Opinion
Civil Action No. 02-1230, Section "T" (3).
March 13, 2003
ORDER AND REASONS
Before the Court is defendant/counterclaimant, Principal Performance Group, Inc.'s ("PPG") Motion to Compel Discovery. In this motion, defendant contends that the plaintiff's assertion of the attorney-client privilege in response to certain deposition questions and to requests for production of documents was improper because the privilege has been waived. Plaintiff Consolidated Health Plans, Inc. ("CHP") filed formal opposition, to which PPG replied. The matter is deemed submitted for determination on the briefs and documents of record without oral hearing.
BACKGROUND
The captioned commercial litigation arises out of a business relationship between the plaintiff CHP, a third-party administrator ("TPA") of ERISA health plans, and PPG, a firm of experts engaged in reviewing and auditing medical records to identify errors and overcharges. CHP is charged with the responsibility of receiving claims for cost of healthcare from participants in participating ERISA Plans, adjudicating whether the claims are covered in whole, in part, or not at all within the meaning of the relevant ERISA Plan.
PPG works together with CHP for a percentage of any savings. PPG reviews and audits healthcare providers invoices to determine whether the bills contain any cost items that are either not accurately reflected or unreasonably billed, and thereafter, makes a recommendation regarding the amount it believes was reasonably billed by a particular healthcare provider. The TPA, such as CHP in this case, may adopt or reject PPG's recommendation, when the TPA is the adjudicator of the claim. If a TPA, in this case CHP, adopts the PPG's recommendation and the review results in a saving to the ERISA Plan, then PPG is paid a portion of that savings as its fee for the review.
CHP and PPG entered into a contract for such services in July of 2000. The principals of PPG, Robert and Cynthia Frost ("the Frosts"), presented themselves as experts in all aspects of the health care billing field. CHP submits that when PPG solicited their business, the Frosts made several representations, to wit: (1) PPG has been engaged in the business for numerous years and has not had any problems with hospitals; (2) any concern over a medical provider refusing a CHP cardholder service in retaliation for PPG audits was a non-issue; (3) that CHP could expect some harassment by hospitals but that the problem would subside; and (4) medical providers could not refuse to honor CHP's medical card because of the federal Hill-Burton Act. CHP's allegations against PPG include negligent misrepresentation upon which CHP relied to its detriment.
Plaintiff's allegations of negligent misrepresentation focus on one healthcare provider, St. Francis Hospital in Monroe, Louisiana. The medical provider became so upset by PPG's scrutiny of its billing statements that the hospital refused to provide treatment to any member of a Plan that was administered by CHP to avoid having the hospital's bills for treatment subjected to review by PPG. It is contended that, as a result of the hospital's actions, a number of CHP's ERISA Plan clients with participants who might want to be treated by that hospital, left the fold. Terminated as the TPA, CHP could no longer provide full access to medical care for that region, and thus, claim to have suffered a large loss of profit ( i.e., 50% of its client base)
CONTENTIONS OF THE PARTIES
The driving force of CHP's state law negligent misrepresentation claim relates to the Hill-Burton Act, 42 U.S.C. § 291 et. seq., which makes it unlawful for health care providers to refuse service to a Plan participant because of a concern that the Plan might not pay the provider's entire invoice. CHP's counsel investigated the matter at the behest of its principal, Mr. Steven Blanchat. PPG argues that the deposition testimony of Mr. Blanchat demonstrates waiver of the privilege by disclosure and by placing the particular attorney-client communications in issue.
PPG seeks an order compelling the resumption of the deposition of the corporate president, Stephen Blanchat, and answers to the questions to which CHP previously objected on the basis of privilege. Additionally, PPG seeks the production of documents on the same subject that have been withheld.
Specifically, PPG seeks answers to the following questions asked of Mr. Blanchat during his deposition:
Q. The complaint, Paragraph 7 that we looked at initially, indicates that CHP beliefs that PPG misrepresented that providers could not retaliate and that the Hill-Burton Act could prevent health care providers from refusing service. At what point did CHP develop the belief that those things had, in fact been misrepresented, that what you had been told was not true?
