MDL CAPITAL MANAGEMENT, INC., ET AL., Plaintiffs, v. FEDERAL INSURANCE COMPANY, Defendant 05cv1396 United States District Court, W.D. Pennsylvania Filed May 15, 2006 Counsel James S. Malloy, Joseph L. Luciana, III, Dingess, Foster, Luciana, Davidson, & Chleboski, LLP, Pittsburgh, PA, Percy Squire, Pro Hac Vice, Percy Squire Co., LLC, Columbus, OH, for Plaintiff MDL Capital Management, Inc. James S. Malloy, Joseph L. Luciana, III, Dingess, Foster, Luciana, Davidson, & Chleboski, LLP, Pittsburgh, PA, Percy Squire, Percy Squire Co., LLC, Columbus, OH, for Plaintiff Mark D. Lay. James S. Malloy, Joseph L. Luciana, III, Dingess, Foster, Luciana, Davidson, & Chleboski, LLP, Pittsburgh, PA, for Plaintiffs Steven L. Sanders, Edward Adatepe. Daniel J. Standish, Kimberly M. Melvin, Mary E. Borja, Wiley, Rein & Fielding, Washington, DC, Dennis St. J. Mulvihill, Robb Leonard Mulvihill LLP, Pittsburgh, PA, for Defendant. McKenna, J. Frank, Special Master SPECIAL MASTER’S REPORT AND RECOMMENDATIONS I. Introduction *1 This is the Report and Recommendations of the Special Master appointed by the Court by its Order dated May 3, 2006. Plaintiffs filed a Motion to Compel Federal Insurance Company to Produce Wrongfully Withheld Documents. The Court Order dated May 3, 2006 directs the Special Master to review the Plaintiffs’ motion and the Defendant’s response thereto, and to conduct an in camera review of the documents listed on Attachment A of the Plaintiffs’ motion. II. Information Reviewed In preparing this Report and Recommendation, I reviewed the following information: 1. Plaintiffs’ Motion to Compel Federal Insurance Company to Produce Wrongfully Withheld Documents; 2. Brief In Support of Plaintiffs’ Motion to Compel Federal Insurance Company to Produce Wrongfully Withheld Documents; 3. Declaration of Edward W. Diggs, with 11 Exhibits attached thereto; 4. Federal Insurance Company’s Opposition to Plaintiffs’ Motion to Compel; 5. Declaration of Brendan R. Kelley; 6. Declaration of Mary E. Borja, with Exhibits A-D; 7. A binder entitled Privileged Documents Submitted to Special Master J. Frank McKenna for In Camera Review Only Pursuant to the Court’s May 3, 2006 Order; 8. A transmittal letter from Mr. Standish dated May 8, 2006 enclosing the documents to be reviewed; and 9. A letter dated May 10, 2006 sent to me by Ms. Borja at my request to identify individuals who may be referred to in the documents being reviewed by initials or first name. III. Legal Standards The Defendant asserts that 31 of the 32 documents listed on Exhibit A to the Plaintiffs’ motion are not required to be produced because they are protected by the attorney client privilege, the work product doctrine, or both. The last document, FED 01313, is a duplicate of a document already produced, and no protection is asserted for this document. Under Pennsylvania law, the attorney client privilege is governed by statute. See 42 Pa. Cons.Stat. Ann. § 5928. As stated in Garry McCrink et. al v. People Benefit Life Insurance Co., 2004 U.S. Dist. Lexis 23900, 60 Fed. R. Serv. 3d 86 (E.D. Dist. Pa.), the statute identifies four elements required to assert the privilege: 1) the asserted holder of the privilege is or sought to become a client; 2) the person to whom the communication was made is a member of the bar of a court, or his or her subordinate, and is acting as a lawyer in connection with the communication; 3) the communication relates to a fact of which the attorney was informed by the client without the presence of strangers for the purpose of securing primarily either an opinion of law, legal services or assistance in some legal proceeding, and not for the purpose of committing a crime or tort; and 4) the privilege has been claimed and not waived by the client. These elements have been similarly stated by the Third Circuit as follows: (1) the asserted holder of the privilege is or sought to become a client; (2) the person to whom the communication was made (a) is a member of the bar of a court, or his or her subordinate, and (b) in connection with this communication is acting as a lawyer; (3) the communication relates to a fact of which the attorney was informed (a) by his client, (b) without the presence of strangers, (c) for the purpose of securing primarily either (i) an opinion of law or (ii) legal services or (iii) assistance in some legal proceeding, and (d) not for the purpose of committing a crime or tort; and (4) the privilege has been (a) claimed and (b) not waived by the client. *2 