eDiscovery Assistant

LifeScan, Inc. v. Smith

2024 WL 4914482 (D.N.J. 2024)

May 21, 2024

Cavanaugh, Dennis, Special Master (Ret.)

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Summary

The Court granted a motion to compel Plaintiffs to produce certain documents withheld as privileged in a fraud scheme involving diabetic test strips. The Court found that the privilege did not apply to documents containing primarily business advice and that the work product doctrine only applied to materials prepared for litigation or trial. The Court upheld most of Plaintiffs' privilege assertions but ordered the production of a representative sample for further review.

Additional Decisions

LIFESCAN, INC., et al., Plaintiffs,
v.
JEFFREY C. SMITH., et al., Defendants
ROCHE DIAGNOSTICS CORPORATION, et al., Plaintiffs,
v.
JEFFREY C. SMITH., et al., Defendants

Civil Action No. 17-5552 and 19-8761 (CCC)(JSA)

United States District Court, D. New Jersey

Filed May 21, 2024

Cavanaugh, Dennis, Special Master (Ret.)

OMNIBUS ORDER & OPINION OF THE SPECIAL MASTER JUDGE DENNIS CAVANAUGH, RET. RE IN CAMERA REVIEW OF DOCUMENTS SUBMITTED BY PLAINTIFFS LIFESCAN AND ROCHE

*1 This Order and Opinion, which concerns an in camera review conducted by the Special Master, is a result of motions previously filed by the Mercato Defendants (“Mercato” or “Defendants”)[1]. Defendants had moved to compel Plaintiffs to produce documents withheld as privileged and to provide an adequate privilege log. Mercato's motions were granted in part and denied in part and the Court entered corresponding Orders and Opinions. [See, ECF 577, ECF 578, ECF 825 and ECF 826].

As a consequence of the motions, Plaintiffs were each asked to produce certain documents for in camera review. The Special Master's findings as to this review are set forth below.

I. Procedural History and Factual Background

As the Special Master writes principally for the benefit of the parties, the discussion which follows is limited to the operative facts and procedural history directly pertinent to this motion.

This litigation encompasses two separate lawsuits which have been coordinated for discovery purposes but not consolidated. The lawsuits arise out of what the parties describe as the “Alliance fraud.” The fraud centers on the distribution, sale, and reimbursement of diabetic test strips (“DTS”) manufactured by the two plaintiffs, LifeScan, Inc. (“LifeScan”) and Roche Diagnostics Corporation/Roche Diabetes Care, Inc. (“Roche”). Plaintiffs charge that a now-bankrupt entity known as Alliance Medical Holdings LLC (“Alliance”) through its officers, directors, investors, and lenders engaged in a scheme to sell nonretail DTS, which measures blood glucose levels for diabetic patients, but were reimbursed by pharmacy benefit managers (“PBMs”) for the sale of higher priced retail strips. Plaintiffs allege that this fraud permitted Alliance to profit from the price difference and caused LifeScan and Roche to pay excessive rebates to PBMs, thereby diminishing their profits.

Mercato was one of the investors in Alliance. Plaintiffs charge that Defendant was knowledgeable about the fraud and benefited from the scheme.

Discovery in this litigation has been managed by the Special Master. When discovery impasses have arisen, the parties have filed motions seeking Court intervention. As noted previously, Mercato had filed two virtually identical motions in which it sought to compel each Plaintiff to produce documents withheld as privileged but which Mercato contended were not. The Court thereafter entered companion Orders and Opinions, the gist of which required Plaintiffs to submit designated documents for in camera review. More specifically, the relevant provisions in those Orders read as follows:

*2 First, as to LifeScan:

3. Within seven (7) days, Mercato is ORDERED to identify no more than ten (10) documents from LifeScan's privilege log as to entries which it contends concern business as opposed to legal advice;
4. Within seven (7) days of Mercato identifying documents described immediately above, LifeScan is ORDERED to produce those documents for in camera review to the Special Master;
5. As to documents which Mercato contends are communications between LifeScan and its counsel from 2012 to 2015 that “very likely reveal when and how it discovered its injury,” Mercato is ORDERED to identify no more than ten (10) documents for the purpose of submitting those documents for in camera review to the Special Master;
6. Within seven (7) days of Mercato identifying the documents described immediately above, LifeScan is ORDERED to submit those documents for in camera review to the Special Master[.]