A. The St. Francis [Hospital] situation.
Q. Okay. And, well, that covered the period of several months. Was there a specific point?.
A. I believe they started turning away our Plan participants around July of 2001.
Q. Well, it is your testimony then that once the first patient got turned away, that's when you decided that what you'd been told was untrue?
A. No, we asked our attorney's to investigate and we asked Robert to have his attorneys investigate.
Q. All right. And then so at what point in this process did you decide that what you say he told you about Hill-Burton and retaliation wasn't true.
MR. FLANAGAN: Make sure you don't disclose any privileged communications.
A. Then I can't answer the question.
Deposition of Stephen Blanchat, August 23, 2002, at pp. 155 and 156.
Regarding the above quoted passage, PPG argues that this testimony of CHP's own president demonstrates that it cannot establish the crucial element of its state law negligent misrepresentation claim — the duration of the alleged detrimental reliance — without revealing privileged communications with CHP's lawyers. More to the point, PPG contends that CHP has placed those communications "at issue," and thus waived any claim of privilege.
PPG further contends the corporation has waived any claim of privilege by disclosure of certain subject matter. Specifically, defendant highlights the deposition testimony of Blanchat admitting that he disclosed legal advice given to CHP by its attorneys about Hill-Burton's application to St. Francis Hospital prior to the institution of the captioned lawsuit. Referring to a conversation he had with Frost and McCue, Blanchat testified as follows: "I think we talked about his attorneys' understanding of Hill-Burton and our attorneys' understanding of Hill-Burton." Blanchat Deposition, at 193-194.
PPG further argues that CHP's refusal to identify the incorrect statements that form the basis of its claims for negligent misrepresentation should not be countenanced by the Court. More to the point, PPG argues that CHP's claim of negligent misrepresentation, together with the testimony of the CHP's principal, Steven Blanchat, makes clear that CHP has placed at issue "confidential" communications with counsel, which results in waiver of any claim of attorney-client privilege that might have applied to the entire subject matter of hospital retaliation and application of the Hill Burton Act. Citing Nguyen v. Excel Corporation, 197 F.3d 200 (5th Cir. 1999), PPG argues that it would be grossly unfair to allow CHP to argue that it was misled by PPG until CHP was enlightened by its attorneys, and then to allow the claim of attorney-client privilege to shield discovery of the facts supporting the claim of negligent misrepresentation
In Nguyen, the Fifth Circuit held that a corporate defendant waived the attorney-client privilege by partial disclosure and explained its holding as follows:
As discussed above, the Excel executives testified about privileged attorney-client communications. They testified about the directions that they provided their attorneys, and they testified about the legal research undertaken by their attorneys. Objections were raised when appellees sought to elicit the attorneys' conclusions as to their research, but these objections were too little, too late. `[D]isclosure of any significant portion of a confidential communication waives the privilege as a whole.'"Nguyen v. Excel Corporation, 197 F.3d at 208 (citations omitted).
CHP has also objected to PPG's requests for production of documents relative to the subject of the hospital's retaliation, and listed 24 documents withheld under a claim of privilege. Observing that it is impossible to tell from the privilege log whether the subject matter of withheld documents relates to the same area, in which it contends that privilege has been waived, PPG requests that the Court conduct an in camera inspection. However, it avers that clearly the September 26, 2001 letter from Richard Stanley to Stephen Blanchat, which concerns "potential litigation and the Hill-Burton Act," relates to the same subject matter covered by Blanchat's deposition testimony reiterated above.
CHP points outs that the parties agree on one thing — i.e., that Louisiana law governs the dispute. See Succession of Smith v. Kavanaugh, Pierson Talley, 513 So.2d 1138 (La. 1987); Dixie Mill Supply Co. v. Continental Casualty Co., 168 F.R.D. 554 (E.D. La. 1996). CHP contends that both Smith and Dixie Mill, supra, acknowledge that a "litigant's pleading of a claim of defense to which his attorney-client communications are relevant does not by such a pleading alone waive his attorney-client privilege." Dixie Mill, 168 F.R.D. at 556 ( quoting Smith, 513 So.2d at 1141). The fact that a claim or defense is "based on a party's state of mind" does not result in waiver of the attorney-client privilege. Id. at 558 ( citing Exxon Corp. St. Paul Fire Marine Ins. Co., 903 F. Supp. 1007, 1011 (E.D. La. 1995)).