Rhone-Poulenc Rorer v. Home Indem. Co., 32 F.3d 851, 862 (3d Cir. 1994). The work product doctrine protects material prepared by an attorney as well as material prepared for an attorney in preparation for possible litigation. Safeguard Lighting Systems Inc. v. North American Specialty Insurance Co. 2004 U.S. Dist. Lexis 26136, (E.D.Pa.). Such documents must be fairly said to have been prepared or obtained because of the prospect of litigation. In Re Painted Aluminum Products Antitrust Litigation, 1996 WL 397472 (E.D.Pa.). The primary motivating purpose behind the creation of the document should be to aid in possible future litigation in order to invoke the work product doctrine. Id. at FN 3. IV. In Camera Review of the Documents Applying these standards, I make the following recommendations with respect to the in camera review of the documents submitted to me for review. 1. FED 01672-01675, FED 01676-01679, FED 01685-01687, FED 01689-01691, FED 02659-02661, FED 03097-03099, FED 03203-03205. These documents are all either the same document, or a variation of the same document. The document is a report with legal advice and recommendations to management of Federal responsible for the MDL policy issues. It contains specific legal advice from outside counsel. The first two documents, FED 01672-01675 and FED 01676-01679, represent specific communications between Mr. Kelley and Mr. Adams as the document was being prepared. Mr. Adams is identified as ‘claims counsel’ for Federal. (See Declaration of Brendan R. Kelley, ¶ 4) FED 02659-02661 and FED 03097-03099 are copies of the same document as it was sent. It was sent to Lynn Neville, who is an attorney licensed in two states and the District of Columbia. (See Borja Declaration, Ex. A). However, Federal does not contend that it was sent to Ms. Neville to receive legal advice (See Diggs Declaration, Ex. 10). Rather, Ms. Neville is in management and is receiving a report containing legal advice and recommendations. “[D]ocuments subject to the privilege may be transmitted between non-attorneys... so that the corporation may be properly informed of legal advice and act appropriately.” SmithKline Beacham Corp v. Apotex Corp. 232 F.R.D. 467, 477 (E.D. Pa. 2005). FED 03203-03205 is also a copy of the same document with some very minor handwritten notes in the margin. The redacted portions of FED 01685-01687 and FED 01689-01691 are also the same document. All of these documents contain attorney client communications, and are protected by the attorney client privilege. Federal also asserts that the work product doctrine applies to these documents. The date of these documents is in mid-September, 2005. They were prepared after the Ohio Litigation, and only shortly before this action was filed. They were prepared after outside counsel was retained to represent Federal in the claim by MDL, and the documents include outside counsel’s legal advice. They also reflect some of the investigative work performed by both inside and outside counsel, and therefore are entitled to protection under the work product doctrine. *3 2. FED 02586, FED 02591-02593, FED 02610-02616, FED 02617-02621, FED 02633-02642, FED 02643-02658, FED 02903-02933. These documents are notes maintained by Mr. Kelley. Mr. Kelley is a claim representative for Federal (Kelley Declaration ¶ 1). The Federal log asserts that these notes reflect “communications and advice of counsel regarding coverage issues.” Federal asserts that these notes are protected by the attorney client privilege and the work product doctrine. MDL objects because no attorney is listed with whom the communications were had, and objects to a blanket assertion of the work product doctrine. In response, Federal submitted the Declaration of Mr. Kelley, who states that these notes “...reflect direct communications with and advice and recommendations of outside counsel at Wiley Rein & Fielding regarding coverage issues now in dispute in this litigation for purposes of required internal corporate reporting on these types of issues.” (Kelley Declaration ¶ 5) All of these notes except FED 02903-02933 are handwritten notes, and in some instances are difficult to read. However, there are references in the handwritten notes at various places that seem to confirm that Mr. Kelley is communicating with, or reporting on, discussions with either Mr. Standish or Ms. Melvin of Wiley Rein & Fielding. There also is an indication that he is communicating in some instances with Mr. Adams, in house counsel, or