As to Roche:

3. Within seven (7) days, Mercato is ORDERED to identify no more than ten (10) documents from Roche's privilege log as to entries which it contends concern business as opposed to legal advice;
4. Within seven (7) days of Mercato identifying documents described immediately above, Roche is ORDERED to produce those documents for in camera review to the Special Master.
5. As to document numbers 9, 10, 53, 70, 71, 76, 92, 231, 239, 254, 255 and 257, Roche is ORDERED to submit those documents for in camera review to the Special Master within seven (7) days.

Thereafter, Plaintiffs provided the Special Master with the documents described in the Orders for the purpose of conducting in camera review. Plaintiffs also provided an ex parte letter to explain the submissions. The documents included a version in redacted and unredacted forms as well as copies of those documents that had been fully withheld.

II. Analysis and Findings

The governing principles which form the basis for in camera review were previously set forth in the Orders and Opinions filed on December 18, 2023, and will not be repeated here. However, to provide appropriate context, the Special Master will briefly set forth some background.

Mercato's motion was essentially predicated on two broad arguments: (1) Many of the documents which Plaintiffs assert are protected by attorney-client privilege, appear from their privilege log descriptions to contain business, as opposed to legal advice and (2) many of the documents are “likely to reveal” when and how Plaintiffs discovered their respective injuries and consequently have bearing on Mercato's statute of limitations defense. As to Mercato's second contention, Plaintiffs have asserted that the statute should be tolled since Defendants collectively engaged in fraudulent concealment. When the motions were briefed, the parties disagreed as to the controlling authority. Mercato urged that the prevailing law stands for the proposition that when a party asserts fraudulent concealment, as Plaintiffs do here, the party waives attorney-client privilege as to how and when it discovered its injury. In response, Plaintiffs argued that under Rhone-Poulenc Rorer Inc. v. Home Indemn. Co., 32 F. 3d 851 (3d Cir. 1994), the privilege is waived only when a party puts advice of counsel at issue which LifeScan and Roche have not. The Special Master found that Rhone-Poulenc was generally on point and controlled this issue and that a party's reliance upon counsel's assistance in investigating a fraud does not equate with a party asserting that it has relied upon advice of counsel. In short, although a difficult question, the Court found that LifeScan's interpretation of the prevailing law in this Circuit is correct. However, the Court also found that even under Rhone-Poulenc, a further inquiry is required, i.e., “[f]acts are discoverable, the legal conclusions regarding those facts are not.” Id. at 864.

*3 It should also be noted that the Court is aware that Defendants (Mercato and others) contend that LifeScan and Roche at different points in time became aware of facts which constituted a sufficient basis to file suit but neglected to do so until the statute of limitations had expired. Defendants also contend that discovery exchanged in this matter including the testimony of Plaintiffs’ employees and agents support their position that the complaints were not timely filed. Plaintiffs, on the other hand, assert that their investigative efforts, some done with the assistance of counsel, were designed to camouflage the true nature of Alliance's business practices, preventing them from properly assessing their causes of action, thereby tolling the statute.

Accordingly, in order to properly assess the documents, the Special Master ordered an in camera inspection. Given the significant volume of documents at issue, and the impracticality of adequately reviewing each and every one, the Court instead sought a representative sample to assess the validity of Plaintiffs’ privilege assertions.[2]

With these parameters set forth, the Court will now address the in camera review.

