck by Gates.
CRP also would capture Gates’ government-related internal and uncirculated documents (Category A2). Because these documents each facially appear to reflect an independent ground for protection, and were not evidently circulated to third parties, the undersigned provisionally disagrees with CRP, though will review the items in camera for assurance.
CRP then essentially argues that Gates secretly knew well before 2015 that Gates had all it needed to sue CRP but delayed its suit overlong without reasonable excuse. CRP asserts that it has not yet been able to conclusively establish that point with Gates fact witness depositions or discovered documents, CRP Motion to Compel [#99] at p. 12 n.4, and suspects that Gates is hiding the true state of affairs behind its privilege claims. CRP argues that Gates has, through key protected documents, put “in issue” – and thus waived – knowledge about CRP’s suspected improprieties sufficient to deem actionable claims against CRP adequately accrued in 2012 or 2013.[17]
Here, CRP appears to reach too far: while Gates did indeed put its knowledge of claim accrual “in issue” when it argued equitable estoppel, it does not appear to have interposed any secreted legal opinion or advice of counsel to support what is in essence a factual inquiry about what Gates’ fact witnesses actually knew about CRP activities, and when.[18]Nevertheless, given the close issues and confusing case law, along with the tumult over Gates’ belated Category C production, in camera review is appropriate.
A. Reviewing Attacks on Privilege in Mixed State/Federal Cases
As with the undersigned’s Preliminary R&R I [#134], given the combined state/federal claims averred by Gates, this case raises subtle issues of state law and federalism. Because of the mix, the undersigned is again faced with the challenge of discerning what rules might apply in the respective state and federal courts, and then applying the most appropriate protection scheme for this case. See Sprague v. Thorn Americas, Inc., 129 F.3d 1355, 1369 (10th Cir. 1997) (footnote omitted) (holding that when federal and state claims are raised, and the privilege is upheld by one body of law and not by the other, “an analytical solution must be worked out”).
1. Applicable Law(s) of this Case
In diversity jurisdiction cases, state law generally governs attorney-client privilege. Frontier Ref., Inc. v. Gorman-Rupp Co., Inc., 136 F.3d 695, 699 (10th Cir. 1998); see FED. R. EVID. 501 (“in a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision”); see also Larson v. One Beacon Ins. Co., No. 12-cv-03150-MSK-KLM (D. Colo. June 10, 2013). On the other hand, federal rules apply to any federal claims. See FED. R. EVID. 501 Conference Committee Notes(citation omitted) (“There may be diversity cases, however, where a claim or defense is based upon federal law. In such instances, Federal privilege law will apply to evidence relevant to the federal claim or defense.”).
*6 In contrast, the work product exemption arises under the federal rules and is governed by federal law. Frontier Ref., 136 F.3d at 702 n.10 (“Unlike the attorney client privilege, the work product privilege is governed, even in diversity cases, by a uniform federal standard embodied in Fed. R. Civ. P. 26(b)(3).”). In any event, the parallel Colorado Rule 26(b)(3) is close in form, and the state Supreme Court has urged adherence to federal precedent. See Warne v. Hall, 373 P. 3d 588, 594 (Colo. 2016).
In Colorado, the attorney-client privilege is “established by the act of a client seeking professional advice from a lawyer and extends only to confidential matters communicated by or to the client in the course of gaining counsel, advice, or direction with respect to the client’s rights or obligations.” People v. Tucker, 232 P.3d 194, 198 (Colo. App. 2009) (citations omitted). The privilege applies only to communications under circumstances giving rise to a reasonable expectation that the communications will be treated as confidential. Id. at 198 (citing Wesp v. Everson, 33 P.3d 191, 197 (Colo. 2001)). Notably, mere statements of fact are not protected by the attorney-client privilege. See Gordon v. Boyles, 9 P.3d 1106, 1123 (Colo. 2000)(holding that “the privilege protects only the communications to the attorney; it does not protect any underlying and otherwise unprivileged facts that are incorporated into a client’s communication to his attorney”).
To be subject to the work-product doctrine the disputed materials must have been “prepared in anticipation of litigation. The doctrine does not protect materials prepared in the ‘ordinary course of business.’ ” Weitzman v. Blazing Pedals, Inc., 151 F.R.D. 125, 126 (D. Colo. 1993) (citation omitted). Thus, to receive work-product protection, the party resisting discovery must demonstrate that the information at issue “was prepared by the attorney in anticipation of litigation or for trial.” In re Grand Jury Proceedings, 616 F.3d 1172, 1184-85 (10th Cir. 2010).