Mr. Smith, also with Wiley Rein & Fielding. The substance of the notes seems for the most part to be an analysis of the situation in August and September of 2005, and results of the Federal investigation to that point. There are specific instances of legal advice received at various points in the notes. One of these documents, FED 02643 -02658, contains detailed notes of information being conveyed to the Federal attorney (Mr. Standish) for the purpose of receiving his advice and as part of his investigation. To the extent outside counsel is participating in these conversations and all of these notes reflect and include both requests for and advice of outside counsel, they are covered by the attorney client privilege. Although the notes contain, in some instances, what appears to me to be a recitation of facts discovered in the investigation that Federal was conducting, it appears that the facts reported are part of the discussion Mr. Kelley states was being had with outside counsel and necessary in order to request and receive the legal advice and to inform others in Federal of the status of the investigation. In light of the Declaration of Mr. Kelley that these notes reflect direct communications with outside counsel, these notes are entitled to the protection of the attorney client privilege. FED 02903 – 02933 is described in the Federal Privilege Log as “Electronic claim notes reflecting communications and advice of outside counsel regarding coverage issues and attorney work product”. These notes were maintained by Mr. Kelley after the MDL action was filed, and cover the period of October 13, 2005 to February 17, 2006. I reviewed all of these notes, and except for the pages identified below, this document contains specific legal advice from outside counsel regarding this lawsuit. The pages that contain non-privileged information are the following: 1) the top half of page FED 02903: 2) beginning with the word “also” on page FED 02906 through the middle of page FED 02908; 3) the email from Mr. Diggs on page FED 02923; and 4) page FED 02925 through the middle of page FED 02929 where the reference is to Kirkpatrick & Lockhart Nicholson Graham LLP. *4 These notes, except as set forth above, also fall within the work product doctrine. They are part of the investigation by Federal into the claims of MDL that grew out of the letters exchanged between the parties in June and July 2005, which claims apparently became the basis of this lawsuit filed in October, 2005. Therefore, Mr. Kelley’s notes of his investigation and communication with counsel fall within the work product doctrine. These notes do not seem to have been made in the “ordinary course of business” but rather as part of Mr. Kelley’s role in investigating the claim and interacting with counsel to do so. See, State Farm Automobile Ins. Co. et.al. v. Metropolitan Family Practice, 2005 U.S. Dist. LEXIS 32620 (E.D. Pa.), The notes and documents of an employee prepared as part of the initial investigation of a claim made in anticipation of litigation can be protected as part of the work product doctrine. See e.g. Hayden v.Acadian Gas Pipeline System 173 F.R.D. 429 (E.D.La. 1997). 3. FED 02747, FED 02900, FED 02902 The redacted portions of these three documents are not entitled to protection from discovery and should be produced. FED 02747 merely contains distribution information about the document itself. Since Federal does not claim FED 02747 is entitled to protection, transmittal information about it is not protected. There is no request for legal advice or any other protected information in the redacted portion of this document. FED 02900 contains two redactions. The top redaction is merely a reference to transmittal of information to a lawyer; there does not appear to be any request for legal advice, or other protected communication in the redacted language. Similarly, the second redaction merely refers to a meeting with a lawyer, but it does not contain any confidential information or otherwise reflect any protected information. FED 02902 is redacted in its entirety except the first 3 lines at the top of the page. The bottom half of the page should not have been redacted since it contains a copy of an email from counsel for MDL. The top portion of the redacted information also seems merely to be information regarding scheduled meetings with counsel, but does not in and of itself reflect any confidential communications, legal advice or mental impressions that would be protected either by attorney client privilege or the work product doctrine. Federal also contends that this document reflects “...activities of and advice of outside counsel...” I did not see any advice of counsel in this document, although there is a reference to “activities” of counsel. The reasoning for the production of this document is the same as set forth for document FED 01585 - 01586, described below. The results of the activity of counsel in performing investigative and preparatory work would be protected by the work product doctrine, but the mere fact that counsel performs a commonplace function as part of his representation is not protected. 