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holding that privileged communications were not discoverable because, while the communications may have been relevant, the party did not affirmatively waive the privilege
Summary of this case from Medpace, Inc. v. Biothera, Inc.Opinion
Case No. C2-99-1181
July 11, 2002
OPINION AND ORDER
On October 2, 2001, three of the state plaintiffs, the State of New York, the State of Connecticut, and the State of New Jersey, moved to compel discovery. The following day, the United States of America filed a similar motion. Ohio Edison filed a consolidated memorandum in opposition to both motions on November 5, 2001, and the plaintiffs then filed a reply memorandum. The motion is now ripe for decision.
I.
The facts underlying the motion to compel are deceptively simple, and can be stated easily. In its answer and counterclaim, defendant Ohio Edison has raised a number of issues which, depending upon how they are construed, might conceivably involve the disclosure of otherwise privileged communications. In particular, the plaintiffs note that Ohio Edison has defended and counterclaimed on the grounds that the regulations sought to be enforced in this action were originally interpreted differently by the EPA and, as so interpreted, would not have required Ohio Edison to obtain a permit for certain modifications made to the Sammis power plant which is at issue here. However, Ohio Edison asserts that the EPA has now changed its interpretation of those regulations in order to support its litigation position.
Ohio Edison argues that there are at least three reasons why the EPA is not entitled to enforce the regulations, as currently interpreted, against prior modifications made at the Sammis plant. First, Ohio Edison contends that it did not receive reasonable notice that the EPA would be changing its interpretation of these regulations. Second, it asserts that any change to a long-standing interpretation of a federal regulation is required to be preceded by "notice and comment" rulemaking and that the EPA did not follow this procedure. Third, it contends that it reasonably relied upon the prior interpretation of the regulation in making modifications without obtaining a permit, and that the plaintiffs are now estopped from enforcing the regulations against these modifications.
Plaintiffs sought to discover the factual bases for these defenses through both written discovery and depositions. During the course of that discovery, plaintiffs learned that Ohio Edison's prior understanding of the meaning of the regulations at issue came primarily, if not exclusively, through opinions rendered by its attorneys. Plaintiffs assert that the defenses and counterclaims raised by Ohio Edison necessarily imply that Ohio Edison was unaware that the regulations at issue could be interpreted in a fashion which would require permits for modifications to the Sammis plant. If Ohio Edison has made such a factual assertion, plaintiffs claim they are entitled to find out whether it is true. Thus, they asked whether Ohio Edison had actually been advised by its attorneys that the regulations might require permits for such modifications. All of plaintiffs' questions about the content of communications between Ohio Edison's attorneys and its employees concerning the interpretation of the regulations were met with the assertion of the attorney-client privilege. Plaintiffs have now moved to compel answers to these questions. They rely upon the general legal doctrine that a party may not raise a defense which has as an element information which is otherwise privileged but simultaneously refuse to divulge that privileged information in order to thwart the opponent's ability to test the merits of the defense. Because the waiver issue relates to three separate defenses or counterclaims raised by Ohio Edison, the Court will discuss each in turn to determine whether, by pleading the defense or counterclaim, Ohio Edison has waived the attorney client privilege for information relevant to that defense or counterclaim.
II. A.
The Court begins its analysis with Ohio Edison's "notice and comment" defense. As explained in its opposing memorandum, Ohio Edison intended, by pleading that defense, to raise the issue of whether the EPA is legally permitted to change a long-standing interpretation of regulation without first (1) giving notice of the proposed change to the persons or entities affected by that regulation, and (2) giving those persons or entities an opportunity to comment on the proposal. Ohio Edison relies on a number of decisions which, in its view, prohibit an agency from reinterpreting a regulation to require different conduct without going through the same process of notice-and-comment rulemaking which preceded the adoption of the original regulation. See Defendants' Consolidated Memorandum at 7-8. According to Ohio Edison, whether it had been advised by its attorneys at some point that a different interpretation of the regulation was either feasible or was actually being followed by the EPA is simply irrelevant to the question of whether the EPA failed to follow required procedures before it adopted a contrary interpretation of the regulations.
