Office Depot, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA
Office Depot, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA
2010 WL 11505167 (S.D. Fla. 2010)
August 17, 2010
Johnson, Linnea R., United States Magistrate Judge
Summary
The court found that the ESI was important in demonstrating that Office Depot reasonably anticipated coverage litigation from July 11, 2007. The court also found that the ARC communications between Office Depot and National Union were protected work product, and declined to find that Office Depot had waived a privilege as to documents other than those National Union had moved to compel.
OFFICE DEPOT, INC., Plaintiff,
v.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Defendant,
American Casualty Company of Reading, PA., Intervenor Defendant
v.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Defendant,
American Casualty Company of Reading, PA., Intervenor Defendant
CASE NO. 09-80554-CIV-MARRA/JOHNSON
United States District Court, S.D. Florida
Signed August 17, 2010
Counsel
Edmund M. Kneisel, Brent W. Brougher, Kilpatrick Townsend & Stockton, LLP, Atlanta, GA, Joanne M. O'Connor, Sidney Alton Stubbs, Jr., Jones Foster Johnston & Stubbs, West Palm Beach, FL, Gwynne Alice Young, Carlton Fields, Tampa, FL, for Plaintiff.Gwynne Alice Young, Kevin P. McCoy, Sylvia H. Walbolt, Carlton Fields Jordan Burt Tampa, FL, Steven Jeffrey Brodie, Carlton Fields Jorden Burt, PA, Miami, FL, Craig Russell Glasser, Neil S. Baritz, Baritz & Colman LLP, Boca Raton, FL, Daniel J. Standish, Gary P. Seligman, John E. Howell, Wiley Rein & Fielding, Washington, DC, for Defendant/Intervenor Defendant.
Johnson, Linnea R., United States Magistrate Judge
ORDER DENYING MOTION TO COMPEL
*1 THIS CAUSE is before the Court on Defendant National Union's Motion to Compel Discovery and for Sanctions dated June 30, 2010 (D.E. #80). The undersigned entertained oral argument on the Motion on August 2, 2010, and at the same time reviewed in camera the documents withheld on the basis of privilege. That portion of the Motion seeking sanctions against Office Depot in the form of attorneys' fees has already been denied (D.E. #137). Having now considered the merits of Office Depot's privilege assertions, reviewed the record,[1] reviewed the memoranda submitted by the parties, heard oral argument and reviewed the documents that National Union seeks to compel in camera,[2] the Court denies the motion to compel for all of the reasons set forth below.
I. BACKGROUND
This is a dispute between Office Depot and National Union regarding National Union's obligations under a Directors and Officers Insurance Policy (“the Policy”) to reimburse Office Depot for defense costs incurred in connection with claims asserted by the Securities Exchange Commission (“SEC”) and by private parties who filed securities and derivatives lawsuits in the Southern District of Florida alleging violations of the securities laws. Office Depot contends, inter alia, that the more than $24 million in fees and costs it has incurred since July 11, 2007 in responding to various investigatory demands from the SEC on its own behalf and on behalf of certain senior officers are covered under the Policy. National Union has denied coverage for the majority of the defense costs Office Depot seeks to recover.
July 11, 2007 is the date on which Office Depot, through its insurance broker and claims consultant, ARC Excess & Surplus, LLC (“ARC”), submitted to National Union a “Notice of Circumstances” advising of the likelihood of securities claims arising out of matters reported in a June 29, 2007 Dow Jones Newswire article suggesting that Office Depot had violated SEC Regulation Fair Disclosure (“FD”) by improperly disclosing material information regarding projected profits and sales to certain financial analysts and before public release of the information. That article quoted former SEC Chairman Arthur Levitt as follows: “Without knowing all the details, I'd still say this certainly violates the spirit, if not the actual rule, of (Regulation) Fair Disclosure.” (emphasis added).
*2 Several days prior to the publication of the Dow Jones article, the Company's General Counsel had already initiated an internal investigation of the allegations raised therein. On June 28, 2007, one day before the article's publication, the Company's General Counsel sent a litigation hold to the Chief Executive Officer and other senior officers, making express reference to anticipated litigation with the SEC. A subsequent, more robust document hold was issued by the General Counsel on July 2, 2007.