2. The Privilege and the Exemption are Not Absolute
The attorney-client privilege and the work product exemption are esteemed, but not absolute. See Law Offices of Morley v. MacFarlane, 647 P.2d 1215, 1220 (Colo. 1982). Indeed, both sides in this civil action believe that they should be allowed to break through the other side’s facially privileged documents, albeit for different reasons. Compare [Gates’] Motion to Pierce[#88] with [CRP’s] Motion to Compel [#99]. And both sides agree that in camera review is an acceptable protocol in the appropriate case.[19]
The undersigned presumes that each item logged by Gates in Docket Nos. 99-11 and 125-1 is facially eligible for its asserted protection, though Gates “bears the burden of persuasion, and cannot sustain that burden simply by asserting that withheld materials contain privileged or protected information.” Plaza Ins. Co. v. Lester, No. 14-cv-01162-LTB-CBS, Order Dkt. #61 (D. Colo. June 4, 2015) at p. 9, 2015 WL 3528336 at *5 (citing FDIC v. United Pac. Ins. Co., 152 F.3d 1266, 1276 n.6 (10th Cir. 1998)). In fact, the claiming party must make a “clear showing” and provide “precise reasons” for withholding each otherwise responsive item. Id. (citations omitted). See also id. at *5-7 (explaining in detail the necessary features of a fully protected document). This is typically accomplished in the first instance with a competent and thorough privilege log.
*7 Once established, though, at least in Colorado diversity actions, the burden of proving waiver shifts to the attacking party, here CRP. See Wesp, 33 P.3d at 198 (citing Miller v. Dist. Ct., 737 P.2d 834, 838 (Colo.1987)); Chopra v. Townsend and Townsend and Crew, LLP, No. 07-cv-02447-MSK-MH (D. Colo. Nov. 25, 2008) at pp. 7-8.[20]
Here, CRP does not argue that an attorney-client relationship is missing, or that Gates’ logging designations are descriptively deficient. Rather, CRP presses three separate grounds for removing the protections on Gates’ claimed privilege and exemptions.
B. Treatment of Common-Interest (JPD) Exemption in Parallel Prosecutorial/Private Litigation Proceedings in District of Colorado
CRP seeks to strike down the common-interest (JPD) exemption claimed by Gates for all of Category A. Gates responds that it deserves full protection for all of its logged items, but emphasizes in the event of doubt that only 32 of its JPD-designated documents – specifically Gates Privilege 7-9, 19-44, 65, 67, and 74 – should be published if the JPD/common-interest claim fails, as the remaining 46 items were never circulated beyond Gates and its counsel, so should remain protected by the otherwise-intact attorney-client privilege and/or work product exemption. (Presumably Gates would urge the same treatment for its newly logged 32 uncirculated items claimed under JPD.)
1. The Spectrum of Protection for Shared Communications
The core issue sounds simple: under what circumstances should courts in this district permit two unrelated parties to share – and still preserve – the privilege or work product that would otherwise apply to an exchanged communication. “In Colorado, the joint defense (or common interest) doctrine is an exception to the general rule that the attorney-client privilege is waived when privileged information is disclosed to third parties.” Larson v. One Beacon Ins. Co., No. 12-cv-03150-MSK-KLM (D. Colo. Jun. 10, 2013)(citation omitted). “The privilege applies only to communications given in confidence and intended and reasonably believed to be part of an on-going and joint effort to set up a common legal strategy.” Id. at Order p. 11 (quoting Black v. Sw. Water Conservation Dist., 74 P.3d 462, 469 (Colo. App. 2003)).
The Tenth Circuit has long held that the common-interest doctrine should be construed narrowly:
A community of interest exists where different persons or entities have an identical legal interest with respect to the subject matter of the communication between an attorney and the client concerning legal advice.... The key consideration is that the nature of the interest be identical, not similar.
*8 Frontier Refining, Inc., 136 F.3d at 705 (citations omitted, emphasis added).
Moreover, the Circuit has rejected a general government-investigation exception (compare Gates’ JPD proposal). See In re Qwest Commc’s, 450 F.3d 1179, 1192 (10th Cir. 2006).