Plaintiffs' initial motions lump this defense together with the "fair notice" defense (which is discussed in the following section), and do not specifically argue that Ohio Edison's knowledge of the interpretation of the regulation would prohibit it from raising a defense that proper rulemaking procedures were not pursued. However, in their reply memorandum, plaintiffs assert that, as a matter of substantive law, a party cannot succeed on an objection to the absence of notice and comment rulemaking if that party had actual notice of the agency's revised interpretation of the regulation. Consequently, plaintiffs contend that, as to this defense, if they can demonstrate that Ohio Edison had actual notice of a change in the interpretation of the regulations from any source, the defense is unavailable.
Ohio Edison does not appear to take substantial issue with the plaintiffs' position that if the EPA had given it actual notice of a proposed change, the failure to publish that notice in the Federal Register would not be fatal to the EPA's ability to enforce the regulation as currently interpreted. However, Ohio Edison contends that the focus of the inquiry must be on the agency's action in giving notice rather than upon the subjective understanding of the regulated party. In other words, if the agency gave adequate notice, Ohio Edison's failure to understand the content of that notice might prove fatal to its defense, but if EPA failed to give adequate notice, Ohio Edison's subjective belief that the regulation either was or might be subject to reinterpretation would be irrelevant.
B.
Although Ohio Edison's "fair notice" defense differs from the notice-and-comment defense, the conceptual disagreement among the parties over the privilege issue is essentially the same. In its "fair notice" defense, Ohio Edison asserts that, even if EPA was not required to follow a different rulemaking procedure with respect to the current interpretation of its regulations, the fact that it never gave Ohio Edison or other members of the regulated public fair notice of the change independently prevents the EPA from enforcing the regulation against Ohio Edison with respect to projects which were undertaken before notice was given. Again, according to Ohio Edison, the only issue raised by this defense is whether EPA gave, "fair notice." Ohio Edison again contends that its own subjective understanding of the regulation is irrelevant to this defense. Plaintiffs, on the other hand, contend that Ohio Edison's subjective understanding could completely undermine this defense, and that if the plaintiffs can show that Ohio Edison understood, even in the absence of official agency pronouncements, that its projects required permits, it cannot now be heard to complain about the fact that it never received independent notice from EPA that it had to obtain those permits.
C.
The third defense raised by Ohio Edison is an estoppel defense. This defense contains the traditional elements of estoppel, including the element of reasonable reliance. Thus, according to plaintiffs, if an estoppel defense can be raised based on the facts of this case, Ohio Edison must be claiming not only that it relied upon the allegedly contrary interpretation of the regulations when it failed to request permits for the modification of the Sammis plant, but that such reliance was reasonable. If Ohio Edison had been told by its attorneys that it was required to obtain permits under the applicable regulations, plaintiffs assert that Ohio Edison's purported reliance on a contrary interpretation of the regulations would not have been reasonable. Thus, in order to undercover the factual basis for this defense, plaintiffs need to know what Ohio Edison was told by its attorneys concerning how these regulations applied.
Ohio Edison continues to argue, as it did with its other defenses, that its estoppel defense rests upon factual evidence concerning what a reasonable person would have believed the EPA's interpretation of the regulation to be, and not upon what Ohio Edison actually believed. Perhaps recognizing that the estoppel defense differs conceptually from both the notice and comment rulemaking defense and the fair notice defense because it does appear to contain a subjective element of reasonable reliance, Ohio Edison also asserts that "it is important to emphasize that all Ohio Edison has done is pleaded the defense of estoppel in response to the Plaintiffs' filing of complaints." Ohio Edison asserts that the mere pleading of the defense, "without specifically putting reliance on advice of counsel in issue, is insufficient to waive privilege." Defendants' Consolidated Memorandum, at 17.
D.
Although these three defenses are conceptually separate, the underlying question raised by the present motion to compel is the same: has Ohio Edison necessarily and affirmatively put its subjective understanding of the regulations at issue in this case by pleading these defenses? If so, principles of fundamental fairness would appear to require that Ohio Edison disclose all of the information in its possession which is relevant to its defenses. If not, there would appear to be no justification to permit plaintiffs to intrude upon Ohio Edison's privileged communications with its attorneys.
III.