This Order and Opinion is organized in the following fashion: The Court will first address the general principles involved when a document is sent to or from an attorney or is prepared at the request of counsel, that is, attorney-client privilege and the work product doctrine. Thereafter, the Court will turn to its review of the documents submitted in camera by LifeScan and by Roche, in that order. The Court will only discuss in any detail rulings as to the documents which were determined not to be privileged or unprotected. As to those documents as to which Plaintiffs’ privilege assertions have been upheld, the Order and Opinion will, when possible, merely provide sufficient information to infer a basis for the ruling without describing its significant contents.

The Court will now turn to addressing the legal principles which form the basis of this motion.

A. Attorney-Client Privilege

As an overall guiding principle, the Court first notes that evidentiary privileges are an exception to the general rule that relevant evidence is admissible. Rhone-Poulenc, 32 F. 3d at 862. As to the long-established attorney-client privilege, a statement is not protected simply because it was made by or to an attorney and, therefore, sending a document to an attorney or copying one does not automatically immunize a document from discovery. See, In Re Riddell Concussion Reduction Litig., C.A., 2016 U.S. Dist. LEXIS 168457, 2016 WL 7108455 (D.N.J. Dec. 5, 2016) at *5. On the other hand, a document may be privileged even if an attorney is not included as a recipient provided that the communications, such as documents prepared by clients, assists an attorney to formulate and render legal advice. Id. To rule otherwise would allow parties to evade privilege limitations, especially in the corporate setting, by sending copies of every company-generated email to a company's attorney so as to protect the communication from discovery, whether legal services were sought or who the other recipients of the emails were. See, In Re Human Tissue Products Liability Litig., 255 F.R.D. 151, 164 (D.N.J. 2008) (quoting In Re Avantel, S.A., 343 F. 3d 311, 321 (5th Cir. 2003)).

The role of the attorney, as that role relates to communications, is a factor which a court must also consider. This is because an attorney who is not actually performing legal services or relaying legal advice does not qualify for the privilege, i.e., does not qualify as a “lawyer” under these circumstances. See, Rowe v. E.I. DuPont de Nemours and Co., 2008 U.S. Dist. LEXIS 81053, 2008 WL 4514092, at *8 (D.N.J. Sept. 30, 2008). In a similar vein, it is well settled that business advice is not protected by the attorney-client privilege. Id.

*4 As our courts have also stated, it is axiomatic that the attorney-client privilege applies to in-house counsel. Since in-house counsel often participates in and renders decisions about business issues, it is sometimes difficult to apply the privilege. Riddell, 2016 U.S. Dist. LEXIS 168457, at *4. Therefore, there exists a fine line between an attorney who provides legal services or advice to an organization and one who performs essentially non-legal duties on behalf of that entity. In instances of mixed communication (partially business, partially legal), a court must determine “whether the primary purpose and content of the [communication] is predominantly legal. Rowe, 2008 U.S. Dist. LEXIS 81053, at *11.

The applicability of the attorney-client privilege is determined on a case-by-case basis and the burden of establishing that a document is protected by the privilege is on the party asserting the privilege. See, Upjohn Co. v. United States, 449 U.S. 383, at 396-97 (1981).

While this may not be applicable to the documents at issue here, to the extent that a privilege claim concerns an email attachment, in this District, attachments to privileged emails are not themselves privileged unless the attachment has its own, independent claim of privilege. Spiniello Cos. v. Hartford Fire Ins. Co., No. Civ. A. 07-cv-2689, 2008 WL 2775643, at *2 (D.N.J. July 14, 2008). Simply attaching something to a privileged document will not, by itself, make the attachment privileged. Id. Put another way, it is well settled that where a privileged document has attachments, each attachment must individually satisfy the applicable privilege criteria. See, In Re Johnson & Johnson Talcum Powder Prod. Mktg., Sales Pracs. & Prods. Liab. Litig., No. MDL 2738, 2021 WL 314945, at *9 (D.N.J. July 26, 2021).

