In deciding this motion, the Special Master has considered the following items: (1) Defendants Philidor's and Davenport's Memorandum of Law and attached exhibits; and (2) Plaintiffs’ Memorandum of Law in opposition and attached exhibits. Defendants did not supply a reply Memorandum. For the reasons to be set forth more fully in this Opinion, Defendants’ motion is DENIED.

I. Procedural History and Statement of Facts

Plaintiffs have brought suit against Valeant Pharmaceuticals, Inc. (“Valeant”) and others (including Philidor and Davenport) on behalf of a putative class of third party payors (“TPPs”) alleging violations of 18 U.S.C. § 1962(c) and 18 U.S.C. § 1962(d). The TPPs claim that they were forced to pay inflated prices for Valeant's branded drugs through Philidor or its affiliates and now seek money damages.

At the heart of Plaintiffs’ allegations is an assertion that Philidor, essentially an arm of Valeant, established a network of allegedly independent pharmacies, actually controlled by Philidor, to deceive third party payors. They claim that Philidor and Davenport did so by using multiple Philidor-controlled pharmacies to process prescriptions for expensive Valeant branded drugs. Using National Provider Identifier (“NPI”) and National Counsel for Prescription Drug Programs (“NCPDP”) numbers – unique identifiers – Defendants tricked Plaintiffs into believing that the prescriptions were not coming from a single source, that is, Philidor. Had Plaintiffs seen that the true volume of Philidor-controlled prescriptions were coming from a single pharmacy, or had they known that the independent pharmacies were in fact Philidor controlled, they would have refused to reimburse the cost of Valeant branded drugs and insisted on the substitution of less expensive generics. Plaintiffs describe this as a game of “Whack A Mole,” a strategy designed to repeatedly deceive the payors into thinking that the reimbursement requests derived from different and independent pharmacies, not one source – Philidor.

Plaintiffs further charge that Philidor and Davenport used the services of two law firms to perpetrate the fraud – Bass, Berry & Sims (“Bass, Berry”) and Duane Morris. Bass, Berry is former counsel to Defendants; Duane Morris currently represents Philidor in a related matter. In essence, it is Plaintiffs’ position that the two firms counseled Philidor on the “Whack A Mole” strategy. Consequently, Plaintiffs have served Defendants with notices of intent to serve subpoenas on the law firms.[2] The subpoenas seek communications between the law firms and Defendants regarding contracts with pharmacies, the establishment of pharmacies by Philidor, acquisitions of or intent to acquire pharmacies, prescription processing and requests for payment for prescriptions related to Philidor and any captive pharmacies or affiliated pharmacies. The subpoenas to each firm are essentially identical. Each one clearly requests that the firms produce all communications “concerning requests for advice” and “advice” as to these topics. Therefore, there is no dispute that the subpoenas seek what would normally be considered communications between attorneys and their clients.

II. Defendants’ Argument

*2 Defendants have submitted a three page brief and no reply. Citing “black-letter law,” Philidor and Davenport merely urge that communications between Philidor and its current and former attorneys are privileged and that “a significant amount” of the information sought is subject to either the attorney-client privilege and/or work product protection. They do not object to production involving third parties such as Valeant but object to communications between any Philidor employees (including Davenport) and the company's attorneys.

Defendants do not in any way address or anticipate arguments that Philidor has waived the attorney-client privilege or that the communications between the two firms and Philidor may constitute the crime-fraud exception to the attorney-client privilege.

III. Plaintiffs’ Argument

Unlike Defendants, Plaintiffs have submitted a comprehensive brief in opposition to the motion to quash.

Broadly speaking, Plaintiffs argue that the motion should be denied for two reasons: (1) that the attorney-client privilege has been waived; and (2) on the basis of the crime-fraud exception. Plaintiffs emphasize, however, that the Court need not reach the point where it must consider the crime-fraud exception given ample proof that the privilege has been waived.

Plaintiffs lay out a detailed factual predicate for the proposition that Philidor has waived the attorney-client privilege. They point to four “occasions” or circumstances demonstrating the waiver. Those occasions can be summarized as follows:

With this said, Plaintiffs address a vague assertion by Defendants that the communications are also protected by the work product doctrine. [Defendants’ Memorandum only peripherally references work product with no explanation, nor support as to how it relates here.] Briefly stated, Plaintiffs’ assert that the doctrine only applies to legal work product prepared “in anticipation of litigation or for trial.” Instead, however, they say it is evident that the law firms were providing business regulatory corporate advice, not litigation advice, and therefore it is not work product.