The Circuit also holds a narrow view of the so-called “selective waiver” rule, whereby a private party shares secret information with, e.g., the government, then later “selects” not to share those same items with affected third parties. In the Qwest case, a blanket “selective waiver doctrine” first used by the Eighth Circuit was rejected, id. at 1180, but the Court did give due consideration to a possible allowance where there was (1) a stringent confidentiality agreement with the government attorney that was subsequently championed by that attorney; and (2) where there was no apparent self-serving “benefit” to the arrangement with the government, other than perhaps a citizen’s conscience. Id. at 1189, 1193 (favorably citing In re M & L Business Machines Co., 161 B.R. 689, 696 (D. Colo. 1993)). Cf. In re Pacific Pictures Corp., 679 F.3d 1121, 1129-30 (9th Cir. 2012)(skeptically declining “the entirely new privilege” of selective waiver for a crime victim when the public/private exchange was made in the absence of either an oral or a written confidentiality agreement, and the only shared public/private interest was a successful criminal prosecution).
Something of a spectrum can be discerned in the private/private setting, with two parties sharing a single lawyer in a common defense on one end (the classic “joint defense privilege”), and a hostile third-party recipient on the other. See generally CGC Holding Co. v. Hutchens, No. 11-cv-01012-RBJ-KLM (D. Colo. Jan. 20, 2016). Similarly, there is a spectrum in the public/private setting, where on the one end the United States and the disclosing citizen have virtually interchangeable interests, such as in the qui tam or in the “on behalf of” setting. See, e.g., United States ex rel Purcell v. MWI Corp., 209 F.R.D. 21, 26-27 (D.D.C. 2002) (noting that the “weight of the limited authority favors the government’s position that a joint prosecutorial privilege exists” between the government-intervenor and the relator in qui tam cases) (emphasis added); United States v. Gumbaytay, 276 F.R.D. 671 (M. D. Ala. 2011) (a HUD “on behalf of” case). And on the other end a private volunteer at risk of sanction, such as voluntary sharing with the SEC while still under scrutiny by the agency. See, e.g., In re Steinhardt Partners, L.P., 9 F.3d 230, 236 (2nd Cir. 1993).[21]
The courts are even more skeptical of protecting a private party that appears to be sharing information for potential gain, or even just the advantage of letting the government go first, possibly creating helpful proof or even estoppel. See, e.g., Dresser-Rand Co. v. Schutte & Koerting Acquisition Co., 242 F. Supp. 3d 576 (S.D. Tex. 2017) (finding “calculated disclosure to further the government inclination to prosecute”); Bank of America., N.A. v. Terra Nova Insurance. Co., 212 F.R.D. 166, 172 (S.D.N.Y. 2002) (disclosing information to governmental authorities, with no confidentiality agreement and a high risk of disclosure, in the hope that they will attack an adversary, cannot be said to be done “in the pursuit of trial preparation”) (quoting United States v. Am. Tel. & Tel. Co., 642 F.2d 1285, 1299 (D.C. Cir. 1980)).
*9 For a thoroughgoing review of the “fact intensive and not entirely consistent” three dominant lines of federal cases involving private sharing with public entities, see Info. Resources, Inc. v. Dun & Bradstreet Corp., 999 F. Supp. 591 (S.D.N.Y. 1998). There, the court first describes the full protection cases, where no waiver is applied to true joint defense or parallel civil track cases, or where a qui tam interest is shared. A second line reflects a closer call on protection when the production was government coerced, though protection was often found waived when the discloser pursued or attained “beneficial purposes.” Lastly, there was rare protection when the discloser’s voluntary submission was provided to incite a government attack on the informant’s adversary, absent strong government intervention to protect the items. Id. at 591-93.
As for Colorado state law or precedent, there appears to be none championing a “joint prosecution doctrine” or even a strong public/private common-interest doctrine. See In re Qwest Comms., 450 F.3d at 1198 n.8(“It does not appear that any state has implemented, by statute or rule, the general government-investigation privilege, and this type of privilege does not appear in the Uniform Rules of Evidence.”). The one reference by the Tenth Circuit to applicable Colorado precedent was solely for environmental audits. Id. (citing Colo. Rev. Stat. § 13-25-126.5).
2. The Decision to Review Category A in Camera
Gates argues that it did not pursue the DOJ communications to incite a wider case; however, there is no evidence that Gates reached out to CRP to join a tandem effort to focus on Ms. Bales alone. Without besmirching Gates – and it did report Ms. Bales straightaway – it cannot be overlooked that Gates voluntarily (without being subpoenaed) worked with the DOJ to establish a significant restitution sum and important factual confessions from Bale, not to mention the possibility that CRP might also have been caught up in that same FBI investigation. All done without a clear, upfront confidentiality agreement in place, or a present government champion coming before this court in pursuit of protection.