Mr. Calkins attests that immediately following publication of the Dow Jones article, the Company anticipated that the SEC would commence an investigation into the events reported therein. He also anticipated that civil litigation with third parties would result and that both the investigation and ensuing claims would lead to significant fees and costs. In early July 2007, the Company's Board of Directors sent indemnification letters to a number of senior corporate officers recommending that such individuals retain separate legal counsel, and a number of those individuals promptly did so. Between July 6 and 11, 2007, Office Depot and four senior executives, including its CEO and CFO, retained outside counsel.
Approximately one week after the July 11, 2007 Notice of Circumstances, on July 17, 2007, the SEC did in fact commence an investigation of Office Depot by sending a letter seeking information regarding communications between Office Depot and financial analysts. ARC supplemented Office Depot's prior Notice of Circumstances with the SEC's July 17, 2007 correspondence on July 20, 2007. On August 22, 2007, Reed C. Kleinle of AIG Domestic Claims, Inc., acting on behalf of National Union, sent a letter advising that National Union would treat Office Depot's correspondence of July 11 and 20 as a “Notice of circumstances which may reasonably be expected to give rise to a claim in accordance with.... the Policy.” In July and early August 2007 the SEC identified more than thirty (30) Insured Persons and expanded its investigation of Office Depot beyond Regulation FD issues to include inventory accounting and other issues that could implicate the federal securities laws.
Less than four months after the SEC commenced its investigation, in early November 2007, Office Depot, its CEO, CFO and members of its board of directors were sued in this Court in shareholder derivative and securities class action lawsuits (the “Securities Lawsuits”). On January 8, 2008, National Union acknowledged those Securities Lawsuits as covered claims under the Policy. The consolidated derivative lawsuit was voluntarily dismissed in March 2009; the January 4, 2010 dismissal with prejudice of the consolidated class action lawsuit has been appealed to the Eleventh Circuit.
On January 10, 2008, the SEC filed a “Formal Order of Private Investigation” and subsequently began issuing subpoenas to Office Depot and certain Insured Persons. ARC, acting on behalf of Office Depot, advised National Union that it believed there was a covered “Claim” under the Policy. In response, National Union continued to assert that there was still no covered claim under the policy in February 2008. Office Depot and its CEO recently agreed to settle with the SEC, subject to approval by the Commission. Office Depot filed this coverage litigation in 2009.
Mr. Calkins, aside from the Deputy General Counsel, serves as chief litigation counsel for Office Depot and has considerable experience managing the Company's response to government investigations, highly complex litigation and numerous disputes and litigation matters with insurance carriers regarding coverage. He expected and was not surprised by the instant litigation with National Union. As detailed more fully, infra, Mr. Calkins believed it likely that a coverage dispute would arise with National Union from the time that Office Depot first tendered its claim on July 11, 2007 based on his experience with insurance carriers generally and with National Union in particular. Mr. Calkins averred that the Company asked ARC to provide notice to National Union on July 11, 2007 because “in [his] and the Company's judgment ARC was in the best position to maximize Office Depot's interests in obtaining coverage for what [the Company] expected to be considerable defense costs incurred by the various firms that had been retained, and the potential for additional litigation ...” By July 2007 alone, law firms and consultants retained by Office Depot had incurred over $800,000 in fees and costs.
*3 According to Mr. Calkins, actual disputes with National Union arose immediately following Office Depot's submission of the July 11, 2007 Notice of Circumstances. Specifically, many of the firms retained by July 11, 2007 did not appear on the Policy as National Union pre-approved “panel” firms. On August 30, 2007, ARC, on behalf of Office Depot, sought National Union's consent to Office Depot's retention of outside law firms for Office Depot and six of its executives, including its CEO, General Counsel and CFO. ARC provided detailed information regarding the retained counsel and requested that National Union immediately approve counsel, stressing the importance of having National Union work together with Office Depot's outside counsel. National Union responded the next day, refusing such consent on the grounds that “this matter does not constitute a Claim under the Policy.” Mr. Calkins avers that he understood National Union's refusal to approve counsel to constitute a rejection of coverage. National Union disagrees, asserting that the August 31, 2007 e-mail was not a coverage rejection but simply National Union's agreement with ARC that the matter did not yet qualify as a “Claim” under the Policy.
Office Depot's Director of Global Risk Management, Kathy Schroeder, testified that ARC served as Office Depot's broker of record as well as its claims consultant. Mr. Calkins and Ms. Schroeder communicated with Peter Taub, ARC's General Counsel, and his co-workers regarding the Policy and National Union's positions as to what the policy covered.