Finally, as an alternative, Plaintiffs maintain that the crime-fraud exception applies. That is, as outlined above, the evidence demonstrates that Philidor and Davenport used the law firms’ collective advice to perpetrate a fraud. They say they have made a prima facie showing that the client – Philidor – committed or intended to commit a crime or fraud and that the communications were in furtherance of that intention. Given this, Plaintiffs argue, the Court should deny the motion to quash in its entirety or require the law firms to produce documents for in camera review – and without further privilege review by Defendants’ counsel.

IV. Findings

Before addressing the governing law pertinent to this motion and the Special Master's findings based upon those settled principles, it should be reiterated that when filing this motion, Plaintiffs did not include and wholly failed to address in any substantive manner, waiver of the attorney-client privilege and, for that matter, Plaintiffs’ alternative argument that the communications between the subpoenaed law firms and the Defendants were exempt from privilege as a consequence of the crime-fraud exception. The Special Master finds that it should have been evident to the moving parties that Plaintiffs would undoubtedly respond to this motion by raising waiver and (possibly) the crime-fraud exception, yet Defendants have been strikingly silent in respect to easily anticipated arguments.

Plaintiffs, on the other hand, fearing that Defendants might belatedly file a reply, have argued that it is inappropriate for a moving party to introduce new facts or different legal arguments in a reply brief than those presented in the moving papers. Citing United States v. Duronio, No. CRIM.A. 02-0933 JAG, 2006 WL 3591259, at *4 (n.1) (D.N.J. Dec. 11, 2006), aff'd, No. 06-5116, 2009 WL 294377 (3d Cir. Feb. 9, 2009) and also Lunderstadt v. Colafella, 885 F. 2d 66, 78 (3d Cir. 1989) and Dana Transp., Inc. v. Ableco Fin., LLC, No. CIV.A. 04-2781, 2005 WL 2000152, at *6 (D.N.J. Aug. 17, 2005). However, having failed to submit a reply, these concerns are moot and need not be addressed by the Special Master.

With that said, the Special Master's findings in this motion were based upon an analysis of case law concerning waiver of the attorney-client privilege giving deference to those aspects of the law which address when waiver is appropriate and when it is not.

*4 As our courts have stated in many contexts, the attorney-client privilege represents the “oldest of the privileges for confidential communication known to the common law.” Upjohn Co. v. U.S., 449 U.S. 383, 389, 101 S. Ct. 677, 66 L. Ed. 2d 584 (1981). As lawyers recognize, the privilege was designed to foster disclosure and communication between the attorney and client and we have tolerated this exception to the otherwise broad discovery policy embodied in Federal Rule of Civil Procedure 26 on the grounds that “sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer's being fully informed by the client.” Id. See also, Schwarz Pharma., Inc. v. Teva Pharms. USA, Inc., No. CIV A 01-4995 (DRD), 2007 WL 2892744, at *2 (D.N.J. Sept. 27, 2007).

Hence, when the attorney-client privilege is raised, a court must look closely in determining whether this “oldest of privileges” is protected against intrusion or whether it is being used as an inappropriate shield against the otherwise very liberal discovery policies embodied in our court rules. As Plaintiffs correctly state, it is the party asserting the attorney-client privilege that bears the burden of proving that it applies to the communications at issue. Smithkline Beecham Corp. v. Appotex Corp., 232 F.R.D. 467, 472 (E.D.Pa 2005) (citing In Re Grand Jury Investigation, 599 F. 2d 1224, 1235 (3d Cir. 1979)).

Normally, a party asserting the attorney-client privilege must provide a court with sufficient information to support a finding that certain elements of the privilege are satisfied. Briefly stated, those elements are that the privilege holder is a client, that the communication was made to an attorney or an attorney's subordinate, for the purpose of securing a legal opinion, legal services, or assistance in a proceeding, not for the purposes of committing a crime or tort, and that the privilege has been claimed – and not waived – by a client. Rhone-Poulenc Rorer v. Home Indemnity, 32 F. 3d 851, 862 (3d Cir. 1994). In other words, “[t]he central inquiry is whether the communication was made by a client to an attorney for the purpose of obtaining legal advice.” In Re Spaulding Sports Worldwide, 203 F. 3d 800, 805 (Fed. Cir. 2000). In this particular circumstance, however, there is no doubt that the communications involved are those between an attorney (the two law firms) and a client (Philidor and its CEO) which constitutes recognized legal advice. Indeed, Plaintiffs do not in any way suggest that the basic elements of the attorney-client privilege are wanting. The only issue, therefore, is whether the privilege has been waived, bursting the bubble and permitting disclosure of the communications to/from Defendants and the two law firms.