Thus, the undersigned will undertake in camera review of all of Category A1 (likely to be published in the Final R & R absent a clear confidentiality agreement with the DOJ) and Category A2 (unlikely to be published unless it reflects actual third-party disclosures, or in fairness should accompany any designated items). Cf. FED. R. EVID. 502(a) (scope of waiver to uncirculated items extends only if (1) the waiver is intentional and ... (3) the items “ought in fairness to be considered together”).
C. Whether the “In-issue” Waiver has been Triggered in this Case
Regarding the Category B (and possibly Category C) “in issue” argument, CRP focuses on two early communications from the original Gates privilege log. See CRP’s Motion to Compel [#99] at p.13. CRP urges that if it is correct that these documents contain damning information about what Gates knew of its claims against CRP in 2012, then all of Gates’ purportedly privileged and exempt items related to that knowledge should lose their protected status, and Gates’ attorney Mr. Tripp should now be made available for deposition. Id. at p. 19.
1. The “in issue” or “at issue” test
This trial court has previously set forth the test succinctly:
To determine whether a matter has been put at issue and thus has created an implied waiver, the court must examine whether: (1) the asserted privilege was the result of some affirmative act, such as filing suit, by the asserting party; (2) through the affirmative act, the asserting party put the privileged information at issue by making it relevant to the case; and (3) application of the privilege denies the opposing party access to information vital to his defense. Chimney Rock Pub. Power Dist. v. Tri-State Generation & Transmission Ass’n, Inc. No. 10-cv-02349-WJM-KMT, 213 WL 1969264, at *2 (D. Colo. May 13, 2013) (citing Mountain States Tel. & Tel. Co. v. DiFede, 780 P.2d 533, 543-44 (Colo. 1989)).
*10 Larson, Jun. 10, 2013 Order [Dkt. #46] at 19-20.
Of course, it is not enough that the targeted item is expected to contain “vital, highly probative, directly relevant [evidence at] the heart of an issue,” Rhone-Poulenc Rohrer Inc. v. Home Indem. Co., 32 F.3d 851 (3rd Cir. 1994), as relevance is not the standard. Rather, it is critical to assess whether the otherwise protected communications are being proffered as an instrument of proof going directly to a claim or defense. Wesp, 33 P.3d at 198.
“Any waiver must be demonstrated by evidence that the client, by words or conduct, has expressly or impliedly forsaken his or her claim of confidentiality with respect to the information in question and, thus, has consented to its disclosure.” People v. Sickich, 935 P.2d 70, 73 (Colo. App. 1996); see also Clark v. Dist. Ct., 668 P.2d 3, 8 (Colo. 1983).
The Colorado Supreme Court has described two situations of implied waiver: “when a client asserts a claim or defense that focuses on advice given by the attorney,” and “when a client discloses privileged communications to a third party.” People v. Trujillo, 144 P.3d 539, 543 (Colo. 2006). Placing privileged communications “at issue,” that is, by asserting “a claim or defense that depends on privileged information,” impliedly waives such communications. Id.
The Colorado Supreme Court has cautioned against the excessive application of the “in issue” exception to the attorney-client privilege, noting that the “general policy against invading the privacy of an attorney’s course of preparation” is “well-recognized and ... essential to an orderly working of our system of legal procedure.” People v. Madera, 112 P.3d 688, 690-92 (Colo. 2005) (citing Hickman v. Taylor, 329 U.S. 495, 512 (1947)).
2. Mere denials versus purposeful assertion
Gates argues vigorously that it has never injected its knowledge of claim accrual into the case. And with one material exception, that is probably true, because to waive the privilege, a party must do more than reflexively deny its opponent’s allegations: “the holder must inject a new factual or legal issue into the case,” typically via affirmative defense. Lorenz v. Valley Forge Ins. Co., 815 F.2d 1095, 1098 (7th Cir. 1987) (relying on the seminal case of Hearn v. Rhay, 68 F.R.D. 574 (E.D. Wash. 1975) (in qualified immunity setting, approving waiver based upon advice of counsel interposed by government employees on motive issue and on scope of protected constitutional rights)). To do otherwise would reward artful pleading. See Oxyn Telecomm. v. Onse Telecom, No. 01 Civ. 1012 (JSM), 2003 U.S. Dist. LEXIS 2671, at*22 (S.D.N.Y. Feb. 25, 2003).