By the spring of 2008, ARC and Office Depot had executed a formal “Confidentiality Agreement,” by which they agreed as follows:
WHEREAS, in connection with its coverage claim against AIG and other insurers, [Office Depot] has disclosed to [ARC], and expects to disclose further to [ARC], certain confidential or proprietary information, including, without limitation, memoranda, reports, correspondence and other materials, including information about legal opinions and conclusions of counsel that should be protected from disclosure to third parties, including, but not limited to, the SEC, persons who are plaintiffs or prospective class members with respect to the Claims, and AIG and other insurers, as work product and/or by the attorney-client privilege (hereinafter “INFORMATION”)
(emphasis added).
Office Depot has produced all communications between it and ARC that predate the July 11, 2007 Notice of Circumstances. At issue here are communications between Office Depot and ARC following the Notice of Circumstances. The earliest communication withheld is dated July 31, 2007. The remainder of the communications occurred in August 2007 and September 2007, after National Union declined to approve counsel for Office Depot and advised that the matter did not constitute a claim; November 2007, after the Securities Lawsuits had been filed; and in the summer of 2008 and August 2009, after National Union concedes that it had informed Office Depot in February 2008 that the SEC's Formal Order did not constitute a claim. The communications at issue include substantive discussions between ARC and Office Depot and/or communications between Office Depot and its in-house or outside counsel that were thereafter forwarded to ARC. Office Depot claims that all of the communications are protected by either the attorney-client privilege or the work product doctrine.
II. DISCUSSION
Office Depot argues that the attorney-client privilege protects Office Depot's communications with its insurance broker and claims consultant ARC because ARC acted at Office Depot's direction and as its necessary agent and representative. Specifically, Office Depot claims that ARC communicated with National Union in order to maximize Office Depot's interests in obtaining coverage for what it expected to be considerable defense costs and the potential for additional litigation. National Union disagrees, asserting that Florida law only protects communications between a lawyer and a client that were made in the rendition of legal services to the client and the cases relied on by Office Depot are not controlling or persuasive.
*4 Florida law governs the attorney-client analysis in this diversity dispute. Section 90.502, Fla. Stat. provides that:
A communication between lawyer and client is “confidential” if it is not intended to be disclosed to third persons other than:
1. Those to whom disclosure is in furtherance of the rendition of legal services to the client;
2. Those reasonably necessary for the transmission of the communication.
Fla. Stat. § 90.502(1)(c). Florida recognizes a “common interest,” “joint defense” or “pooled information” exception, which “enables parties who share unified interests to exchange this privileged information to adequately prepare their cases without losing the protection afforded by the privilege.” Visual Scene, Inc. v. Pilkington Bros., 508 So. 2d 437, 440 (Fla. 3d DCA 1987) (noting various circumstances where courts have applied the common interests' exception) (collecting cases). Florida likewise preserves the attorney-client privilege to allow privileged communications with agents and representatives of the client when those communications further the rendition of legal services. Fla. Stat. § 90.502; Gerheiser v. Stephens, 712 So. 2d 1252, 1254 (Fla. 1998) (“the attorney-client privilege extends to the necessary intermediaries and agents through whom such communications are made”). See also Every Penny Counts, Inc. v. American Express Co., 2008 WL 2074407 (M.D. Fla. 2008) (extending attorney-client privilege to a “de facto consultant” of the corporation).
Florida courts have not had occasion to squarely address the application of the aforementioned legal principles in the context of insured-broker communications. Office Depot therefore points the Court to several federal district court cases that have analyzed this particular fact pattern. In Atmel Corp. v. St. Paul Fire & Marine Ins. Co., 409 F. Supp. 2d 1180 (N.D. Cal. 2005), the district court examined whether the attorney-client privilege applied in an insured-broker relationship like that between Office Depot and ARC under California's nearly identical evidence rule, Cal. Evid. Code § 952. 409 F. Supp. 2d at 1181. That court described the insured-broker relationship before it as follows:
Atmel [the policyholder] asserts that ABD [the broker] negotiated insurance policies with Royal, AIG and St. Paul on its behalf. After the policies were purchased, ABD served as a “necessary advisor for both general coverage questions and regarding specific claims tendered to carriers.” Therefore, ABD served as a conduit of information between Atmel and the insurers. Atmel and ABD worked together to provide relevant information about litigation or claims to the insurers. Atmel contends that ABD's expertise was necessary to understand general liability, coverage and litigation issues.