The arguable protections from disclosure of these communications available to Defendants are the attorney-client privilege (described above) and work product protection. Before addressing the attorney-client privilege, the Special Master will turn to whether work product protection applies here. Defendants in their Memorandum of Law at page 3 devote a portion of a single sentence to this issue: “Furthermore, a significant amount of the information sought in these subpoenas is subject to attorney-client privilege and/or work product protection.” That is all. Defendants do not describe in any fashion how the advice purportedly given by the two firms comes under the rubric of “work product” and therefore potentially subject to protection.

Federal Rule of Civil Procedure 26(b)(3)[4], subtitled “Trial Preparation: Materials” encompasses the work product doctrine or protection. In pertinent part, it reads:

The Rule then goes on to provide exceptions to this statement, none of which are applicable here. Additionally, the Rule obligates a party withholding information either as a result of a privilege claim or on the basis that the information constitutes work product to specifically delineate the claim and to adequately describe the nature of the documents, communications or tangible things the party has refrained from producing. See Rule 26(b)(3). Therefore, the issue is whether the advice which underlies this motion which was exchanged in writing between the two law firms and Defendants was or was not prepared “in anticipation of litigation or for trial.”

The Special Master finds that the communications at issue did not in any sense encompass advice “in anticipation of litigation or for trial.” In fact, an analysis of the advice given creates the impression of being quite the opposite, i.e., a method to (at best) explain or excuse an arguably questionable business practice or (at worst) to hide that practice and thereby raise no suspicions of illegality. Based on the undisputed information provided to the Special Master in connection with this motion, it clearly appears that the Bass, Berry and Duane Morris law firms were engaged by Defendants to, among other things, provide counsel as to an ongoing, broad strategy regarding Philidor's acquisition of and use of allegedly independent pharmacies. The purpose in doing this, Plaintiffs allege, was to construct a strategy to deceive third party payors into providing reimbursement for prescriptions seemingly dispensed by multiple, independent pharmacies but, in fact, dispensed by a single pharmacy – Philidor. This strategy to some degree was memorialized in emails and attachments ultimately passed along to the principle of R & O Pharmacy in an effort to dissuade the owner from taking further action. While the advice arguably and purportedly constituted a legal strategy to satisfy state laws and regulations, it was nevertheless a strategy designed to ultimately prevent third party payors from becoming suspicious of claims for reimbursement and, as a result, ceasing to make payments. This was not advice in anticipation of or for pending litigation but advice integral to an ongoing business plan or, as Plaintiffs say in their Memorandum, “strategic business regulatory corporate advice” or “regulatory advice about structuring its pharmacy.”

Work product protection exists when a document was prepared or obtained: “(1) in anticipation of litigation; and (2) primarily for the purpose of litigation.” In Re Gabapentin Litig., 214 F.R.D. 179, 183-84 (D.N.J. 2003). The party asserting the protections bears the burden of “demonstrating that the documents at issue were ‘prepared in anticipation of litigation.’ ” Id. at 183 (quoting Conoco, Inc. v. U.S.Dept. of Justice, 687 F. 2d 724, 730 (3d Cir. 1982)). To meet the anticipation of litigation standard, the party must show more than a “remote prospect” or “likely chance of litigation.” Id. (citations omitted). Generally, the party must demonstrate the “existence of an identifiable specific claim or impending litigation at the time the materials were prepared,” and the Court looks to the motivating purpose behind the creation of the document. SmithKline Beecham Corp. v. Apotex Corp., 232. F.R.D. 467, 473 (E.D.Pa. 2005) (citations omitted). None of this criteria for work product protection has been demonstrated here.

*6 In summary, the Special Master finds that the communications at issue did not constitute work product and are not protected by Rule 26(b)(3)(A). Therefore, there is no need to explore whether Defendants also waived this work product privilege.

Defendants have also failed to meet their required burden to demonstrate that the attorney-client privilege prohibits the disclosure of the communications sought in the subpoenas served on the two law firms, Bass, Berry and Duane Morris. Indeed, Defendants have not even attempted to address this requirement.

Reviewing the factual circumstances which form the basis of this motion, it is difficult to understand how Defendants could have met that burden, even if they had tried. Their actions strongly suggest, as Plaintiffs argue, that they have employed or are in the process of employing the attorney-client privilege as both a sword and a shield without a legally recognized basis for doing so.