Fatefully, Gates was then faced with CRP’s second Motion to Dismiss [#54], pressed again regarding the statute of limitations. Gates voluntarily chose to respond with an extended argument claiming equitable tolling (on the basis of concealment by CRP through its lawyer’s letters) and the game was afoot. Although Gates wishes that CRP carried all burdens regarding its affirmative defenses, see Gates Response [#116] at p.10, once Gates argued that the running of the applicable statute was tolled, it then bore “the burden of coming forward with facts sufficient to demonstrate that tolling is appropriate.” Crosby v. Am. Family Mut. Ins. Co., 251 P.3d 1279, 1283 (Colo. App. 2010) (citing Goldsmith v. Learjet, Inc., 90 F.3d 1490, 1496 (10th Cir. 1996)). See generally Smith v. Kent Oil Co., 261 P.2d 149, 151 (Colo. 1953) (emphasis added) (“The statute of limitations having been pleaded in bar and prima facie appearing to be a bar from the note set out in the complaint, the burden shifted to plaintiff to establish that the statute had been tolled.”). Thus, it appears that Gates has put this defense in issue,[22] though that is not the end of the inquiry.
3. Proffered evidence must include specific privileged materials
*11 Simply because “a party puts a question at issue ... does not itself mean that the plaintiff has to give up, blanketwise, all of the privileges that have been bestowed upon attorneys by our law.” NL Indus. Inc. v. Comm. Union Ins. Co., 144 F.R.D. 225, 232 (D.N.J. 1992) (citation omitted) (relied upon in Frontier Refining, Inc., 136 F.3d at 705). The real issue is whether Gates is attempting to prove anything “through the use of privileged materials.” Id.(cases omitted). In short, the claim or defense inserted by the privilege holder must depend upon privileged items. Trujillo, 144 P.3d at 543(emphasis added).
It is undisputed, and literal Restatement law, that raising a defense based upon good faith reliance upon advice of counsel waives the attorney-client privilege as to that advice. See RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 80 (1)(a)(2000), cited in Allstate Ins. Co. v. Cleary, 936 N.E.2d 272, 276-78 (Ind. App. 2010) (“The key factor in each instance is that of reliance of the client on the advice of the attorney.”)). See also Rhône-Poulenc Rohrer, 32 F.3d at 863 (“[A]dvice of counsel is placed in issue when a client asserts a claim or defense, and attempts to prove that claim or defense by disclosing or describing an attorney-communication.”) (emphasis added).
In Colorado, the DiFede case is key, and adopts analysis from the Nebraska Supreme Court, which described the “common denominator” to privilege exceptions, such as implied waiver, as “in each instance, the party asserting the privilege placed information protected by it in issue through some affirmative act for his own benefit, and to allow the privilege to protect against disclosure of such information would have been manifestly unfair to the opposing party.” League v. Vanice, 221 Neb. 34, 44, 374 N.W.2d 849, 856 (Neb. 1985) (citation omitted).
CRP would read DiFede and League for the proposition that Gates has impliedly asserted “advice of counsel” to support Gates’ allegedly too-late 2016 case filing. Notably, these referenced cases both appear to be based on a questionable hypothesis: that a former attorney can be the sole source of information for calling out an apparently prevaricating client.[23] However, the undersigned is unable see where Gates has urged any lawyer-client communications as the basis for its allegedly delayed filing, but will nonetheless review all of Category B and Category C under the below conditions. Cf. Trujillo, 144 P.3d at 542 (finding that none of the referenced statements contained “confidential matters communicated by or to the client in the course of obtaining counsel, advice, or direction with respect to the client’s rights or obligations” and thus failed to meet the “protected information” requirement of the DiFede test’s second prong) (citation omitted).
Importantly, even when privileged items are in some measure put “in issue,” any targeted privileged or exempt items, especially work product, “must be substantially needed and must not be securable from any less intrusive source.” NL Industries, 144 F.R.D. at 233 (citing cases); see id. (the parties “should develop their own information from the factual material and sources provided”); see also id. (“while it is true that the availability of the privileged material sought in the instant case would make it much easier for defendants to develop their suits, such is not the criteria for a waiver of the attorney-client or work product privileges”); Frontier Refining, 136 F.3d at 702 (defendant was “free to inquire of other Frontier employees or representatives to discern Frontier’s reasons for settling. Such information was not within the exclusive possession of Frontier’s attorneys and was not necessarily prohibited by the privilege.”) (citing Remington Arms Co. v. Liberty Mut. Ins. Co., 142 F.R.D. 408, 415-16 (D. Del. 1992) (noting that courts cannot justify compelling production of privileged documents solely as a means of checking a party’s statements)). It appears that CRP has been able to depose a number of informed Gates’ witnesses on the very topic it seeks now to discover from Gates’ counsel, CRP Motion to Compel[#99] at p. 12 n.4, thus undermining its argument.