409 F. Supp. 2d at 1181-82. Atmel found that California's privilege rule “clearly recognizes a third-party exception,” which exception includes “business associates” along the lines of the insured-broker relationship before it. See id. at 1182 (citation omitted). It therefore upheld the privilege.
National Union's argument that Atmel should not apply because that court examined only a waiver issue is unpersuasive. Atmel’s holding was not so narrowly drawn. The court broadly concluded as follows:
*5 .... communications between ABD and Atmel are entitled to protection under the attorney-client privilege under § 952 because ABD was present to further the interests of Atmel and the disclosure was reasonably necessary for the transfer of necessary information to the insurers.
Id. at 1182 (emphasis added). In so concluding, Atmel noted the distinct relationship between a client and a third-party insurance broker (“ABD represented Atmel in communications with insurance carriers”) and California law that a broker acts as an agent for the insured and not as an agent of the insurer. Atmel also relied on Royal Surplus Lines Ins. Co. v. Sofamor Danek Group, Inc., 190 F.R.D. 463, 471 (W.D. Tenn. 1999), which upheld the attorney-client privilege for communications between an insured and an insurance broker's senior vice-president, who was the main conduit of information between the insider and the broker during the negotiations of the policy.[3] That court examined not only the waiver issue, but also whether communications between the client and the broker were privileged, and found both types of communications protected. 190 F.R.D. at 471.
The Court finds persuasive the analysis adopted by Atmel and its progeny, which analysis accords with Florida privilege law. The district court in Royal Surplus, on which the Atmel court relied, devoted considerable attention to this issue prior to extending the attorney-client privilege to communications between the insurer and the broker's senior vice president, who served as the main conduit of information between the insurer and broker during negotiations for the policy. 190 F.R.D. at 467-472. Relying on In re Bieter, 16 F.3d 929 (8th Cir. 1994), Royal Surplus found “very persuasive” two controlling principles from that case: (1) “that a rigid approach to analyzing the parameters of the attorney client relationship did not accurately reflect the realities and complexities of corporate activities;” and (2) “that sound legal advice and advocacy serves important public interests and depends on the free flow of information to the attorney.” Id. at 470 (citing Bieter, 16 F.3d at 937-38) (citing Upjohn, supra, and its rejection of the “control group” test as too restrictive “in light of the vast and complicated array of regulatory legislation confronting modern corporations”).
Those courts did not purport to create a new insured-broker privilege, as National Union contends, but instead relied on a recognized preservation of the attorney-client privilege to necessary agents of the client, and a concomitant exception to the general rule that the attorney-client privilege is waived when a protected communication is disclosed to a third party, when the communication in question is in furtherance of a common interest. See, e.g., Atmel, 409 F. Supp. 2d at 1182 (“Section 952 clearly recognizes a third-party exception, and this exception includes “business associates,” along the lines of Atmel and ABD's relationship”); Home Depot U.S.A., Inc. v. G&S Investors/Willow Park, L.P., No. 1:01-CV-1119-WBH, 2001 U.S. Dist. LEXIS 26168 (N.D. Ga. Sept. 27, 2001) (“Where counsel seeks and obtains outside consulting services, the attorney-client privilege has been extended to such third parties ‘employed to assist a lawyer in the rendition of legal services.’ ”).[4]
*6 The Court finds National Union's reliance on U.S. v. Pepper's Steel & Alloys, Inc., 1991 WL 1302864 (S.D. Fla. Mar. 20, 1991), misplaced. The facts of that case are inapposite. The documents that Florida Power & Light sought to compel from London Market Insurers (“LMI”) in Pepper's Steel were reports prepared by LMI's counsel that were forwarded to a London based broker who then shared the report with the lead underwriter. After initially noting that “[t]he subscription process for insurance involving LMI is unusual to the American system,” the court described those unusual facts as follows:
LMI's [the insured's] attorneys prepare a report with recommendations regarding the claim. The attorney sends his report to the London based broker. The broker then sends the report to the lead underwriter who determines how to handle the claim. The lead underwriter will agree with or comment on the attorney's advice. The result is sent back to the London based broker. The London based broker then physically passes around the market to all underwriters who subscribed to the risk by the broker.