CHP claims that PPG inadvertently misstates the law, treating pre-trial partial disclosure the same as an in-trial disclosure. CHP avers that a pre-trial partial disclosure does not cause the same kind of immediate unfairness as a partial disclosure at trial, because the communication fragment has not yet been introduced into evidence against an opponent. See Stumpf v. Stumpf, 613 So.2d 683, 685 (La.App. 5th Cir. 1993). The unfairness of pre-trial, partial disclosure is merely an outgrowth of its anticipated use at trial. CHP's position is that, under Louisiana law, the disclosing party always has the option of avoiding compelled discovery by stipulating that it will not introduce that or any privileged communications on the same subject in evidence at trial. Smith, 513 So.2d at 1145; Merhige v. Gubbles, 657 So.2d 1098 (La.App. 4th Cir. 1995); and McKneely v. Board of River Port Pilot Comm., 534 So.2d 1255 (La. 1988)..
CHP posits that it has no intention of utilizing privileged matter to prove its claim of negligent misrepresentation. It further contends that there was no partial waiver and only after aggressive questioning did the deponent Blanchat respond, and then only generally — i.e., counsel was asked to look into the matter. It points out that, unlike the Nguyen case, CHP refused to divulge whether the lawyer performed the assignment, whether counsel reached a conclusion, and/or what conclusion was reached. CHP contends that, as a matter of law, a general assertion lacking substantive content is not sufficient to waive the attorney-client privilege. See CHP's Opposition Memorandum, at p. 7 ( citing United States v. White, 887 F.2d 267, 271 (D.C. Cir. 1989) and Nguyen v. Excel Corp., 197 F.3d at 207 n. 13)). CHP argues that the Nguyen case is factually distinguishable and was decided under federal law, which is applied more liberally in favor of finding waiver.
The corporate deponent in Nguyen, a labor case, responded to question "designed to elicit information beyond the general nature of the legal services provided; they were designed to elicit information about the substance of the communication, touching on the directions given to counsel and the legal materials reviewed in addressing the question presented." Nguyen, 197 F.3d at 207.
CHP further denies that it will inevitably be constrained to rely on privileged communications to sustain its burden of proof on its negligent misrepresentation claim. It points out that the fact that a party's state of mind might be involved in a claim or defense does not result in waiver, and waiver should not be applied in a case involving justifiable reliance. Plaintiff submits that the applicability of the Hill-Burton Act is merely one of several misrepresentations, and that in prosecuting the motion for summary judgment, PPG did not argue the truth of the assertion.
Dixie Mills, 168 F.R.D. at 558.
Id.
PPG replies that the fallacy of CHP's argument is well-illustrated by Mr. Blanchat's refusal to respond to deposition questions. Defendant submits that CHP cannot make out a prima facie case of negligent misrepresentation without disclosing attorney-client communications. PPG contends that the refusal to answer discovery goes to the heart of his negligent misrepresentation and is tantamount to the use of the attorney-client privilege as both a sword and shield.
LAW AND ANALYSIS
1. Attorney-Client Privilege.
Federal Rule of Civil Procedure 26(b)(1) allows for discovery "regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action. . . ." CHP clearly articulated, through its principal Blanchat, that it was relying on the attorney-client privilege in withholding testimony regarding its negligent misrepresentation claim. In a diversity action involving state law claims, the Court must apply the law of the state where it sits concerning the scope and application of the claimed attorney-client privilege. Fed.R.Evid. 501.
Fed.R.Evid. 501; United States v. Moore, 970 F.2d 48, 49-50 (5th Cir. 1992); Lenihan v. Stewart Enterprises, Inc., 2002 WL 31001842 (E.D. La.); Robertson v. Neuromed. Ctr., 169 F.R.D. 80, 81-82 (M.D. La. 1996); Soriano v. Treasure Chest Casino, Inc., 1996 WL 736962 (E. D. La.).