*12 Relevant to CRP’s motion, factual material nested inside of otherwise privileged documentation is not protected. See Gordon, 9 P.3d at 1123. Consequently, looking for accrual “facts” during in camera review will be undertaken, though it verges closely on Remington Arms’ criticized mere checking up on a party’s statements.
D. Next Steps
One reasons why this is a “preliminary” Report and Recommendation is that, despite broad discretion to act, no final recommended designation will be made by the undersigned to strip the privilege on any given document without first conducting a document-by-document in camera review. And while the parties are free to file objections at this juncture, see FED. R. CIV. P 53(f), they are invited to hold off to see whether in camera review and a final decision may render one or the other sides’ objections moot. (As noted, to ensure a full opportunity to object, the undersigned will automatically stay any determinations for 21 days and thereafter if taken up).
The undersigned preliminarily agrees that CRP has made the necessary showing to justify the modestly intrusive nature of in camera review to test each of CRP’s assertions: the request is focused and the amount of material to review appears reasonable and not intermixed with significant unrelated material. See Zolin, 491 U.S. at 572. Further, as urged in Madera,112 P.3d at 691, concerning wholesale attorney file review in state cases, the undersigned finds CRP’s request to be (1) precisely limited to documents generated in the Gates investigation, (2) relevant to a hotly disputed case issue, (3) not obtainable by any other means, (4) bearing on information that is facially privileged but where (5) the privilege may not inhere, depending upon closer review, and (6) the scope of the waiver or stripping will be done document-by-document, and even line-by-line if appropriate.
Regarding the facially privileged materials in Category B, the undersigned will be looking for heretofore undisclosed facts not found in the record that go to what and when Gates recognized any potential claim against CRP, the entity.
As for the smaller cache of work-product withholds, the court in Martin v. Monfort, Inc., 150 F.R.D. 172 (D. Colo. 1993), set forth a process to be considered in determining whether to set aside work-product protections:
Rule 26(b)(3) ... contemplates a sequential step approach to resolving work product issues.
• First, the party seeking discovery must show that the subject documents or tangible things are relevant to the subject matter involved in the pending litigation and are not privileged.
• Once such a showing has been made, the burden shifts to the party seeking protection to show that the requested materials were prepared in anticipation of litigation or for trial by or for the party or the party’s attorney, consultant, surety, indemnitor, insurer or agent. Such a showing may be made by affidavit, deposition testimony, answers to interrogatories, and the like.
• If the Court concludes that the items were prepared in anticipation of litigation, the burden shifts back to the requesting party to show:
o (a) a substantial need for the materials in the preparation of the party’s case; and
o (b) the inability without undue hardship of obtaining the substantial equivalent of the materials by other means.
*13 • Finally, even if substantial need and unavailability are demonstrated, the Court must distinguish between factual work product, and mental impressions, opinions, and conclusions, for the latter are rarely, if ever, subject to discovery.
Id. at 172-73 (internal citations omitted, bullets added for clarity) (cited in Thane v. Geico Casualty Co., Civil Action 16-cv-02940-CMA-MEH, Order Dkt. #72, at p. 6). The undersigned will therefore be reviewing every work-product item with a conservative eye, looking for factual material that may not deserve its claimed protection, while vigorously protecting opinion work product.
Finally, it is appropriate to explain why there will be no testimonial proceeding or oral argument at this stage. As set forth in today’s companion Preliminary R&R I [#134], none of the supervisory courts urging strong due process in privilege reviews saw fit to provide insight about how a two-party, adversary evidentiary hearing might be conducted fairly over documents (or testimony) presumptively shielded by one side’s privilege. Further, to elicit ex parte witness testimony from that privilege-holder – presumably also then privileged – would only create a record that would further embroider the words on the page in the documents to be reviewed in camera, and then be almost impossible for CRP to review or appeal. See, e.g., United States v. Boender, 649 F.3d 650, 658 (7th Cir. 2011):
Where the disputed communications are contained in documents, for example, the best course may often be review by the judge alone in camera. Where the source of the disputed evidence is live testimony, however, it would be most unusual for the judge simply to invite the witness into chambers for a private interrogation session.
We are not convinced that in all cases it is necessary for the district court to conduct a live hearing with oral argument; in appropriate cases, the court may decide the matter on the papers. But we are convinced, as was the court in Haines, that in a civil case the party resisting an order to disclose materials allegedly protected by the attorney-client privilege must be given the opportunity to present evidence and argument in support of its claim of privilege.
