Opinion
No. 97 C 1292
December 14, 2000
MEMORANDUM ORDER
Before the court is the motion of Counterclaim-Plaintiff Alpha Therapeutic Corporation ("Alpha") to compel the return of inadvertently produced documents.
I. BACKGROUND
This is one of a number of discovery disputes pending in this case, a case which dates back to 1978. The original dispute — outlined in Abbott Laboratories v. Alpha Therapeutic Corp., 164 F.3d 385 (7th Cir. 1999) — between Abbott and the defendants stemmed from the sale of Abbott's Scientific Products Division to Alpha and Green Cross at that time. Abbott's Scientific Products Division manufactured and distributed a blood product known as "factor concentrate" commonly used in the treatment of hemophilia. Pursuant to an Asset Acquisition Agreement (the "Agreement"), Abbott sold this division to the defendants and agreed to indemnify the defendants for any losses arising from the use of inventory transferred through the acquisition. In the 1980s, hemophiliacs, who claimed to be infected with HIV through the use of factor concentrate, began bringing lawsuits against the processors of factor concentrate, including Alpha and Green Cross. By 1996, the processors of factor concentrate began negotiating an industry-wide class settlement with hemophiliacs in the United States.
Shortly thereafter, Alpha and Abbott began negotiating Alpha's claim against Abbott for indemnification under the Agreement for losses incurred in pursuing settlement of the hemophiliac's claims. By August 1996, negotiations resulted in a letter conveying Abbott's "final settlement offer" to Edward Colton, Alpha's senior vice president and general counsel, The settlement offer did not purport to be exhaustive, but apparently did identify "the essential terms from Abbott's perspective." Colton responded in writing, accepting the amount of the settlement offer, agreeing in general with the terms, and asking that the matter be resolved and ready for execution by September 12, 1996.
In the months that followed, the parties drafted, reviewed and modified a number of "Proposed Settlement Agreements." At a certain point in the proceedings, Abbott rejected Alpha's request that Abbott pay interest on the settlement amount and stated that the agreement had to be executed by December 11, 1996. In response, Alpha informed Abbott that it decided not to settle after all, unless Abbott significantly increased the amount. Abbott filed a declaratory judgment action against Alpha and Green Cross, alleging that the August letters constitute a valid and enforceable settlement contract between the parties. Abbott lost at the district court and appellate court levels, 164 F.3d at 389, and so the saga continues as a contract case concerning the indemnification terms of the 1978 purchase agreement.
Abbott submitted the document request at issue on May 5, 1999 and, after a few court filings, the court granted Alpha's motion to respond by August 6, 1999. Actually, Alpha did not respond until October. According to Alpha, it then agreed to make over 1000 boxes of documents available for Abbott's inspection in November of 1999. After Alpha expressed concern over producing blood donor records and employee personnel files due to privacy laws, attorneys for both sides apparently agreed that documents marked "withheld" that may be in the boxes were not available for inspection. ( Abbott's Memorandum of Law in Opposition, Ex. 14; Alpha's Motion to Compel, Ex. A). Representatives for both sides then met at a California warehouse on November 8. ( Abbott's Memorandum of Law in Opposition, Ex. 14). There, Alpha representatives-attorneys or paralegals — would inspect a box to be produced, and mark certain documents therein as "withheld" by attaching colored paper to either side of the document by paper clip or rubber band. They would then pass the box to Abbott representatives for inspection. The Abbott representatives would tab certain documents for copying by an outside copying service. Alpha's in-house counsel supervised the entire process, but Alpha chose not to review the documents Abbott selected for copying. According to Alpha, more than 100 boxes were copied; according to Abbott, it was 50.
In a letter dated November 15, 1999, Alpha claimed to "memorialize" the party's agreement regarding withheld donor records and personnel documents. The letter refers to the document transfer as "currently underway"; the court is unsure whether that means the production took a week, or failed to take place as scheduled on November 8. In any event, Alpha also stated in that letter that:
Further, the [sic] Alpha is producing these transfer records with the understanding that inadvertent production of any record for which Alpha claims a privilege or otherwise objects to production is without waiver of such privilege or objection . . .
( Alpha's Motion to Compel, Ex. A). Approximately one month later, in a letter dated December 9, 1999, Alpha stated that, with the exception of the personnel files and donor records, it was "not withholding any documents on the basis of privilege." ( Abbott's Memorandum of Law in opposition, Ex. 21).
However many boxes were involved, whenever the production took place, Alpha now claims that it was unaware that certain materials it would have withheld under the attorney-client privilege were produced for copying. According to Alpha, this realization occurred on July 18 and 19, 2000, during Abbott's deposition of Alpha general counsel Edward Colton. At that time, Alpha objected to the use of the documents and demanded their return, and has continued to do so up to and including the filing of this motion. Abbott contends that Alpha has waived the attorney-client privilege or that it does not apply in this dispute.