Defendants’ actions, which constitute what the Special Master finds were waivers of the privilege, are set forth above but will be briefly reiterated here. Defendants, in an effort to mollify a disgruntled pharmacy owner, sought out and then willingly passed along legal advice from their attorneys concerning a so-called “central processing arrangement,” thereby disguising the true nature of Philidor's prescription-reimbursement strategy.[5] Although the legal opinions concluded that the “central processing arrangement” was likely not illegal (hardly a ringing endorsement), Defendants did not hesitate to pass along what would otherwise be sensitive and protected attorney-client communications to a third party (Reitz of R & O Pharmacy) – but only because the attentive Reitz threatened to, in effect, blow the whistle on this arrangement. Also, in the midst of an arbitration proceeding in which Philidor sought reimbursement from a PBM which had withheld payment, its CFO willingly gave testimony without objection to the same legal advice and same communications generated from the attorneys, stressing the purported legality of this practice – again in a (presumably failed) effort to seek reimbursement from a PBM.

Similarly, revelation of the communications with Philidor's attorneys provided a benefit in the criminal case (against Davenport) and in a California Department of Insurance investigation. Then, in the course of this matter, Defendants voluntarily produced documents containing this legal advice with no attempt at a “claw back” strongly suggesting (as Plaintiffs argue) that an “advice of counsel” defense is waiting in the wings.

All of this strongly supports the conclusion that Defendants are using the attorney-client privilege as a sword and then as a shield depending upon whether the revelation of arguably privileged advice of counsel is beneficial to them or detrimental to them at a given time and in a given circumstance. The examples set forth above demonstrate that. Therefore, the Special Master finds that Defendants have wholly failed to meet their burden to demonstrate that the attorney-client privilege applies to the subpoenaed communications and has not been waived by their conduct. As Plaintiffs correctly assert, the attorney-client privilege is waived if the communications are shared beyond those with a need to know, and such is the case here. See SmithKline Beecham Corp. v. Apotex Corp., 193 F.R.D. 530, 538 (N.D.Ill. 2000); see also Traficante v. Homeq Servicing Corp., No. 09-746, 2010 WL 3167435, at *1 (W.D.Pa. Aug. 10, 2010). Further, Defendants bear the burden of establishing every element of attorney-client privilege, including that the communication was made in confidence and the privilege has not been waived. Schwarz Pharma., Inc. v. Teva Pharma. USA, Inc., No. 01-4995, 2007 WL 2892744, *2 (D.N.J.) (Sept. 27, 2007).

*7 Contrary to Defendants’ brief assertion in their moving papers, the subpoenas at issue are not overly broad and, in any event, with the Special Master having found that the attorney-client privilege has been waived, Defendants’ statement that there was “no effort to narrowly tailor their requests” is of no moment. Nevertheless, to be abundantly clear, the Special Master finds that Plaintiffs are entitled to only those exchanges to and from counsel (documents, communications, and ESI) concerning advice or requests for advice that reasonably arise out of Defendants’ acquisition of, control over, or employment of pharmacies as part of an alleged plan to disguise Phlidor's true involvement. Hence, Plaintiffs are not entitled to advice or counsel rendered by the two law firms on any and all topics relating to Philidor's business practices (assuming that such communications exist) but only to those communications which in any way touch upon this strategy. In reviewing the subpoenas, however, the Special Master believes the requests are tailored sufficiently to that issue and, as such, the Special Master will require production of all communications described in the subpoenas.

Finally, as an alternative basis for compelling a response to the subpoenas, Plaintiffs have argued that the evidence establishes that Defendants used the advice received from the Bass, Berry and Duane Morris law firms to perpetrate a fraud, if not a crime. However, the Special Master having found that Defendants waived the attorney-client privilege, as Plaintiffs also argue, there was no necessity to and the Special Master did not examine whether the crime-fraud exception provided an independent basis to compel responses to the subpoenas.

VI. Conclusion.

For the reasons previously set forth, Defendants’ motion to quash subpoenas is DENIED. Accordingly, the Special Master also orders that the law firms, Duane Morris, LLP and Bass, Berry & Sims, PCL, respond to the subpoenas by submitting responsive communications directly to Plaintiffs.

Defendants’ notice of motion is captioned, “to Dismiss Plaintiffs’ Amended Consolidated Action Complaint,” but, in fact, the motion seeks to quash certain subpoenas.

For simplicity's sake, these documents will simply be referred to as subpoenas.

Hess was precluded from testifying at trial on relevancy grounds but the court transcripts indicate that the defense intended to proffer this testimony.

All subsequent references to a Rule are references to a Federal Rule of Civil Procedure.

The irony is lost on no one that this strategy was entitled “Operation WAM” in internal Philidor communications. [See Plaintiffs’ Exhibit 3.]