The Louisiana Code of Evidence defines the attorney-client privilege as follows:
A client has a privilege to refuse to disclose, and to prevent another person from disclosing, a confidential communication, whether oral or written, or otherwise, made for the purpose of facilitating the rendition of professional legal services to the client, as well as the perceptions, observations, and the like, of the mental, emotional, or physical condition of the client in connection with such a communication, when the communication is:
(1) Between the client or a representative of the client and the client's lawyer or a representative of the lawyer.
(2) Between the lawyer and a representative of the lawyer.
(3) By the client or his lawyer, or a representative of either, to a lawyer, or representative of a lawyer, who represents another party concerning a matter of common interest.
(4) Between representatives of the client or between the client and a representative of the client.
(5) Among lawyers and their representatives representing the same client.
(6) Between representatives of the client's lawyer.
LA. R. EVID. 506(B). It is well-settled that the attorney client privilege protects both communications from the client to the attorney and from the attorney to the client if those communications would tend to reveal a client confidence. The rationale underpinning the privilege was described by the Louisiana Supreme Court in Succession of Smith v. Kavanaugh, Pierson Talley, as follows:
LA. R. EVID. 506(D); see also C.J. Calamia Construction Co., Inc. v. Ardco/Traverse Lift Company, LLC, 1998 WL 395130 (E.D. La.) (Clement, J.).
The lawyer's exemption from disclosing his client's secrets is justified on the ground that claims and disputes which may lead to litigation can most justly and expeditiously be handled by practiced experts, namely lawyers, and that these experts can act effectively only if they are advised of the facts by parties whom they represent. Full disclosure will be promoted if the client knows that what he tells his lawyer cannot, over his objection, be extorted in court form his lawyer's lips. The privilege also promotes compliance with the law, particularly in complex areas of business law such as antitrust, securities and tax. The attorney to whom confidences are freely expressed has a greater opportunity to learn of and counsel against potentially unlawful conduct.Succession of Smith, 513 So.2d 1138, 1142 (La. 1987) (citations omitted).
Not everything communicated between a client and a lawyer falls within the scope of the attorney-client privilege. A communication is "confidential" if it is not intended to be disclosed except "in furtherance of obtaining or rendering professional legal services for the client." La. Code Evid. art. 506(A)(5).
The issue of the existence of the relationship is not questioned here; rather, the disputes concern whether the privilege exists in the instances invoked by the plaintiff and whether there has been a partial waiver either by disclosure or by placing the subject matter in issue. As to the former, it is axiomatic that the attorney-client privilege "only protects disclosure of confidential communications between the client and his attorney; it does not protect underlying facts." Edwards, 39 F. Supp.2d at 723; see also Boyd v. St. Paul Fire Marine Insurance Co., 775 So.2d 649, 655 (La.App. 3rd Cir. 2000). The latter concerns the "in-issue" doctrine and wielding the privilege as both a sword and a shield.
The placing-at-issue doctrine holds that where the privilege is used offensively against divulging information for the owner's benefit, the privilege is deemed to have been waived. Thus, once the holder of the privilege places the information at issue, the privilege no longer protects the discovery at issue.
The Fifth Circuit has stated that the "attorney client privilege was intended as a shield, not a sword" and that "when confidential communications are made a material issue in a judicial proceeding, fairness demands treating the defense as a waiver of the privilege." Conkling v. Turner, 883 F.2d 431, 435 (5th Cir. 1989) (inner quotation marks omitted). In Conkling, the Fifth Circuit held that where defendants raised a defense based on the statute of limitations and plaintiff responded with a tolling argument based on his lack of knowledge, plaintiff had placed his knowledge at issue. Id. at 434-35.
2. Waiver of the Attorney-Client Privilege
As previously mentioned, not everything communicated between client and lawyer falls within the attorney-client privilege. At the outset and in summation, PPG argues that it is entitled to discover the facts regarding the plaintiff's claims against it. Since the privilege protects only communications, and not the underlying facts, PPG argues that the Court should reject the defendant's privilege claims as to the facts.
