Opinion
Case No. 99-1418-JTM.
October 2000.
MEMORANDUM AND ORDER
This action for malicious prosecution is before the court on plaintiff's motion to compel (Doc. 63). Specifically, plaintiff seeks an order directing Corpak to produce redacted portions of certain documents. Corpak opposes the motion and argues that the redacted information is irrelevant and privileged. The ruling on this motion requires analysis of the attorney client privilege. For the reasons stated below, the motion shall be GRANTED.
Background
Plaintiff's malicious prosecution claims originate in two state court lawsuits. Highly summarized, Kansas Food Packers (KFP) entered into a contract to package enteral food products for Corpak using a formula developed by Corpak. Production problems in packaging Corpak's formula developed and KFP filed a breach of contract action in June 1993 against Corpak in Sedgwick County District Court (hereafter "KFP I"). Corpak counterclaimed alleging fraud and claiming damages in excess of twelve million dollars. In September 1994, Corpak filed a separate lawsuit against KFP in Sedgwick County District Court and again requested damages in excess of twelve million dollars (KFP II). This second lawsuit was also based on fraud, similar to Corpak's counterclaim in KFP I. The state court ultimately entered judgments against Corpak on both its counterclaim as a defendant (KFP I) and plaintiff's claim of fraud (KFP II).
Corpak manufactures enteral feeding devices and desired to expand into the enteral food business. "Enteral" is defined as: "[w]ithin, or by way of, the intestine or gastro-intestinal tract . . . ." Stedman's Medical Dictionary 575 (26th ed. 1995).
The judgment in favor of KFP and against Corpak in KFP I was affirmed on appeal and has been satisfied. No appeal was taken in KFP II and that judgment is final.
In support of its malicious prosecution claims in federal court, KFP alleges that defendants conspired to fabricate and present false evidence in KFP I. KFP further contends that defendants' actions in KFP I were taken willfully and maliciously to (1) escalate plaintiff's litigation costs, (2) damage plaintiff's relationship with other customers, (3) avoid paying plaintiff's valid contract claim, and (4) unjustly improve defendants' position in the marketplace. KFP also alleges that the fraud claim in KFP II was without merit and based on testimony and evidence known by defendants to be false. KFP complains that defendants improperly continued to assert a fraud claim in KFP II after judgment was entered against Corpak in KFP I.
Counsel have used the term "defendants" rather loosely in their briefs. This motion to compel concerns documents held by Corpak and its objections to production of redacted materials. The remaining defendants not directly involved in this discovery dispute are (1) Thomas Kuhn, the president of Corpak, (2) Woodrow Monte, a consultant to Corpak, (3) Thermedics, Inc., the parent corporation of Corpak, and (4) Thermo Electron Corporation, the parent corporation of Thermedics. When the court uses the term "defendants" in this opinion, it includes all defendants in the case.
Defendants answered and asserted numerous defenses to KFP's complaint. However, as discussed more fully below, at the heart of this discovery dispute is the defense by Corpak that the counterclaim in KFP I and the fraud claim in KFP II were filed in good faith and "on the advice of counsel."
Motion to Compel Redacted Material
In response to discovery requests, Corpak produced numerous documents related to the earlier litigation in state court between KFP and Corpak. Because an advice-of-counsel defense has been asserted, Corpak included within its document production notes and correspondence by Corpak's outside and in house counsel which would ordinarily be protected by the attorney client privilege. Despite the intentional disclosure of certain attorney-client communications, Corpak redacted portions of sixteen documents claiming that the redactions are irrelevant and protected by the attorney client privilege. KFP moves to compel the redacted material, arguing that Corpak and Kuhn's "advice of counsel" defense waives any claim of attorney client privilege.
Corpak produced a privilege log listing redactions in seventeen documents. Document No. 8, a financial statement, had redactions based on objections that the information was (1) irrelevant and (2) contained confidential client information. This document and the listed objections were not argued by the parties in their briefs. However, the court has reviewed the redactions and finds that the information is relevant because it shows evidence of how accounting issues between Corpak and Thermedics were handled. Moreover, a protective order is in place which protects confidential client information in this case. Accordingly, Corpak will be directed to produce the redactions to Document No. 8.