B. Work Product Doctrine

Broadly speaking, the work product doctrine[3] (which is sometimes broader and more encompassing than attorney-client privilege) provides qualified immunity from discovery of material prepared by an attorney or an attorney's agent in anticipation of litigation or for trial. In Re: Gabapentin Litigation, 214 F.R.D. 178, 182 (D.N.J. 2003). It is codified as Fed. R. Civ. P. 26(b)(3) and reads, in pertinent part:

A party may obtain discovery of documents and tangible things otherwise discoverable...and prepared in anticipation of litigation or for a trial by or for another party or by or for that party's representative (including the other party's attorney, consultant...or agent...) only upon a showing that the party...has substantial need for the materials...and cannot, without undue hardship...obtain their substantial equivalent by other means.

For documents to be protected from discovery under the work product doctrine, “it must be reasonably clear based on the surrounding facts and the nature of the materials that they were in fact prepared or obtained because of pending or anticipated litigation.” Reich v. Hercules, Inc., 857 F. Supp. 367, 373 (D.N.J. 1994). Documents prepared in the regular course of business are not protected. U.S. v. Rockwell Int'l., 897 F. 2d 1255, 1266 (3rd Cir. 1990). Documents created for other purposes that happen to be useful in subsequent litigation are also not work-product. In Re: Gabapentin, 214 F.R.D. at 184.

In the Third Circuit, a party seeking to invoke the work-product doctrine must prove at least the following two elements: (1) that a document was prepared because of reasonably anticipated litigation; and (2) that the material was prepared because of the prospect of litigation and no other purpose. Id. at 183-184. Sometimes it is difficult to determine whether a document was prepared in anticipation of litigation. Generally, a party must show more than a “remote prospect, an inchoate possibility, or a likely chance of litigation.” Id. at 183. Instead, a party must show that there existed an identifiable specific claim of impending litigation when the materials were prepared. Id. The “dominant purpose” in preparing the document must be the concern about potential litigation and the concern must be “objectively reasonable.” Little John v. Solar, C.A., 2018 U.S. Dist. LEXIS 214046, 2018 WL 6705673, at *2 (D.N.J. Dec. 20, 2018). The mere involvement of an attorney does not by itself evidence that a document was prepared in anticipation of litigation. Gabapentin, 214 F.R.D. at 184. However, a document may be protected by the work product doctrine even though it was not prepared by an attorney, for example, the doctrine may apply even if a document was prepared by a party's agent. United Coal Cos. v. Powell Constr. Co., 839 F. 2d 958, 966-67 (3d Cir. 1988).

C. Review of Documents

*5 As set forth, Plaintiffs have submitted certain documents for the Special Master's in camera review. They are the product of two orders dated December 18, 2023, each applying separately to LifeScan and Roche but substantially similar. The underlying motions addressed certain categories of documents. Therefore, the court will first address the documents submitted by LifeScan and then those documents submitted by Roche. The Court will employ the categories described in the motion and the subsequent order. The Special Master's analysis of this in camera review will be conducted in the following order:

As to LifeScan, documents Mercato asserts reflect business advice but were marked privileged;
As to LifeScan, documents Mercato asserts reflect knowledge of LifeScan's injury;
As to Roche, documents Mercato asserts reflect knowledge of Roche's injury; an
As to Roche, documents Mercato asserts concern business as opposed to legal advice.

Furthermore, in certain instances, entire documents were withheld from production; in other cases, portions of documents were redacted. The Special Master will distinguish between the withheld and redacted documents as well.[4]

D. Documents Produced for in Camera Review by LifeScan

1. Documents Mercato Asserts Reflect Business Advice

As noted above, one category of documents Mercato asserts were withheld as privileged by LifeScan are those concerning business as opposed to legal advice. Those nine documents are as follows.[5]

Entry 68 This is an email string concluding with one dated 11/18/14 “re: Alliance Health Patient Pilot Program.” This email string, involving in-house and outside counsel, in the Special Master's view, pertains to legal advice and analysis and was therefore properly withheld.