II. ANALYSIS
At the outset, we must determine the applicable law — this is a diversity case brought in Illinois involving a contract which purportedly includes a California choice of law provision. In diversity cases such as this one, federal courts apply "substantive" state law and "procedural" federal law — although these categories tend to blur. Midwest Grain Products v. Productization, 228 F.3d 784, 791 (7th Cir. 2000). Our consideration of this case begins with procedure — discovery procedure — which is governed by the Federal Rules of Civil Procedure. Under Fed.R.Civ.P. 26(b)(1), a party may obtain discovery of any matter "not privileged." The existence of a privilege, however, is determined by state law in this case, pursuant to Fed.R.Evid. 501, which provides:
In its motion, Alpha assumes that California law applies without explanation or mention of any choice of law provision in any document, let alone providing the court with that document to support its argument. ( Alpha's Motion to Compel, at 4).
Except as otherwise required by the Constitution of the United States or provided by Act of Congress or in rules prescribed by the Supreme Court pursuant to statutory authority, the privilege of a witness, person, government, State, or political subdivision thereof shall be governed by the principles of the common law as they may be interpreted by the courts of the United States in the light of reason and experience. However, in civil actions and proceedings, with respect to an element of a claim or defense as to which State law supplies the rule of decision, the privilege of a witness, person, government, State, or political subdivision thereof shall be determined in accordance with State law.
State law does supply the rule of decision here, and the laws of both California and Illinois, of course, recognize the attorney-client privilege. Cal. Evid. Code § 954; Illinois Rules of Prof. Conduct, Rule 1.6. The question here, however, is whether Alpha waived the privilege.
As already noted, the conduct of discovery is a procedural matter. So, while state law governs the existence of a privilege in a diversity case, the federal rules nevertheless dictate the manner in which it must be, or can be asserted. This should come as no surprise to either party; they have been operating under these procedural rules all along. As this dispute stems from the production of documents, it is covered by Federal Rule of Civil Procedure 34. As to assertion of a privilege, the rule requires that:
The party upon whom the request is served shall serve a written response within 30 days after the service of the request. A shorter or longer time may be directed by the court or, in the absence of such an order, agreed to in writing by the parties, subject to Rule 29. The response shall state, with respect to each item or category, that inspection and related activities will be permitted as requested, unless the request is objected to, in which event the reasons for the objection shall be stated. If objection is made to part of an item or category, the part shall be specified and inspection permitted of the remaining parts.
Fed.R.Civ.P. 34(b). We read this rule in conjunction with Federal Rule of Civil Procedure 26(b)(5), which mandates that a party withholding documents from discovery under a claim of privilege must "make the claim expressly and shall describe the nature of the documents . . . not produced or disclosed in a manner that . . . will enable other parties to assess the applicability of the privilege . . ." In other words, when a party claims documents are privileged, it must describe them in a privilege log.
A. Attorney-Client Privilege
Before we reach the question of waiver, we must examine the issue of whether the materials in question are privileged. As Alpha is asserting the privilege, it has the burden of establishing all of its elements. In Re Grand Jury Proceedings, 220 F.3d 568, 571 (7th Cir. 2000). Accordingly, it must show that each document meets the following criteria:
(1) Where legal advice of any kind is sought (2) from a professional legal adviser in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from disclosure by himself or by the legal adviser, (8) except the protection be waived.U.S. v. Evans, 113 F.3d 1457, 1461 (7th Cir. 1997). As noted above, the federal rules require Alpha to file a privilege log specific enough to demonstrate each of these elements for each document. Fed.R.Civ.P. 26(b)(5). In this court, that means discovery opponents must:
produce a privilege log listing each separate document they claim to be beyond discovery, described in the following separate categories. For each document, the log should identify the date, the author and all recipients, along with their capacities. The log should also describe the document's subject matter, purpose for its production, and a specific explanation of why the document is privileged or immune from discovery. These categories, especially this last category, must be sufficiently detailed to allow the court to determine whether the discovery opponent has discharged its burden of establishing the requirements expounded upon in the foregoing discussion. Accordingly, descriptions such as "letter re claim," "analysis of claim," or "report in anticipation of litigation" — with which we have grown all too familiar — will be insufficient. This may be burdensome, but it will provide a more accurate evaluation of a discovery opponent's claims and takes into consideration the fact that there are no presumptions operating in the discovery opponent's favor. Any failure to comply with these directions will result in a finding that the plaintiff-discovery opponents have failed to meet their burden of establish the applicability of the privilege.Allendale Mut. Ins. Co. v. Bull Data Systems, Inc. 145 F.R.D. 84, 88 (N.D.Ill. 1992).
Here, even a cursory review of Alpha's privilege log shows that it falls far short of meeting either the Rule 26(b)(5) or the requirements of Allendale. There is simply no explanation as to why any of the listed documents are privileged. The dates of the documents are confusing; some have two dates, for some the date column is empty. It is unclear as to whether any of the documents involved an attorney. Some of the documents are described as newspaper articles. Others are described as deposition notices, shipping records, resumes, or business cards. None of these materials give the slightest hint that they are subject to the attorney-client privilege; in fact, many appear to be matters of public record. Accordingly, we cannot find that Alpha has come close to showing that they need be returned.