1991 WL 1302864 at *2. Faced with these facts, the Pepper's Steel court not surprisingly determined that the London based broker was in no way necessary to the representation of LMI and served no function other than that of a “conduit,” shuttling papers back and forth in order to notify reinsurers of insurance claims. See id. at * *3-4. The court explained that the attorney-client privilege could not be asserted for “documents prepared by its attorneys where it utilized a non-essential third party as a conduit to send the documents to the underwriters.” Id. at *4. Because the intermediary in Pepper's Steel played no substantive role in communicating with the insured, let alone in working as a functional agent of the insured to advance its coverage goals, the court's conclusion is not surprising.
The Court is also not persuaded by SR International Business Insurance Co. Ltd. v. World Trade Center Properties LLC, 2002 WL 1334821 (S.D.N.Y. June 19, 2002) (“WTC”), cited by National Union. In WTC, Travelers sought to compel testimony regarding post 9/11 communications between attorneys for the holders of leases on the World Trade Center complex and employees of Willis, the insurance broker that obtained the insurance coverage for the World Trade Center and between the leaseholders' attorneys and Willis' witnesses during preparation for the Willis employees' depositions. The Willis employees who conferred with the leaseholders' attorneys, while being represented by their own personal counsel, “had no reason to believe that they were talking to lawyers who were representing their interest and who would “hold inviolate [their] confidences and secrets.” See id. at *3. In fact, those employees were represented by their own personal counsel. See id. The facts before that court were thus “substantially different” from those cases extending the attorney-client privilege to outside agents or consultants whose role is the functional equivalent to that of a corporate employee. See id. at *2. As Atmel noted, WTC “did not describe the relationship between the insurance broker and the insured, and did not discuss the necessity of the communications or of the broker's involvement ...” 409 F. Supp. 2d 1180, 1182 n.3 (N.D. Cal. 2005).
Furthermore, the WTC court's consideration, and ultimate rejection, of the common interest privilege was premised on its misunderstanding that the shared interest must constitute an “identical legal interest.” 2002 WL 1334821 at *4. Since WTC, federal courts in New York have “called into question” WTC's purported requirement that a common interest be “identical” and not merely “similar” in order to establish the privilege exception has been “called into question.” See American Eagle Outfitters, Inc. v. Payless Shoesource, Inc., 2009 WL 3786210, at *2 (E.D.N.Y. 2009); Eugenia VI Venture Holdings, Ltd. v. Chabra, 2006 WL 1096825, at *2 (S.D.N.Y. Apr. 25, 2006).
*7 Finally, the Court rejects National Union's suggestion that Office Depot and ARC would not have entered into a Confidentiality Agreement in the spring of 2008 if they had believed their prior communications were privileged. The Confidentiality Agreement between ARC and Office Depot memorialized the parties' pre-existing understanding that Office Depot had requested that ARC “assist in coordinating recovery under the AIG policy” for losses incurred in connection with the Claim (defined to include the SEC proceedings initiated on July 17, 2007). The agreement provides that Office Depot “has disclosed” and “expects to disclose further” certain confidential or proprietary information “including information about legal opinions and conclusions of counsel that should be protected from disclosure to third parties.” Just as the Confidentiality Agreement does not alone cloak the parties' communications with the protection of the privilege, nor does its existence suggest that the parties' prior communications were not privileged.
In sum, the Court concludes that like the broker in Atmel and in contrast to the facts before the court in Pepper's Steel. ARC acted not simply as Office Depot's insurance broker but also as a claims consultant to assist in the process of obtaining coverage for Office Depot's losses and expenses incurred in connection with the SEC investigation and ensuing securities litigation. Mr. Taub and his co-workers were not merely conduits who shuttled pieces of correspondence between Office Depot and its insurers, like the broker in Pepper's Steel, nor did Office Depot employ ARC merely to forward form documents to its carriers or to satisfy ordinary regulatory requirements. Instead, Mr. Calkins averred that the Company asked ARC to communicate with National Union on its behalf because its counsel believed that ARC was in the best position to maximize Office Depot's interests in obtaining coverage for what it expected to be considerable defense costs and the potential for additional litigation. ARC worked together with Office Depot to transfer relevant information about the pending SEC investigation and Securities Lawsuits to the insurers in order to protect and advance the Company's interests as, for instance, with regard to the approval of non-panel counsel selected by Office Depot to represent it in the SEC investigation. The attorney-client privilege thus extends to protect ARC's communications with Office Depot under Atmel and Royal Surplus, supra. See also Navigators Mgmt. Co. v. St. Paul Fire & Marine Ins. Co., 2009 WL 465584, at *3-4 (E.D. Mo. Feb. 24, 2009) (rejecting insurer's argument that disclosure of privileged documents to the broker had waived any privilege for the documents and denying the insurer's motion to compel because the broker was obtaining and furnishing information to the insured's defense counsel and was participating in decisions regarding the legal representation of the insured); Home Depot U.S.A., Inc., 2001 U.S. Dist. LEXIS 26168 (quashing insurer's request for communications between the insured and its broker on the basis of privilege because the insured had consulted with its broker confidentially regarding litigation strategy); Exxon Corp. v. St. Paul Fire & Marine Ins., 903 F. Supp. 1007, 1009-10 (E.D. La. 1995) (recognizing that an insurance broker can be an agent for purposes of the attorney-client privilege and work product doctrines and holding that communications between the insured and its broker were privileged).