Entry 113 The description in the log references “Medsource Matter Summary.” This entry concerns a legal analysis as to prospective litigation and is properly withheld.

Entry 814 This is a redacted document entitled “Industry Meeting Notes 030315”. There is a single redacted sentence containing legal advice and, consequently, this redaction was proper.

Entry 187 The single email is directed at legal, as opposed to business advice, and, therefore, this is properly withheld.

Entry 197 This is a follow-up or “branch” to the email above (Entry 187). In the Special Master's view, this entry reflects primarily legal advice and, therefore, is properly withheld.

Entry 809 This is a multi-page spreadsheet with redactions in which only references to the legal department and its tasks have been removed. The Special Master concludes that the entries are primarily legal and were properly redacted.

Entry 12 This entry, an email the subject of which is stated “summary,” is directed at legal advice sought from in-house counsel and is properly withheld.

Entry 230 This is an email string with one redacted section, the contents of which are addressed at a legal issue and, therefore, this document was properly redacted.

Entry 283 The document was produced but with redactions. The Special Master finds that the redacted portions reflect legal advice and are privileged. Therefore, the entry was properly redacted.

2. Documents Mercato Asserts Reflect Knowledge of LifeScan's Injury

Entries 52 and 1169 These two documents constitute parts of a short email chain. The emails constitute legal direction and analysis and were therefore properly withheld.

*6 Entry 231 This is an email chain with multiple redactions. While difficult to categorize, the redacted portions do not contain any facts but more closely reflect impressions of counsel. Accordingly, the Special Master finds that the redactions were proper.

Entry 115 This item, a slide deck presentation, contains assessment and advice from counsel to client and, as such, was properly withheld.

Entries 117 and 1174 These items are branches of the same email chain and constitute an assessment by counsel. As such, the documents were properly withheld.

Entry 241 The Special Master finds that this item constitutes counsel's assessment of ongoing litigation and, therefore, was properly withheld.

Entry 64 The Special Master finds that this item, an email, constitutes counsel's assessment of ongoing litigation and, therefore, was properly withheld.

Entry 244 The Special Master finds that this item, described as an email referencing a draft mediation agreement, constitutes counsel's assessment of ongoing litigation and, therefore, was properly withheld.

E. Documents Produced for in camera Review by Roche

1. Documents Mercato Asserts Reflect Knowledge of Roche's Injury

The documents submitted by Roche for in camera review as to this category include documents which were redacted and documents which were entirely withheld. There was also a separate category of documents which, according to Roche, had previously been produced. The analysis will begin with the redacted documents (items 9, 10, 53, 70, 71 and 76).

Item numbers 9 and 10 These documents reflect two versions of a 100+ page Word document entitled “Meeting Notes.” Nine lines have been redacted. The principal redaction involves a question as to whether to send a free “kit” to a customer, while the other (brief) unrelated sentence fragments reference sending undescribed documents to the legal department for assessment but with no context and nothing to suggest that the communication involved anything other than a business purpose. Given this, the Special Master rules that these documents shall be produced in unredacted form.

Item number 53 The subject of this email string is “Medsource Call.” The Special Master finds that the redacted section strictly constitutes legal advice and was properly withheld.

Item number 70 This is an email string which concludes with one dated 12/18/12. One email in the chain is fully redacted. The Special Master finds that the redaction constitutes primarily legal advice and was properly withheld.

Item number 71 This is an email string which concludes on 1/4/13 as to “Prime: Medsource Information.” This brief reference to an intention to seek legal advice, in the Special Master's view, is not protected and, as such, shall be produced in unredacted form.