The issue here is not that straightforward. This is not an instance where Blanchat is asserting privilege as to facts that he knows and that he also happened to relate to counsel. Rather, the plaintiff's claim of privilege allegedly applies because Blanchat only learned the facts through confidential communications with counsel. Thus, CHP's position is that it is not trying to insulate facts from discovery by relating them to counsel; rather, Blanchat was refusing to disclose information communicated to him by counsel.
The party asserting the attorney-client privilege has the burden of proving that the privilege is applicable. See Succession of Smith, 513 So.2d at 1143; In Re Shell Oil Refinery, 812 F. Supp. 658, 661 (E.D. La. 1993); Cacamo v. Liberty Mutual Fire Insurance Co., 798 So.2d 1210, 1216 (La.App. 4th Cir. 2001). To apply, CHP must demonstrate that the communications at issue are confidential, made between client and lawyer, or their representatives, and for the purpose of "facilitating the rendition of professional legal services." LA. R. EVID. 506(B).
Under Louisiana law, the privilege may be waived in either of the two ways the defendant relies on its motion. First, the privilege is waived when the person upon whom the privilege is conferred voluntarily discloses or consents to disclosure of any significant part of the privileged matter." La. Code Evid. art. 502(A) (emphasis added). In Succession of Smith, supra, the Louisiana Supreme Court noted the exceptional situations in which a privilege holder's abuse of the privilege would result in waiver, to wit: (1) partial disclosure of a privileged communication at trial; (2) pretrial partial disclosure indicating a decision to rely on privileged evidence at trial; and (3) placing privileged communications at issue. Succession of Smith, 513 So.2d at 1143; see also United States v. Edwards, 39 F. Supp.2d 716, 735 (M.D. La. 1999) (noting that 502(A)'s rule regarding the holder's voluntary disclosure of a significant part of the privileged matter waiving the privilege is consistent with the federal law governing attorney-client privilege).
Under Louisiana law, a party waives the attorney-client privilege when he pleads a claim or defense in such a way that he will be forced inevitably to draw upon a privileged communication in order to prevail. Consequently, he places the communication in issue and waives the privilege as to communications regarding the same subject under his control. Conoco Inc. v. Boh Bros. Constr. Co., 191 F.R.D. 107, 110 (W.D. La. 1998).
See also Succession of Smith, 513 So.2d at 1145; Henricks v. Stumpf, 613 So.2d 683, 685 (La.App. 5th Cir. 1993); Merhige v. Gubbles, 657 So.2d 1098, 1101 (La.App. 4th Cir. 1995); Dixie Mill Supply Co., Inc. v. Continental Casualty Co., 168 F.R.D. 554, 556 (E.D. La. 1996).
In the Conoco case, the plaintiff argued that since it stipulated that it would not introduce the materials at trial, there is no "anticipatory waiver." Acknowledging that the argument would apply with regard to pre-trial disclosure under Succession of Smith, supra, the court in Conoco distinguished "placing-at-issue" waiver as "entirely different from pre-trial disclosure." Conoco, 191 F.R.D. at 110. The court explained:
The placing-at-issue waiver . . . occurs when the privilege holder pleads a claim or defense in such a way that he will be forced inevitably to draw upon a privileged communication at trial in order to prevail. As a result, the privilege is waived as to all communications on that subject. The waiver does not depend solely on the relevance of privileged material, or on the adversary's need, no matter how strong, for the communication. The focus is on the privilege holder, and the sole concern is whether the privilege holder has "committed himself to a course of action that will require the disclosure of a privileged communication."Id. ( citing Merhige, 657 So.2d at 1146).
CHP brought this action against PPG seeking to recover under a theory of negligent misrepresentation. "The tort of negligent misrepresentation pertains to the failure to provide correct information about existing facts." Ethyl Corporation v. Gulf States Utilities, 836 So.2d 172 (La.App. 1st Cir. 2002). In Louisiana, negligent misrepresentation cases are evaluated using the duty-risk analysis, which is employed on a case-by-case basis. However, the rock-bottom primer of a negligent misrepresentation claim — the sine qua non of that tort theory of relief — is that the defendant supplied certain incorrect information about then existing facts.