Corpak's privilege log is attached to this order as appendix 1.
Although conceding that an "advice-of-counsel" defense requires a waiver of the attorney client privilege, Corpak argues that the waiver should be limited "to the extent such privileged material is relevant." (Doc. 62, p. 2). Corpak further objects to production of the redacted material because "(1) it is not relevant and (2) disclosure might expand the scope of the waiver of the attorney-client privilege beyond what is necessary in connection with this litigation." (Doc. 62, p. 2). As discussed below, Corpak's objections to disclosure are not persuasive. The court has conducted an in camera review of the documents in their unredacted version and is ready to rule.
I. The Attorney Client Privilege
Jurisdiction in this case is based on diversity of citizenship. In a diversity case, "state law supplies the rule of decision on privilege" by operation of Fed.R. Evidence. 501. Frontier Refining, Inc. v. Gorman-Rupp Co., 136 F.3d 695, 699 (10th Cir. 1998). Under Kansas law, the essential elements of this privilege are:
(1) Where legal advice is sought (2) from a professional legal advisor in his capacity as such, (3) the communications made in the course of that relationship (4) made in confidence (5) by the client (6) are permanently protected (7) from disclosures by the client, the legal advisor, or any other witness (8) unless the privilege is waived.State v. Maxwell, 10 Kan. App.2d 62, 63 (1984) (citation omitted); see also, K.S.A. 60-426 "'[C]ommunication' includes advice given by the lawyer in the course of representing the client and includes disclosures of the client to a representative, associate, or employee of the lawyer incidental to the professional relationship." K.S.A. 60-426(c)(2). The party objecting to discovery on the basis of the privilege has the burden of establishing that it applies. Cypress Medial, Inc. v. City of Overland Park, 268 Kan. 407, 425 (2000). This burden includes showing that the privilege has not been waived. See Johnson v. Gmeinder, 191 F.R.D. 638, 642 (D.Kan. 2000) (holding that the absence of waiver is one of the eight essential elements that must be established under Kansas law.)
"Whether the court applies federal or Kansas law generally makes no difference in determining whether the attorney-client privilege applies."ERA Franchise Systems, Inc., v. Northern Insurance Company of New York, 183 F.R.D. 276, 278, n. 1 (D.Kan. 1998). No conflict appears to exist between federal and Kansas law concerning the attorney client privilege.Id.; Cypress Media, Inc. v. City of Overland Park, 268 Kan. 407, 423 (2000).
In this case Corpak affirmatively asserted "advice of counsel" as one of its defenses and purposefully disclosed documents containing attorney client communications. A litigant may not use the attorney client privilege as both a sword and shield, disclosing only those communications which are beneficial to the litigant's defense. See Motley v. Marathon Oil Company, 71 F.3d 1547, 1552 (10th Cir. 1995); Chevron Corporation v. Pennzoil Company, 974 F.2d 1156, 1162 (9th Cir. 1992). "[I]f a party asserts as an essential element of his defense reliance upon the advice of counsel, the party waives the privilege with respect to all communications, whether written or oral, to or from counsel concerning the transactions for which advice was sought." Downs v. Brasted, Case No. 92-1611-MLB, 1993 WL 273369 at *1 (D.Kan.). "When the client asserts reliance on advice of counsel as a defense . . . fairness dictates that [it] be held to have waived the privilege for communications with counsel related to the claimed reliance." Evello Investments N.V. v. Printed Media Services, Inc., Case No. 92-1611-MLB, 1995 WL 135613 at *6 (D.Kan.) (citations omitted). A client claiming that its reliance upon advice of counsel demonstrates that prior lawsuits were brought in good faith has waived the attorney client privilege. Id. Because Corpak asserts that it brought the counterclaim in KFP I and the claim in KFP II "in good faith on the advice of counsel," Corpak has waived the privilege.