In the alternative, the Court finds that the ARC communications are all independently protected by the work product doctrine. The work product doctrine is distinct from and broader than the attorney-client privilege, and it protects materials prepared by the attorney, whether or not disclosed to the client, as well as materials prepared by agents for the attorney. See Fojtasek v. NCL (Bahamas) Ltd., 262 F.R.D. 650, 653 (S.D. Fla. 2009) (citing In re Grand Jury Proceedings, 601 F.2d 162, 171 (5th Cir. 1979)). Federal law governs work product immunity. Auto Owner's Ins. Co. v. Totaltape, Inc., 135 F.R.D. 199, 201 (M.D. Fla. 1990). To establish work product immunity, a party must show that the document or tangible thing was prepared in anticipation of litigation or for trial. Fed. R. Civ. P. 26(b)(3); Hickman v. Taylor, 329 U.S. 495, 511-12 (1947). Thus, materials or documents drafted in the ordinary course of business are not protected. Id. The test for determining whether the work product doctrine applies is whether, in light of the nature of the document and the factual situation in the particular case, the document can fairly be said to have been prepared or obtained because of the prospect of litigation. Moye, O'Brien, O'Rourke, Hogan & Pickert v. National R.R. Passenger Corp., 2003 WL 21146674, *14 (M.D. Fla. May 13, 2003).
*8 National Union argues that the work product doctrine does not apply because (1) the ARC communications were not prepared in anticipation of this particular coverage litigation, as opposed to other parallel litigation; and (2) Office Depot could not reasonably have anticipated coverage litigation until National Union formally denied coverage in February 2008. The Court rejects these arguments.
First, the Court finds that Office Depot's anticipation of coverage litigation from July 11, 2007, when it tendered the Notice of Circumstances to National Union, was both objectively and subjectively reasonable. The parameters of the “anticipation of litigation” requirement are broadly defined. The “anticipation of litigation” language has been construed by Florida district courts to mean “not necessarily imminent ... as long as the primary motivating purpose behind the creation of the document was to aid in possible future litigation.” Lockheed Martin Corp. v. L-3 Communs. Corp., 2007 WL 2209250, at *8-9 (M.D. Fla. July 29, 2007) (quoting U.S. v. Davis, 636 F.2d 1028, 1040 (5th Cir. 1981)). See also Nesse v. Pittman, 202 F.R.D. 344, 349 (D.D.C. 2001) (litigation need not be imminent, but rather a “real possibility” at the time the documents in question are prepared).
By June 27, 2007, Mr. Calkins had been asked to assist in an internal investigation initiated by the Company's General Counsel; the Dow Jones Newswire article suggesting that Office Depot investor communications may have violated SEC Regulation FD was published on June 29, 2007 and the Notice of Circumstances issued to National Union on July 11, 2007. National Union does not dispute that by July 11, 2007, Office Depot immediately and reasonably anticipated an investigation by the SEC and civil litigation to be initiated against it by third parties. Mr. Calkins attests that the Company also specifically and reasonably anticipated coverage litigation with National Union from July 11, 2007. His anticipation of coverage litigation with National Union was based on his experience with carrier disputes on significant matters (more than $1 million at issue) generally and with National Union in particular, the seriousness of the claims implicated by the Dow Jones article, and the potential significant amounts in dispute ($800,000 in fees and costs having been incurred by Office Depot by July 2007 alone). These experiences caused Mr. Calkins to believe that a dispute regarding coverage would arise.