Daye v. General Motors, 720 So.2d 654, 658 (La. 1998); Barrie v. V.P. Exterminators, 625 So.2d 1007, 1015 (La. 1993).
CHP has placed-at-issue communications which form the basis of its negligent misrepresentation claim regarding retaliation of hospital providers and the application of the Hill-Burton Act. What CHP contends is factually incorrect information, and the information which Blanchat refused to divulge, constitutes the quintessential element that gives CHP's negligent misrepresentation claim a character distinct from an ordinary article 2315 tort claim. In order to recover damages for negligent misrepresentation, CHP must prove that factually incorrect information was supplied, upon which the company reasonably relied for a succinct period of time, all of which caused the plaintiff the damages claimed, in this case lost profits.
Non-controversial basic principles underpinning the attorney-client privilege govern the disposition of this motion, to wit: (1) the privilege protects communications made in confidence for the purpose of obtaining legal advice; (2) the party resisting discovery bears the initial burden of demonstrating the existence of any privilege; (3) the disclosure of any significant portion of a confidential communication waives the privilege as to the whole; and (4) once a claim of privilege has been established, the burden of proof shifts to the party seeking discovery to prove any applicable exception to the privilege.
United States v. Kelly, 569 F.2d 9218, 938 (5th Cir. 1978), cert. denied, 439 U.S. 829 (1978).
Id.; see also High Tech Communications, Inc. v. Panasonic Co., 1995 WL 45847, at *1 (E.D. La. Feb. 2, 1995) (Vance, J.).
Nguyen v. Excel Corp., 197 F.3d 200, 209 (5th Cir. 1999) (internal quotation marks omitted).
Perkins v. Gregg County, 891 F. Supp. 361, 363 (E.D.Tex. 1997); Texaco, Inc. v. Louisiana Land Exploration., Inc., 805 F. Supp. 385, 387 (M.D. La. 1992) (both citing Hodges, Grant Kaufman v. United States, 768 F.2d 719, 720 (5th Cir. 1985)).
In this case, the record more than amply establishes the existence of the attorney-client privilege as to communications between counsel for CHP and the corporate plaintiff itself. However, PPG has successfully demonstrated both waiver by disclosure, and waiver by placing at issue communications critical to its claim of negligent misrepresentation. The testimony highlighted by PPG acknowledges the existence of an attorney-client relationship, and that Blanchat revealed "confidential" attorney-client communications relative to CHP's misrepresentation claim to Frost and McCue. It is further clear that in order to prevail on its claim of negligent misrepresentation concerning hospital retaliation and the applicability of the Hill Burton Act, the plaintiff must adduce evidence of factual misinformation provided to it by principals of PPG in that regard. A representative of CHP must testify as to the factual inaccuracies and duration of CHP's reliance on the misinformation to its detriment. Blanchat refused to answer deposition questions regarding these essential elements of CHP's claim of negligent misrepresentation, claiming the protection of the attorney-client privilege.
Having thoroughly reviewed the deposition testimony, the Court finds a narrow waiver of the attorney-client privilege concerning the subject matter of Blanchat's disclosure of confidential communications in his conversation with Frost and McCue. Additionally, the same subject matter is placed-at-issue by the allegation of negligent misrepresentation which resulted in damages in the form of lost profits. Thus, the privilege has been waived, but only as to communications relating to the same subject matter.
Accordingly,
IT IS ORDERED that the defendant's Motion to Compel [Rec. Doc. No. 48] is GRANTED insofar as it seeks to compel answers to certain deposition questions propounded to CHP's corporate president Stephen Blanchat, the Court having found partial waiver both by disclosure and placing the communications "in issue". The Court notes that the waiver is a narrow one, limited to plaintiff's claim of misrepresentation, as it relates to misinformation regarding retaliation of medical providers and the applicability of the Hill-Burton Act.
IT IS FURTHER ORDERED that within ten days of the date of this order, plaintiff CHP shall submit the twenty-four (24) documents withheld under the claim of attorney client-privilege, with accompanying privilege log, to the undersigned for in camera review.