While this conclusion resolves the issue, the court will also address Corpak's implied waiver argument which is unpersuasive in the context of this lawsuit. Corpak argues that while a party may implicitly waive the attorney client privilege by putting in issue an attorney's advice, this waiver extends only to relevant communications. See Simmons Foods, Inc. v. Willis, 191 F.R.D. 625, 635 (D.Kan. 2000) (determining how Kansas would evaluate whether implied waiver occurred); Frontier Refining, Inc. v. Gorman-Rupp Co., 136 F.3d 695, 701 (10th Cir. 1998) (determining how Wyoming would evaluate whether implied waiver occurred). In Simmons, Judge Waxse discussed the three general approaches which courts have taken to determine whether an implied waiver of the attorney-client privilege has occurred during litigation. The first approach is the "automatic waiver" rule which provides that "a litigant automatically waives the privilege upon assertion of a claim, counterclaim, or affirmative defense that raises as an issue a matter to which otherwise privileged material is relevant." Frontier Refining, 136 F.3d at 699.Simmons and Frontier Refining both rejected the "automatic waiver" rule as too harsh. The second generalized approach provides that the privilege is waived only when the material to be discovered is both (1) relevant to the issues raised in the case and (2) either vital or necessary to the opposing party's case. Id. Finally, in the most conservative approach to finding a waiver, several courts have concluded that a litigant waives the attorney-client privilege if, and only if, the litigant directly puts the attorneys' advice at issue in the litigation. Id. Both Simmons andFrontier Refining applied the second approach to determine whether a litigant had impliedly waived the attorney client privilege.
This court is not persuaded that either Simmons or Frontier Refining is directly applicable to this malicious prosecution case because Corpak has put the advice of counsel directly in issue and intentionally produced documents revealing communications between counsel and Corpak. This is not a case in which the court must determine whether a litigant impliedly waived the attorney client privilege; Corpak has voluntarily and intentionally revealed attorney client communications in support of its defense. Corpak cannot now invoke the attorney client privilege on a selective basis to deny plaintiff access to the very information that Corpak may assert in defending the malicious prosecution case. Chevron, 974 F.2d at 1162.
II. Relevance
"Relevancy is broadly construed at the discovery stage of the litigation and a request for discovery should be considered relevant if there is any possibility that the information sought may be relevant to the subject matter of the action." Smith v. MCI Telecommunications Corp., 137 F.R.D. 25, 27 (D.Kan. 1991). "A party does not have to present a prima facie case to justify a request which appears reasonably calculated to lead to the discovery of admissible evidence." Evello Investments N.V., at *5. "A request for discovery . . . should ordinarily be allowed unless it is clear that the information sought can have no possible bearing on the subject matter of the action." Snowden v. Connaught Lab. Inc., 137 F.R.D. 336, 341 (D.Kan. 1991).
Based on its in camera review of the seventeen redactions, the court finds that the redacted information is subject to discovery. The redacted information contains communications and notes from Corpak's counsel which are relevant to the "advice of counsel" defense asserted in this case. Corpak's relevance objection is overruled.
Summary
Having reviewed the redactions from the seventeen documents, the court concludes that the information is relevant and Corpak's assertion to the contrary is rejected. The objections based on the attorney client privilege in Document Nos. 1 through 7 and 9 through 17 are also overruled. Finally, Corpak's objection that Doc. No. 8 contains confidential client information is rejected. A protective order in this case provides Corpak with adequate protection.
Doc. No. 17 contains billing records from Corpak's outside counsel in the state court litigation. Corpak has produced the billing records but redacted the actual dollars charged. The general rule is that information regarding attorney fees billed to and received from a client are not protected by the attorney client privilege. The party asserting the privilege must make a clear showing why the attorney client privilege should apply to billing records. Cypress Media, Inc., 268 Kan. at 424-26. Although listed as an objection to Doc. No. 17 in the privilege log, Corpak has not argued in its brief that the billing fees are privileged. Because no clear showing has been made, the court rejects the objection that the attorney fees are protected by the attorney client privilege.
IT IS THEREFORE ORDERED that KFP's motion to compel production of redacted documents (Doc. 63) is GRANTED. Corpak shall produce the redacted documents forthwith so that KFP may review the documents in advance of depositions scheduled October 16 and 17, 2000.