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refusing to apply "this relatively novel theory of privilege."
Summary of this case from Rice v. St. Louis Univ.Opinion
No. C99-0061
June 14, 2000
ORDER
This matter comes before the court pursuant to plaintiffs' February 10, 2000, motion to compel compliance with subpoena duces tecum (docket number 67). The court held a hearing on this motion on May 17, 2000. For the reasons set forth below, the plaintiffs' motion is granted.
BACKGROUND
This is an action by present and former policyholders against their insurance company, Mutual Trust Life Insurance Company (MTL), their insurance agent Rex McCright, and officers of MTL. The plaintiffs contend that Rex McCright defrauded them out of substantial amounts of money by conducting unauthorized transactions related to the cash surrender value of their life insurance policies and by securing personal loans from the policyholders. The plaintiffs further contend that MTL knew or should have known of this fraudulent activity and is responsible for the losses that the plaintiffs have suffered.
Pursuant to Fed.R.Civ.P. 45(a), the plaintiffs sent on December 6, 1999, a subpoena duces tecum which directed American Express Tax and Business Services (American Express) to produce specific documents by December 17, 1999. American Express is not a party to this lawsuit but was hired by defendant MTL to conduct an audit of MTL's internal policies and procedures, and to suggest appropriate remedial measures for any weaknesses in its system. The process culminated with a 10-page report dated August 10, 1998, directed to General Counsel of MTL. On December 21, 1999, the defendant informed the plaintiffs that it would not produce the documents, citing the self-critical analysis privilege as the reason for the refusal.
SELF-CRITICAL ANALYSIS PRIVILEGE
A number of federal courts have recognized that self-critical analyses can be privileged and not subject to discovery, but the parameters of the privilege, like the very existence of the privilege, are rather vague. The fundamental purpose of the privilege is to "protect disclosure of documents containing candid and potentially damaging self-criticism." Tice v. American Airlines, 2000 WL 461005 (N.D.Ill. 2000). Because the privilege is grounded on the premise that disclosure of documents reflecting candid and potentially damaging self-examination will deter or suppress socially useful investigations and evaluations or compliance with the law, the court must balance the public interest in protecting candid corporate self-assessment against the private interest of the litigant in obtaining all relevant documents through discovery. Id.
Once a court has recognized the self-critical analysis privilege, the court must determine whether it is applicable to a given set of facts. A balancing test has emerged. The court looks at whether the party asserting the privilege has established that: (1) the information sought resulted from a critical self-analysis undertaken by the party seeking protection; (2) the public has a strong interest in preserving the free flow of the type of information sought; (3) the information is of the type whose flow could be curtailed if discovery were allowed; and (4) the document was prepared with the expectation that it would be kept confidential, and has in fact been kept confidential. Dowling v. American Hawaii Cruises Inc., 971 F.2d 423, 426 (9th Cir. 1992) (First mate on passenger cruise ship claimed negligence after he slipped and fell on the deck of the vessel; minutes of a meeting of the ship's safety committee were not privileged because voluntary, routine pre-accident safety reviews are not protected).
The privilege was first recognized in Bredice v. Doctors Hospital, Inc., 50 F.R.D. 249 (D.D.C. 1970), aff'd, 479 F.2d 920 (D.C. Cir. 1973) (minutes of hospital staff meetings regarding procedures to improve patient care could be protected from discovery in a malpractice suit because of the important public interest in having hospitals critically evaluate the care they provide). The Supreme Court and the circuit courts have neither definitely denied the existence of such a privilege, nor accepted it and defined its scope. Rather, when confronted with a claim of the privilege, they have refused on narrow grounds to apply it to the facts before them. See University of Pennsylvania v. EEOC, 493 U.S. 182, 188-89, 110 S.Ct. 577, 581-582, 107 L.Ed.2d 571 (1990) (the Supreme Court declined to recognize a qualified common-law privilege against the disclosure of confidential peer review materials, a privilege based largely on the same policy considerations as the self-critical analysis privilege).
Some courts have recognized a privilege for internal reports that evaluate a company's historical compliance with environmental regulations, Reichhold Chemicals, Inc. v. Textron, Inc., 157 F.R.D. 522 (N.D.Fla. 1994), and other courts have extended a privilege to a company's internal assessment of its equal employment opportunity practices. Banks v. Lockheed-Georgia Co., 53 F.R.D. 283 (N.D.Ga. 1971). But, courts have rejected claims of self-critical analysis privilege in cases involving, for example, internal affirmative action materials. Tharp v. Sivyer Steel Corp., 149 F.R.D. 177, 179 n. 5 (S.D.Iowa 1993).
The Eighth Circuit has not directly addressed the self-critical analysis privilege; in In Re Burlington Northern, Inc., 679 F.2d 762, 765 n. 4 (8th Cir. 1982), the court noted that:
A number of other courts have relied upon a "self-evaluation" privilege in diverse factual settings. More recently, however, courts have appeared reluctant to enforce even a qualified "self-evaluation" privilege. They typically concede its possible application in some situations, but then proceed to find a reason why the documents in question do not call within its scope." As the court stated in Lloyd v. Cessna Aircraft Co., 74 F.R.D. 518, 522 (E.D.Tenn. 1977), the privilege "at most remains largely undefined and has not generally been recognized."