California law is very similar in that it places the burden for establishing the elements of the privilege on the discovery opponent, Wellpoint Health Networks, Inc., 59 Cal.App.4th 110, 123, 68 Cal.Rptr.2d 844, 852 (2nd Dist. 1997), and requires a privilege log that identifies all documents with particularity and clearly sets forth the specific grounds for asserting the privilege as to each one. Kaiser Foundation Hospitals v. Superior Court, 66 Cal.App.4th 1217, 1228, 78 Cal.Rptr.2d 543, 549 (1st Dist. 1998).
B. Waiver
Even if Alpha had met its burden of establishing the materials at issue are privileged, its conduct in this matter supports a finding that it has waived the privilege as to these materials. In this case, Abbott propounded its document request on May 5, 1999, meaning Alpha had to respond — with its objections, if applicable — by June 5. Fed.R.Civ.P. 34(b). Here, Alpha responded a month late, on July 6, 1999, by asking the court for an extension of time in which to respond. The extended deadline, August 6, came and went and Alpha was not heard from until October. At that time, the parties set up the film noir meeting at the California warehouse for November 8, and presumably, the colored-paper process of indicating withheld documents. On November 15, Alpha sent the letter regarding the privacy laws applicable to donor and personnel records. On December 9, Alpha indicated to Abbott that it would not be claiming the attorney-attorney privilege as to any of the documents at issue. Now, Alpha submits it realized about eight months later, at the Colton deposition, that it allowed Abbott to copy materials that were subject to the attorney-client privilege.What is glaringly obvious in the foregoing narrative is that Alpha made no claim of attorney-client privilege until July of 2000 . More accurately, Alpha never mentioned attorney-client privilege and it even specifically stated it would not be asserting such a claim as to the documents at issue here. In Dellwood Farms, Inc. v. Cargill, 128 F.3d 1122, 1126 (7th Cir. 1997) — upon which Alpha relies in part — the court stated that a voluntary waiver was "an express disclaimer of privilege." 128 F.3d at 1126. Certainly a letter stating that "Alpha is not withholding any documents on the basis of privilege . . ." would qualify.
Assuming for the moment that Alpha's letter was not an effective waiver, we would nevertheless be constrained to rule against the return of the documents at issue. A claim of attorney-client privilege would require, as discussed above, that Alpha identify specific documents and provide reasons for it objections. Fed.R.Civ.P. 34(b). What is more, Alpha would have to compile and submit a privilege log. Fed.R.Civ.P. 26(b)(5). Alpha did not get around to complying with the federal rules until it filed the instant motion on August 17, 2000, at which time it finally produced the sketchy privilege log discussed above. So, essentially, Alpha produced the documents and did not even try to properly claim the attorney-client privilege until nine months later. This is not so much a waiver case as it is a never-claimed-the-privilege-at-all case.
Alpha asserted the attorney-client privilege in compliance with federal rules for the first time in its motion to compel return of the supposedly privileged documents. This type of failure to follow the rules has been held to constitute a waiver of the privilege. Applied Systems, Inc. v. Northern Insurance Co. of New York, No. 97 C 1565 (N.D.Ill. Oct. 7, 1997) 1997 WL 639235. To be sure, courts have found mitigating circumstances in certain cases that counseled against finding waiver: minor procedural violations, the failure by oversight to list a document in a privilege log, or when the nature of the requested documents demonstrates they are privileged. Id. at 2; First Say. Bank, F.S.B. v. First Bank System, Inc., 902 F. Supp.2d 1356, 1362 (D.Kan. 1995). Here, however, there are no mitigating circumstances. Alpha's failure to follow procedure was not minor or mere oversight; it missed more than one deadline and filed a privilege log nearly a year late. There was no mention of the attorney-client privilege that might have alerted Abbott until eight months after document production. There was, however, a specific disavowal of the privilege in the December 9 letter. All of these circumstances lead to the conclusion that Alpha has waived the attorney-client privilege.
Further, Alpha's lack of precautions in producing the documents calls into question whether "inadvertence" can really be said to describe their production. We are unimpressed that Alpha chose not to begin review of its documents until six months after the document request. It only makes matters worse that the review was conducted on site at the time of the production. Although this was a questionable effort, it became worse when Alpha failed to review the documents Abbott selected for copying. This case clearly supports a finding that Alpha has waived the attorney-client privilege as to the documents at issue.
As an aside, we note that Alpha would fare no better if California law dictated the procedure for asserting the privilege. In Scottsdale Insurance Co. v. Superior Court, 59 Cal.App.4th 263, 69 Cal.Rptr.2d 112 (2nd Dist. 1997), the court held that under California procedural law, the failure to include an objection expressly based on the attorney-client privilege in an initial, timely response to discovery results in a waiver of the privilege. 59 Cal.App.4th at 274, 69 Cal.Rptr.2d at 119.