In the opinion of the undersigned, Gates has gotten to provide focused briefing to support the privilege and work-product protections it sought when it logged the targeted materials, and CRP has urged its need and hardship. No further briefing or argument is necessary.
E. Recommended Order
Therefore, Gates shall prepare on a virus-free, single USB thumb drive a readable and word searchable version (with the same metadata the parties have jointly agreed attaches to produced discovery in this case) of all of the items listed above in Categories A1, A2, B, and C, carefully separating each item from any other (i.e., no continuous scroll across document breaks), the thumb drive to be hand-delivered to the undersigned’s office by 5 PM on August 20, 2018. An Excel spreadsheet of the underlying logs 4 and 5 should also be submitted in native format (shorn of metadata unnecessary to reading the log or adding columns). Gates may, in addition, choose to submit a single hard-copy set of the same materials, each document or string separately stapled, if that would better ensure clear review.[25]
*14 WHEREFORE,
CRP’s Motion to Compel [#99] is GRANTED IN PART and DEFERRED IN PART. In camera review is triggered for the items described above. Gates is directed, at or before 5:00 PM on August 20, 2018, to submit to the undersigned at the address below (no copies to any other person or party) a virus-free, single USB thumb drive containing a readable and word searchable version (with the same metadata the parties have jointly agreed attaches to produced discovery in this case) of all of these items, as well as an Excel spreadsheet of the underlying log, in native format and capable of being edited
J. Gregory Whitehair, Esq.
12364 West Nevada Place,
Suite 305
Lakewood, Colorado
80228
Tel: 303.908.5762
Fax: 877.587.3486
Email:jgw@ipresolutionco.com
CERTIFICATE OF SERVICE
I hereby certify that on this 10th day of August, 2018, a copy of this DISCOVERY MASTER’S PRELIMINARY REPORT AND RECOMMENDATION ON DEFENDANT CRP INDUSTRIES’ MOTION TO COMPEL PRODUCTION OF CERTAIN COMMUNICATIONS [#99] was filed with the Clerk of the Court using the ECF Filing System, which will serve notice of the filing on all parties in interest.
Footnotes
The undersigned follows the trial court’s practice using case docket numbers in square brackets [#1].
The subject motion was referred to the undersigned by Minute Order of May 1, 2018 [#112].
After some confusion among the parties, the only item in this Motion record that is still requested restricted is #99-16, an email that plays no part in the determination hereunder. In addition, the public notice period passed today without response, so an order of approval should issue early next week.
According to the Gates’ Response [#116] at p. 5, Category A1 documents exchanged with the FBI or the DOJ comprise 32 items: Gates Privilege 7-9, 19-44, 65, 67 & 74 (though the latter two log entries do not reflect the name of any third-party recipients, see Gates’ Privilege Log 4, Inclusive [#99-11] ).
Regarding Category A2, Gates listed in its Log 4 under “joint prosecution doctrine” an additional 46 items that were on their face NOT circulated to outside entities: Gates Privilege 48-71, 84-85, 87, 89-93, 95, 102, 114-15, 128-29, 131, 139-40, 142, 151, 157, and 159-60. The similarly situated items in Gates’ supplemental Log 5 comprise additionally (and coincidentally) 32 items: Gates Privilege 210-19, 222-23, 227-43, 260-62. CRP also points out that Gates references the Bale investigation in Gates Privilege 15 & 18, so they are added to category A2 as a precaution, making 80 items in all.
According to CRP, this category herein coined as “B” comprises at least the first two items logged by Gates: Gates Privilege 1, the Brekke Jan. 2, 2013 email string; and Gates Privilege 2, the so-called Matava Letter of Jan. 2, 2013 (though Gates originally logged [#99-3] and CRP then references in its opening brief [#99 at p. 13], a Dec. 20, 2012 date for Bates CRP00007633). Other documents implicitly requested to be reviewed by CRP that were logged from that timeframe in Log 4 include Gates Privilege 15 & 18 (see above), as well as Gates Privilege 46-48.
During briefing, Gates supplementally logged an additional 87 items from that early 2012-13 timeframe: Gates Privilege 176-232. As set forth below, the undersigned agrees with CRP that these should all or be placed alongside the seven already in Category B, for a total of 94. At the same time, the 32 items referenced above in footnote 5 as late-produced will also be placed for review within Category A2.
Although a surreply request should be exceedingly rare, this newly raised request by CRP might have warranted one. In camera review on the grounds set forth below should, however, be a fair and efficient equivalent to Gates reiterating its previous positions to extend to Category C, which briefing and response would likely have resulted in the same in camera assessment directed herein.