Item number 76 This is an email string concluding on 7/9/11 in which there are two redacted emails containing collectively seven lines of text. In the Special Master's view, the redacted sections reflect information necessary to provide legal advice and were properly withheld.

The following items were withheld in their entirety (items 231, 256 and 257).

Item number 231 This email string described, in part, as “Proposed text for medsource letter” constitutes an exchange of information and legal advice as to drafting a letter with the assistance of counsel and, as such, was properly withheld.

*7 Item number 257 This is described as “Word Document titled ‘Pharmacies – Customer Notice.’ ” The Special Master finds this is a draft letter for the purpose of seeking legal advice and was properly withheld.

2. Documents Mercato Asserts Reflect Business Advice

As to this aspect of Mercato's motion relating to the privilege log, Defendants had requested that they be permitted to identify a collection of documents for in camera review to assess whether the contents, which Roche argued are shielded by attorney-client privilege, demonstrate that Roche's attorneys rendered business advice as opposed to legal advice. Thereafter, sample documents which Mercato contends contain business advice were submitted for review. Again, certain documents were redacted while others were withheld in their entirety. Each category will be addressed in order.

Entry 42 This entry represents another version of the same 100+ page Word document produced by Roche as items numbered 9 and 10 [see above]. The same ruling applies.

Entry 52 In the Special Master's view, the redacted portions relay legal advice provided by counsel and, as such, were properly redacted.

Entry 72 The email string concludes with an email dated 1/10/13. The top two paragraphs of that email are redacted. In the Special Master's view, the redacted portions again relay legal, not business advice provided by counsel. This redaction was properly made.

Entry 80 This document appears to be the same as item number 70 [see above]. The same ruling applies.

The following analysis addresses those documents withheld in their entirety.

Entry 104 The entry is described as “Excel Spreadsheet titled ‘Final List of Questionable Ind Pharmacies.’ ” This document was evidently created at the direction of counsel in order to provide legal advice and, as such, was properly withheld.

Entry 138 This item, dated 6/3/17, is described as “PDF Document titled ‘Roche-Orx Suspect Pharmacy Presentation.’ ” According to Roche's ex parte communication with the Special Master, “[a]n identical copy of this PowerPoint has already been produced at RDCNJ0009426-52.” Given that Plaintiff has represented that this document has been produced, a decision is not required.

Entry 176 This item is described as “email from T. Rhodes to K. Moran re: draft letter regarding medsource issues.” This letter consists of information exchanged with in-house counsel as to a draft letter and constitutes a document concerning legal advice which was properly withheld.

3. Documents that Have or Will Be Produced

Roche has represented that the following entries are documents that have or will be produced but were erroneously included on the privilege log – entry numbers 239, 254, 255, 276, 277 and 280. The Special Master, therefore, will make no ruling with regard to these items.

III. Conclusion

The Special Master ORDERS that the parties be guided in accordance with the rulings set forth above.

Footnotes

[1]

According to the movant, “Mercato,” collectively refers to defendants Mercato Management, LLC; Mercato Partners, LLC; Mercato Partners Growth II GP, LLC; Mercato Partners Growth II, LP; Mercato Partners Growth Affiliates II, LP; Mercato Partners AI II, LP; Mercato Partners Ingram, LLC; and Mercato Partners Ingram Co-Invest., LLC. Throughout this Order and Opinion, these entities will simply be referenced as Mercato.

[2]

As to Roche, a subset of documents (12 in all), were ordered in their entirety. See, ECF 578, p. 20, Order No. 5.

[3]

Most of the documents at issue here were said to be protected by the attorney-client privilege, not work product, but there is some overlap. Hence, a discussion of the work product doctrine has been set forth.

[4]

Given the manner in which the motions and the subsequent Order were structured, the “entries” or “items” (the terms used by Plaintiffs to reference the documents) will not be presented in strict numerical order.

[5]

According to LifeScan, one of the ten documents selected by Mercato under this category (entry 194) has been produced.