In support of its argument that coverage litigation was reasonably anticipated as of July 11, 2007 and no later than the end of August 2007, among other things, Office Depot points to the late August 2007 exchange of e-mails between National Union and ARC, acting on behalf of Office Depot, regarding approval of non-panel counsel. Office Depot claims that the e-mail exchange reflects a rejection of coverage by National Union; National Union disagrees. Having considered the August 2007 e-mails in light of the other communications between Office Depot and ARC, the Court finds ensuring coverage under the D&O Policy for Office Depot's substantial and rapidly mounting fees and costs was critical to Office Depot beginning in July 2007. In fact, the first ARC communication withheld by Office Depot occurred on July 31, 2007, when Ms. Schroeder e-mailed ARC with information regarding counsel retained by Office Depot executives. Particularly in light of the $800,000 in costs and fees incurred in the first month of the recently initiated SEC investigation, the Court credits Mr. Calkins testimony that the Company understood National Union's refusal to approve its use of non-panel counsel as a rejection of coverage for the fees incurred by that counsel under the Policy.
*9 The Court concludes that Office Depot reasonably anticipated coverage litigation with National Union as of July 11, 2007. Furthermore, the Court finds that the ARC communications were prepared “because of” the prospect of such litigation. Office Depot communicated with ARC to resolve actual disputes with National Union over the Policy, which disputes arose immediately following the submission of the Notice of Circumstances. The ARC communications were not prepared in the ordinary course of business but in anticipation of coverage litigation and are therefore protected work product.
Regardless of whether Office Depot reasonably anticipated coverage litigation against National Union, however, the work product doctrine still protects these ARC documents in this subsequent litigation. National Union does not dispute Mr. Calkins attestation that Office Depot reasonably anticipated litigation with third parties and an investigation by the SEC immediately following the July 2007 Dow Jones Newswire article, which the Court finds reasonable under the circumstances. That Office Depot's anticipation of litigation was reasonable is evidenced by the fact within days of sending the Notice of Circumstances to National Union, the SEC commenced its investigation (and the Securities Lawsuits were filed against it in this Court just four months later).
National Union cites no case or rule to support its claim that the communications between ARC and Office Depot cannot be deemed work product unless Office Depot reasonably anticipated this coverage litigation, as opposed to the SEC investigation or the Securities Lawsuits, at the time the documents were prepared. The Supreme Court has recognized in dicta that “the literal language of [Rule 26(b)(3) ] protects materials prepared for any litigation or trial as long as they were prepared by or for a party to the subsequent litigation.” FTC v. Grolier, Inc., 462 U.S. 19, 25 (1983). Rule 26’s language does not indicate that the work product protection is confined to materials specifically prepared for the litigation in which it is sought. In fact, work product remains protected even after the termination of the litigation for which it was prepared. See id.
The Eleventh Circuit has not addressed whether Rule 26(b)(3) applies to subsequent or parallel litigation. However, it recently recognized the Supreme Court's dicta in Grolier, which “is not something to be lightly cast aside.” Tambourine Comercio Internacional SA v. Solowsky, 312 Fed. Appx. 263, 284-85 & n. (11th Cir. 2009) (noting that even the result contemplated by Grolier might be “unsettling,” a court “must abide by the plain text and meaning of the Rule.”).
Following Grolier, circuit courts have rejected the same argument advanced by National Union here. For instance, in Frontier Refining, Inc. v. Gorman-Rupp Co., the Tenth Circuit reversed the district court and held that materials prepared in relation to underlying personal injury claims against a refinery operator, that were sought by the defendant pump manufacturer in the operator's subsequent action for indemnity, were protected under the work product doctrine, even though the materials were prepared in anticipation of the prior litigation, not the indemnity suit. 136 F.3d 695, 702-04 (10th Cir. 1998). That court concluded: “That part of the district court ruling which failed to extend work product protection merely because the relevant materials were prepared in anticipation of other, albeit related litigation, is against the great weight of well-reasoned authority.” Id. at 702 (emphasis added). The Middle District of Florida has likewise found that the aforementioned language from Grolier “provides a strong basis to conclude that Rule 26(b)(3) applies to subsequent litigation.” Universal City Dev. Partners, Ltd. v. Ride & Show Eng'g, Inc., 230 F.R.D. 688, 691-92 (M.D. Fla. 2005) (collecting cases). In Universal City, Judge Lazzara noted a split among the circuits as to whether the subsequent litigation must involve issues that are closely related to the case for which the documents were prepared initially, or whether the protection extends to all subsequent litigation. Id. at 692 & fn. 4&5 (collecting cases).