No analysis of the issue of whether, by pleading an affirmative defense or a counterclaim, a defendant waives the attorney-client privilege for communications relating to that defense or counterclaim, can begin without an analysis of the decision in Hearn v. Rhay, 68 F.R.D. 574 (E.D. Wash. 1975). Hearn involved an action brought under 42 U.S.C. § 1983 in which the defendants raised the defense of "good faith immunity." Although, under current law, see Harlow v. Fitzgerald, 457 U.S. 800 (1982), the determination of whether a defendant is entitled to qualified immunity in a civil rights action is based upon an objective view of the applicable law, that was not so in 1975. Rather, at that time, the defendant's subjective understanding of the state of the law was an element of defense. The plaintiff in Hearn contended that by pleading this defense, the defendants had necessarily placed their state of mind at issue, and that any legal advice given to them by the Washington Attorney General was relevant to that state of mind. After reviewing other cases where courts held that a privilege was waived by pleading a particular claim or defense, the Court noted that
"All of these established exceptions to the rules of privilege have a common denominator; in each instance, the party asserting the privilege placed information protected by it in issue through some affirmative act for his own benefit, and to allow the privilege to protect against disclosure of such information would have been manifestly unfair to the opposing party."
Hearn, 68 F.R.D. at 581. The court held that an implied waiver can be found if three matters can be established: first, that the party possessing the privilege took some affirmative act, such as filing a suit; second, that the affirmative act served to put the protected information at issue by making it relevant to the case; and third, if the court recognized the claim of privilege, the opposing party would have been denied access to information vital to the defense. Applying those factors, the Court found that the assertion of an affirmative defense containing a subjective good faith element constituted a waiver of the attorney-client privilege. The court found it irrelevant whether the defendants actually raised an "advice of counsel" defense, and implied the waiver from the fact that they raised a defense which depended in part upon what advice their counsel had given them. Id. at 581 n. 5.
Perhaps the next major decision on this issue is United States v. Exxon Corp., 94 F.R.D. 246 (D.D.C. 1981). That case, like this one, was a government enforcement action in which the target of enforcement raised an affirmative defense which, according to the government, waived the attorney-client privilege. The defense raised in that case was that Exxon had complied in good faith with the governmental regulations at issue. Following Hearn v. Rhay, the court noted that the issue of good faith reliance had been affirmatively pleaded by the party who subsequently asserted the attorney-client privilege, and it would be unfair to permit a party to raise such a defense without allowing the opposing party discovery concerning the underlying factual basis of that defense. The Court rejected Exxon's assertion that the defense was confined solely to communications between Exxon and the government concerning the regulations at issue, concluding that internal communications within Exxon, including communications with its own attorney, were also pertinent to its "corporate state of mind . . . United States v. Exxon Corp., 94 F.R.D. at 247. The court further rejected Exxon's attempt to limit the scope of the waiver to communications which it relied upon in support of its defense, noting that "because the waiver is generated by the injection of an entire defense, the magnitude of the waiver must be proportionately larger" and "must pertain to all documents bearing upon the subject matter of the defense." Id. at 249.
Not all courts which have considered this issue have relied upon such broad pronouncements. For example, the Court of Appeals for the Third Circuit, in both Rhone-Poulenc Rorer v. Home Indemnity Co., 72 F.3d 851 (1994) and Glenmede Trust Co. v. Thompson, 56 F.3d 476 (1995), distinguished between defenses which generally placed the defendant's state of mind at issue and defenses which specifically relied upon advice of counsel. In Rhone-Poulenc, the Court noted that advice of counsel was not open to discovery simply because it was relevant to some issue in the case, including the issue of whether the client had a particular state of mind, but became an issue only "where the client asserts a claim or defense, and attempts to prove that claim or defense by disclosing or describing an attorney-client communication." Id. at 863. By contrast, the Ninth Circuit appears to follow the District Court's decision in Hearn, which is broader than the test followed by the Third Circuit and by some district courts within the Seventh Circuit. Compare Home Indemnity Co. v. Layne Powell Moss Miller, 43 F.3d 1322 (9th Cir. 1995) with Beneficial Franchise Co. v. Bank One, 205 F.R.D. 212, 216-17 (N.D. Ill. 2001); see also Chamberlain Group v. Interlogix, Inc., 52 Fed.R.Serv.3d 38 (N.D. Ill. 2002).
In the Court's view, a test which explores only whether attorney-client communications are relevant to an affirmative defense or counterclaim does not give due respect to the attorney-client privilege. As noted in Interlogix, supra, "[r]elevancy is not the test for an implicit waiver of attorney client privilege." Interlogix, 52 Fed.R.Serv.3d 38, 2002 WL 467153, *3, citing United States v. Zolin, 491 U.S. 554, 562-63. Thus, "[a] party must affirmatively use privileged communications to defend itself or attack its opponent in the action before the implicit waiver rule is applicable." Id. Consequently, merely pleading the defense of equitable estoppel in patent case without affirmatively relying upon advice of counsel is not sufficient to imply waiver. Id. see also Beneficial Franchise, 205 F.R.D. at 217.