4. FED 01264, FED 01307-01308, FED 01314, FED 02723, FED 02865-02866, FED 02974 These six documents all relate to the same two paragraphs that have been redacted from each of the six documents. I have reviewed the redacted language and it does reflect specific advice to be sought from the “GC”, which presumably means the General Counsel. From the letter of May 10, 2006 and the Federal Privilege Log, it seems that the advice was sought from Gail Arkin, who is either General Counsel or an attorney in the General Counsel’s office. In either event, this redaction is proper under the attorney client privilege because it represents a communication made regarding a specific request for legal advice. This redaction does not seem to me to be covered by the work product doctrine as asserted by Federal. 5. FED 01905, FED 01906, FED 01908, FED 02669 These four documents all involve the same one sentence redaction. The Federal Privilege Log states this redaction includes the “...advice of outside counsel regarding coverage issues.” MDL objects because no outside counsel is identified on the log. Federal should identify the specific attorney rather than a mere reference to counsel. SmithKline Beacham Corp., 232 F.R.D. at 485. In my review of the redacted language, there is a reference to “Bill”, which I have been told is one of the Wiley Rein & Fielding lawyers, Bill Smith. (See letter of May 10, 2006). The redacted language contains a reference to discussions with “Bill” and refers to a clear legal subject matter of the discussion. The attorney client privilege is designed to protect confidences exchanged between an attorney and client. The subject matter of this redaction would fall in that category, and is protected. *5 6. FED 01592, FED 03199-03202, FED 02962-02963 FED 01592 contains a short, two sentence redaction. This redaction refers to a specific legal issue being discussed with Mr. Standish of Wiley Fein & Fielding. It is entitled to the protection of the attorney client privilege. FED 03199-03202 is a document described on the Federal Privilege Log as handwritten notes of Lynn Neville. This document is also covered in the Declaration of Brendan R. Kelley. (¶ 5) Mr. Kelley states that FED 03199-03202 reflects some of the advice of outside counsel received by Mr. Adams and Mr. Kelley that they then reported to Ms. Neville. My review of these notes shows that they cover the same material, they are in the same time frame, and they contain specific references to legal advice and follow-up items. These notes are entitled to the protection of the attorney client privilege. FED 02962- 02963 is also protected by the attorney client privilege. Mr. Kelley received specific legal advice from Wiley Rein & Fielding and forwarded it to Mr. Adams, with some comments on it. This document also represents the work product of Wiley Rein & Fielding and is also protected for that reason. 7 FED 01585-01586 This document contains a short email exchange with three emails between Mr. Kelley and Ms. Scott that simply report on a meeting that is going to occur a few days after the date of the emails. There is no confidential information conveyed, no request for legal advice and no lawyer included in the email exchange. Federal’s basis for the claim of protection is that one of these emails refers to “...activities of outside counsel undertaken at client request concerning coverage issues and concerning attorney work product.” (Federal Privilege Log) The document does refer to a work product effort of counsel, and that work product effort is protected by the work product doctrine. There are a number of cases on this point that I cite in the Addendum to this Report. It is not clear to me why a mere reference in an otherwise unprotected email to the fact that counsel performed this “activity”, which is fairly commonplace and routine, would make