*10 National Union effectively concedes that Office Depot has submitted evidence that it reasonably anticipated the SEC investigation and civil litigation with third parties at the time that it tendered its claim to National Union on July 11, 2007. In fact, by the time of the first ARC communication at issue here, at the end of July 2007, the SEC investigation was not simply anticipated, it was well underway. An “investigation by a federal agency presents more than a remote prospect of future litigation.” In re Grand Jury Subpoena, 220 F.R.D. 130, 147 (D. Mass. 2004) (agreeing that “once a governmental investigation has begun, litigation is sufficiently likely to satisfy the ‘anticipation’ requirement”).[5] Office Depot's anticipation of litigation from the publication of the Dow Jones article at the end of June 2007 was reasonable and real. The SEC investigation began immediately thereafter and the Securities Lawsuits were filed just four months later.
In sum, the ARC communications were prepared by or for Office Depot, which was a party to the SEC investigation, the Securities Lawsuits and the instant coverage litigation. They cannot possibly be described as having been prepared in the ordinary course of business, rather than in anticipation of litigation. Instead, the ARC communications demonstrate on their face that they were prepared “because of” the SEC investigation. They are therefore privileged work product in that investigation, the Securities Lawsuits and in the instant coverage litigation.
National Union has moved to compel a select group of documents from Office Depot's privilege log. Defendants' argument that Office Depot should be required to produce a privilege log for other, “redacted” documents it produced is without merit. The “redacted” information was contained in e-mail strings that were produced on March 3, 2010, which were part of an approximately 15,000 page production by Office Depot. At the August 2, 2010 hearing on this motion to compel, National Union pointed to only one such redacted e-mail string, namely, a document that had been used as an exhibit at Ms. Schroeder's deposition. Office Depot represents that like the Schroeder exhibit, any other redacted e-mail strings included information about the author, recipient, date and other information within the string, such that defendants could easily gauge the grounds on which they were withheld. National Union has not shown otherwise nor has it moved to compel any other documents not listed on Office Depot's privilege log despite having had months to review Office Depot's production. In addition to the lateness of defendants' arguments, this situation is far different than this Court's decision in The Regency of Palm Beach, Inc. v. QBE Insurance Corp., 2009 WL 2513411 (S.D. Fla. July 13, 2009). The Court declines to find any waiver under the circumstances.
In accordance with the above and foregoing, it is hereby
ORDERED AND ADJUDGED that Defendant National Union's Motion to Compel Discovery and For Sanctions (D.E. 80) is DENIED.
DONE AND ORDERED this August 17, 2010, in Chambers, at West Palm Beach, Florida.
Footnotes
The Court has considered excerpts from the depositions of Office Depot's Vice President and Deputy General Counsel, Stephen R. Calkins, Esq., and Office Depot's Director of Global Risk Management, Kathy Schroeder. It has also considered two declarations submitted by Mr. Calkins (D.E. #s 122-1, 146-1) and Office Depot's Statement of Undisputed Material Facts in support of Plaintiff's Motion for Partial Summary Judgment on Insurance Coverage (D.E. #141-1/103).
National Union seeks to compel the production of those communications that appear in 25 e-mail strings listed on Office Depot's privilege log and are further identified in the Index of Privileged ARC Communications filed by Office Depot on July 20, 2010 (D.E. #139). Eight (8) of the 25 e-mail strings are duplicates. (See D.E. #s. 64-66, 71, 72, 74, 77, 78), leaving only 17 e-mail strings truly at issue.
It should be noted that the Westlaw summary and headnotes mischaracterize the communications in Royal Surplus Lines as between the insurer and insurance broker. The communications at issue were between the defendant-insured, Sofamor Danek Group, Inc. and its broker, Sedgwick. The plaintiff-insurer, Royal Surplus Lines Ins. Co. sought to compel those communications.
See also American Eagle Outfitters v. Payless Shoe Source, Inc., 2009 WL 3786210 (E.D.N.Y. 2009) (“Although often referred to as a privilege, the common interest rule is actually only ‘an extension of the attorney-client privilege and not an independent basis for privilege.’ ”).
See also Abdallah v. The Coca-Cola Co., 2000 WL 33249254, at *5 (N.D. Ga. Jan. 25, 2000) (noting that “[l]itigation may generally be expected from agency investigations”); Martin v. Monfort, Inc., 150 F.R.D. 172, 173 (D. Colo. 1993) (finding communication from Department of Labor provided reasonable grounds to anticipate litigation)