As set forth at length in footnote 20 of today’s Preliminary R&R I[#134] on Gates’ Motion to Pierce [#88], the parties hotly dispute the accrual issue, as well as whether the acts of Ms. Bale alone trigger suit.
The undersigned believes that this Preliminary R&R does not disclose any sealed or confidential materials of the parties, but will act quickly to redact and seal, or amend out, as appropriate if either party can show to the contrary.
It is undisputed that Gates did not apprise CRP of this exchange of information and letters with the government until after the lawsuit at bar commenced.
Neither CRP nor the government appears to have contemporaneously shared this information with Gates, and there is no record before the undersigned showing that Gates knew earlier than 2016 of the DOJ subpoena to CRP, or of CRP’s scope of search and response. See, e.g., id., Exh. 23 [#88-23].
As discussed more fully in today’s Preliminary R&R I [#134], both parties have until recently treated Ms. Bale’s actions as separate from actionable conduct by CRP as an entity. This is a matter for the trial court and, until resolved, is not relevant to the undersigned’s waiver determinations.
It is not clear on this record if Gates has yet received any of this ordered remuneration.
In addition, given the breakdown in trust between the opposing law firms, CRP seeks in camera assessment of eight additional documents (Gates Privilege 10-14, 16-18) logged as stemming from an “unrelated” government investigation, and which Gates explains in its Response brief are responsive though not relevant to this action, logged only out of an abundance of caution. [#116 at p. 6]. Gates did disclose recently that the items are related to a phishing incident Gates shared with the FBI. See Unopposed Motion to Restrict Access to Dkt. 91-1, Dkt. 91-12, and Dkt. 99-16 [#132] at p. 3. Given the delayed production, and Gates’ only mild objection, those Category C documents will also be separately viewed in camera as part of Category A2, while anticipating their non-relevance to the case at bar.
Without yet judging the ragged path of their production (Gates apparently denying control over its predecessor law firm, a necessitated third-party subpoena of that law firm, late-discovered decommissioned files, and an eleventh-hour privilege log), Gates served during briefing a fifth privilege log, see Gates Privilege Log 5 [#125-1], adding some 87 documents, including 32 with the additional designation “Joint Prosecution Doctrine [1].” That footnote [1] reads: “These entries rely on the attorney-client privilege, but may also be protected by work product immunity and the joint prosecution doctrine.” Notably, none of these 32 appear to have circulated to any third-party, thus their Category A2 status.
CRP carefully avers that no factual basis for suit exists against it whatsoever, but that Gates believed to the contrary and was thus compelled to move on its belief.
What CRP may be trying to imply is that a decision about when to file a lawsuit based upon accrual of a civil claim is inherently a function of lawyer advice and thus always based upon “advice of counsel.” Such a broad position swallows the rule and would put pre-filing legal advice on the table in every time-sensitive case.
The federal case law in this circuit is more ambiguous on this point, implying perhaps that the burden remains always on the privilege holder to prove that waiver does not apply. See, e.g., Peat, Marwick, Mitchell & Co. v. West, 748 F.2d 540, 541 (10th Cir. 1984) (emphasis added). This confusion may simply stem from the tension between narrowly construing privilege to maximize fact gathering, while vigorously protecting privilege in the appropriate cases of non-waiver. Ultimately, once a privilege is properly claimed and presumptively established, see FED. R. CIV. P. 26(b)(5), asserted waivers should be conservatively applied and narrowly drawn, see, e.g., FED. R. EVID. 502(a).
Notably, the case at bar does not involve coerced Gates communications, such as pursuant to subpoena.
It is unclear whether CRP has in fact proffered any prima facieevidence of its own actionable acts or omissions to trigger accrual and a burden on Gates.
The undersigned is puzzled how the trial court in League even knew that Mr. League’s former attorney was available to be the sole informed witness to speak out against his own corporate client’s minority shareholder – this thus appears more appropriately to be a crime-fraud case along the lines of DiFede, discussed at length in today’s Preliminary R&R I. Absent that “insight” by the League trial court, it is not clear the case would have come out the same way.
Abrogated on other grounds by Mohawk Indus., Inc. v. Carpenter, 558 U.S. 100 (2009) (holding that appellate review of district court order vitiating privilege was improvident collateral order).
As a suggestion before submission, Gates is encouraged to review the Plaza Insurance case around footnotes 5 & 8 and Magistrate Judge Shaffer’s reminder that non-substantive emails are not privileged. A revised log in that light will be appreciated and will not be considered by the undersigned to be any type of admission by Gates regarding the proper contents of its original log.