the entire email exchange protected. In my opinion, FED 01585-01586 is not protected, and should be produced, but the work product referred to therein is protected and is not required to be produced. Federal contends that the fact that this activity was undertaken by counsel is in itself protected. For that reason, I did not describe the activity specifically in this Report and Recommendation, because in so doing I would be disclosing information Federal contends is entitled to protection. In order to give Federal the opportunity to challenge this recommendation, and in order to not disclose the “activity” while they so decide, I have set forth the reasoning for this portion of the Report and Recommendations in the Addendum and will file it under seal, with a copy to Federal. Although I do not believe that the mere description of the “activity” is entitled to protection, by taking this approach the alleged confidence will not be lost in the event that I am wrong. *6 This reasoning also applies to the letter of May 8, 2006 received from counsel for Federal when the documents for in camera review were transmitted to me. That letter was not copied to counsel for MDL for the same reason; it refers to and provides a very short explanation of the activity Federal believes is confidential and entitled to protection. Again, I agree the activity is entitled to protection, but I don’t believe a mere statement that Federal’s counsel performed the activity is protected. Therefore, I am including the letter of May 8, 2006 as part of the Addendum filed under seal so that the record is complete as to the information I had available to me to perform this in camera review. I am providing it under seal in the event that I am wrong and the mere description of the activity is entitled to protection. V. Recommendations For the foregoing reasons, I make the following recommendations: the Plaintiffs’ Motion to Compel Federal Insurance Company to Produce Wrongfully Withheld Documents should be granted in part and denied in part by the Court as follows: 1. The following documents are entitled to protection from discovery for the reasons stated above and the Plaintiffs’ motion should be denied insofar as it applies to these documents or the redacted portions thereof: FED 01672-01675, FED 01676-01679, FED 01685-01687, FED 01689-01691, FED 02659-02661, FED 03097-03099, FED 03203-03205, FED 02586, FED 02591-02593, FED 02610-02616, FED 02617-02621, FED 02633-02642, FED 02643-02658, FED 01264, FED 01307-01308, FED 01314, FED 02723, FED 02865-02866, FED 02974, FED 01905, FED 01906, FED 01908, FED 02669, FED 01592, FED 03199-03202, and FED 02962-02963. 2. The following documents are not entitled to protection from discovery for the reasons stated above and the Plaintiffs’ motion should be granted insofar as it applies to these documents, or the redacted portions thereof: FED 01313, FED 02747, FED 02900, and FED 02902. 3. The electronic notes of Mr. Kelley (FED 02903-02933) are entitled to protection from discovery for the reasons set forth herein and the Plaintiffs’ motion should be denied with respect to this document, except for the following pages or portions of pages, as to which the motion should be granted: 1) the top half of page FED 02903; 2) beginning with the word “also” on page FED 02906 through the middle of page FED 02908; 3) the email from Mr. Diggs on page FED 02923; and 4) page FED 02925 through the middle of page FED 02929 where the reference is to Kirkpatrick & Lockhart Nicholson Graham LLP. 4. Document FED 01585-01586 is not entitled to protection and should be produced, but the activity of counsel described in this document (and in FED 02902) is work product and is entitled to protection from discovery. The Plaintiffs’ motion should be granted with respect to this document, but not with respect to the activity disclosed therein. 5. The information in the Addendum to this Report should be made available to MDL so that MDL has an opportunity to object to it if it so desires. s/ J. Frank McKenna Pa I.D. 17361 Reed Smith LLP 435 Sixth Avenue Pittsburgh, PA 15219 Special Master per Court Order Dated: May 3, 2006 CERTIFICATE OF SERVICE I CERTIFY THAT PURSUANT TO Rule 53(f) a copy of the foregoing Special Master’s Report and Recommendations has been served on counsel of record by electronic transmission on this 15th day of May, 2006, except the Addendum, which has been filed under seal with a copy only to counsel for Federal for the reason stated in the Report.