In this case, the defendants hired American Express to conduct an investigation and write a report to help manage risk within the company, and to find weaknesses in the company's internal workings which could contribute to fraudulent activities. Defendant's resistance to the motion to compel states that the purpose of the audit was to assess MTL's current systems and to suggest and employ any appropriate remedial measures. The report, dated August 10, 1998, labeled "privileged and confidential," was not intended to be an efficiency study or a financial audit. In the 10-page report, American Express detailed the methodology used to research the report, specified the people interviewed; made recommendations and suggestions about how defendant's employees in each department could be educated to recognize the "red flags" of fraud; and offered its opinion about the quality of the defendant's anti-fraud controls.
As shown above, few courts have adopted this relatively novel theory of privilege. This court does not believe that the Eighth Circuit Court of Appeals will ultimately recognize such a privilege. Even if it does, this court does not believe such recognition is appropriate here for this voluntary internal investigation. This report is in the nature of a voluntary audit. Its nature is very different from the peer review done in the medical profession. Disclosure here will not inhibit insurance companies from assessing their anti-fraud controls. Even in the courts where the privilege has been narrowly recognized, the privilege extends only to situations where curtailing the self evaluation process would be detrimental to the public interest. Such is not the case here.
WORK PRODUCT PROTECTION
The defendant also claims that the American Express report, prepared by its "Tax and Business Services Division" is protected by the work product qualified immunity. Pursuant toFed.R.Civ.P. 26(b)(3), documents and tangible things prepared in anticipation of litigation or for trial by or for another party or by or for that other party's representative may be produced only upon a showing that the party seeking discovery has a substantial need of the materials in the preparation of the party's case and that the party is unable without undue hardship to obtain the substantial equivalent of the materials by other means. In ordering discovery of such materials, the court shall protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation.
Thus, there are two kinds of work product — ordinary work product and opinion work product. Ordinary work product includes raw factual information; opinion work product includes mental impressions, conclusions, opinions, or legal theories. Baker v. General Motors Corp, 209 F.3d 1051, 1054 (8th Cir. 2000). The party asserting work product protection has the burden of proving that the requested materials are work product. In Re Grand Jury Subpoena Duces Tecum, 112 F.3d 910, 925 (8th Cir. 1997); In Re Grand Jury Proceedings (Malone), 655 F.2d 882 (8th Cir. 1981). The party seeking production of work product protected materials has the burden of justifying such disclosures. Hickman v. Taylor, 329 U.S. 495, 512 (1947).
In this case, the issue dispositive of the work product protection is whether the American Express report was prepared in anticipation of litigation. To determine whether documents were prepared in anticipation of litigation, the court examines the claim in light of the nature of the document and the factual situation in the particular case to determine whether the document can fairly be said to have been prepared or obtained because of the prospect of litigation. Charles Allen Wright, Arthur R. Miller, and Richard L. Marcus, 8 Federal Practice and Procedure, § 2024 (1994). This standard has been adopted in the Eighth Circuit Court of Appeals. Simon v. G.D. Searle Co., 816 F.2d 397 (8th Cir. 1987); Diversified Industries, Inc. v. Meredith, 572 F.2d 596, 604 (8th Cir. 1978).
Litigation need not be imminent in order to qualify for protection. United States v. Davis, 636 F.2d 1028 (5th Cir. 1981). However, litigation must be more than a remote prospect.Diversified Industries, Inc. v. Meredith, supra. The document must be prepared because of the prospect of litigation, when the preparer faces an actual claim or a potential claim following an actual event or a series of events that reasonably could result in litigation. National Union Fire Ins. v. Murray Sheet Metal, 967 F.2d 980, 984 (4th Cir. 1992). The mere fact that litigation eventually ensues does not, by itself, endow the materials with work product immunity. Id.
Documents prepared in the ordinary course of business or that would have been created in essentially similar form irrespective of the litigation are not entitled to work product protection.United States v. Adlman, 134 F.3d 1194, 1202 (2d Cir. 1998). Even if such documents might also help in preparation for litigation, they do not qualify for protection because it could not fairly be said that they were created because of actual or impending litigation. Id.
The court has examined the report in question and finds that it does not qualify for work product protection. The report states that it was intended to reveal weaknesses that could contribute to fraudulent activities by insurance agents. The report reviews the anti-fraud controls of the company and the quality of those who monitor such controls. The report speaks to the "good business sense" necessary to accommodate agents and makes recommendations concerning the defendant's internal and external ethics policies. Exhibit B to the report is the findings and recommendations section. None of the findings or recommendations have anything to do with an analysis for pending or potential litigation. All of them are specific pieces of business advice for various departments of the defendant. This document clearly was not prepared in anticipation of litigation but rather was prepared for business purposes.
Upon the foregoing,
IT IS ORDERED
That plaintiffs' February 10, 2000, motion to compel compliance with subpoena duces tecum (docket number 67) is granted. The defendant shall produce all documents associated with the American Express Tax and Business Service's August 10, 1998, report as requested by the plaintiffs.
JOHN A. JARVEY Magistrate Judge UNITED STATES DISTRICT COURT