The defenses which Ohio Edison has raised in this case can fairly be described as routine defenses to a governmental enforcement action. It is not uncommon for a party against whom a particular statute or regulation is being enforced to claim that the statute is not readily susceptible of the interpretation being given to it by the agency; or that the agency's interpretation of the statute, even if permissible, renders the statutory language sufficiently vague that reasonable persons could not have been expected to understand that their conduct was unlawful; or that the agency, through the procedures which it used to interpret the statute, violated some aspect of the Administrative Procedure Act. Although it is less common to raise an estoppel defense against the United States because of the difficulty in establishing such a defense, estoppel is certainly a common defense in many types of actions. For the Court to hold that a waiver occurs in every case where a target of government regulation takes issue with the adequacy of the notice given to it concerning the interpretation regulation would be unduly to discourage parties from raising valid defenses. That is not so simply because the party's attorneys might have advised it of possible interpretations of the statute or regulation which are consistent with the ones being advanced by the government, but because all of the communications on the same subject matter would thereby be made the subject of discovery. Once a waiver has been found, the scope of that waiver would ordinarily extend to the entire subject matter of the transaction at issue.
The converse is also true, of course. If Ohio Edison were to attempt to prove that it lacked fair notice of the meaning of these regulations because even its attorneys said it was not required to obtain permits, it would open the door to full discovery of attorney-client communications. If it contends that the government is estopped from enforcing these regulations in the manner asserted in this lawsuit because its attorneys said that the regulations did not require it to obtain permits and that its reliance upon such advice was reasonable, it would pave the way for the plaintiffs to explore the full complement of attorney-client communications relating to that subject. The Court assumes, from its vigorous efforts to shield these communications from discovery, that Ohio Edison does not intend to introduce any such evidence in this case.
This does not mean that the plaintiffs are completely foreclosed from performing discovery as to these defenses. The Court assumes that information which Ohio Edison learned about the interpretation of these regulations from sources other than its own attorneys, even if those sources were not the EPA, has been disclosed. For discovery purposes, that type of information meets the broad relevance test set forth in Fed.R.Civ.P. 26(b) even if the District Judge ultimately determines that it is only the agency's official pronouncements which "count" with respect to the defenses raised. Again, however, because the test for invading attorney-client privilege communications is not simply relevance but affirmative waiver, the Court does not believe that privileged communications are properly discoverable in the absence of some additional action by Ohio Edison which makes it clear that such communications will be relied upon in advancing these defenses.
The Court recognizes that, in order to present a full rebuttal to Ohio Edison's defenses, plaintiffs would like to see what Ohio Edison's attorneys told Ohio Edison about the regulations at issue. It is probable that, by allowing discovery into such communications, the Court would advance the search for the truth which is the ultimate goal of litigation. Nevertheless, all evidentiary privileges necessarily impinge upon the parties' search for the truth, and do so because the policies which require recognition of the privilege outweigh the policies behind full and complete discovery under certain circumstances. The Court is not persuaded that the attorney-client communications at issue here are irrelevant to the fair notice, notice and comment rulemaking, or estoppel defenses, but the Court is persuaded that Ohio Edison has not waived the privilege which otherwise protects such communications simply by pleading those defenses. Consequently, the plaintiff's motions to compel discovery with respect to these motions (file docs. #82 and #83) are denied.
Any party may, within ten (10) days after this Order is filed, file and serve on the opposing party a motion for reconsideration by a District Judge. 28 U.S.C. § 636 (b)(1)(A), Rule 72(a), Fed.R.Civ.P.; Eastern Division Order No. 91-3, pt. I., F., 5. The motion must specifically designate the order or part in question and the basis for any objection. Responses to objections are due ten days after objections are filed and replies by the objecting party are due seven days thereafter. The District Judge, upon consideration of the motion, shall set aside any part of this Order found to be clearly erroneous or contrary to law.
This order is in full force and effect, notwithstanding the filing of any objections, unless stayed by the Magistrate Judge or District Judge. S.D. Ohio L.R. 72.4.