Filed: Aug. 17, 1994
Latest Update: Mar. 02, 2020
Summary: Opinions of the United 1994 Decisions States Court of Appeals for the Third Circuit 8-17-1994 Rhone-Poulenc Rorer, Inc., et al. v. Home Indemnity Co., et al. Precedential or Non-Precedential: Docket 93-1962 and 93-1975 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1994 Recommended Citation "Rhone-Poulenc Rorer, Inc., et al. v. Home Indemnity Co., et al." (1994). 1994 Decisions. Paper 114. http://digitalcommons.law.villanova.edu/thirdcircuit_1994/114 Th
Summary: Opinions of the United 1994 Decisions States Court of Appeals for the Third Circuit 8-17-1994 Rhone-Poulenc Rorer, Inc., et al. v. Home Indemnity Co., et al. Precedential or Non-Precedential: Docket 93-1962 and 93-1975 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1994 Recommended Citation "Rhone-Poulenc Rorer, Inc., et al. v. Home Indemnity Co., et al." (1994). 1994 Decisions. Paper 114. http://digitalcommons.law.villanova.edu/thirdcircuit_1994/114 Thi..
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Opinions of the United
1994 Decisions States Court of Appeals
for the Third Circuit
8-17-1994
Rhone-Poulenc Rorer, Inc., et al. v. Home
Indemnity Co., et al.
Precedential or Non-Precedential:
Docket 93-1962 and 93-1975
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1994
Recommended Citation
"Rhone-Poulenc Rorer, Inc., et al. v. Home Indemnity Co., et al." (1994). 1994 Decisions. Paper 114.
http://digitalcommons.law.villanova.edu/thirdcircuit_1994/114
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________________
Nos. 93-1962 and 93-1975
___________________
RHÔNE-POULENC RORER INC. and
ARMOUR PHARMACEUTICAL COMPANY,
Petitioners,
v.
THE HOME INDEMNITY COMPANY,
a New Hampshire corporation,
v.
AETNA CASUALTY & SURETY INSURANCE; AIU
INSURANCE COMPANY; AMERICAN CENTENNIAL
INSURANCE COMPANY; BIRMINGHAM FIRE INSURANCE
COMPANY; FIRST STATE INSURANCE COMPANY; GRANITE
STATE INSURANCE COMPANY; HARTFORD INSURANCE
COMPANY; INSCO LIMITED; INSURANCE COMPANY OF
PENNSYLVANIA; LEXINGTON INSURANCE COMPANY;
MANHATTAN FIRE & MARINE INSURANCE COMPANY;
MOTOR VEHICLE CASUALTY COMPANY; OLD REPUBLIC
INSURANCE COMPANY; PANTRY PRIDE INC; PROMETHEAN
INSURANCE LTD.; PRUDENTIAL REINSURANCE COMPANY;
PURITAN INSURANCE COMPANY; REVLON INC; TWIN
CITY INSURANCE COMPANY; LONDON MARKET CO.;
JOHN BARRINGTON HUME, AS REPRESENTATIVE OF
UNDERWRITERS AT LLOYDS; INSURANCE COMPANY
OF NORTH AMERICA; NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PENNSYLVANIA; ALL CITY
INSURANCE COMPANY; EMPLOYER'S MUTUAL CASUALTY;
GIBRALAR CASUALTY COMPANY; LANDMARK INSURANCE
COMPANY; NEW ENGLAND INSURANCE COMPANY; ROYAL
INSURANCE COMPANY; REPUBLIC INSURANCE COMPANY;
INTERNATIONAL INSURANCE COMPANY; PACIFIC
INSURANCE COMPANY LTD; ATLANTA INTERNATIONAL
INSURANCE COMPANY; CENTURY INDEMNITY COMPANY;
LIBERTY MUTUAL INSURANCE COMPANY; TRANSPORT
INSURANCE COMPANY; MIDLAND INSURANCE COMPANY;
INTEGRITY INSURANCE COMPANY; UNION INDEMNITY
INSURANCE; TRANSIT CASUALTY COMPANY; CITY
INSURANCE COMPANY; DRAKE INSURANCE COMPANY;
EXCESS INSURANCE COMPANY; HOME INSURANCE
COMPANY; PACIFIC EMPLOYER'S INSURANCE COMPANY;
ROYAL INDEMNITY COMPANY; ZURICH INTERNATIONAL
INSURANCE COMPANY; HENRIJEAN; ILLINOIS
NATIONAL INSURANCE COMPANY; NORTH STAR
REINSURANCE COMPANY; and NATIONAL CASUALTY
INSURANCE COMPANY,
Respondents,
and
THE HONORABLE JAMES McGIRR KELLY,
UNITED STATES DISTRICT JUDGE FOR THE
EASTERN DISTRICT OF PENNSYLVANIA,
Nominal Respondent
MORGAN, LEWIS & BOCKIUS; REED SMITH SHAW &
McCLAY; SHANLEY & FISHER, P.C.; HUGHES HUBBARD
& REED; MONTGOMERY McCRACKEN WALKER & RHOADS;
SKADDEN ARPS SLATE MEAGHER & FLOM; and COOPERS & LYBRAND,
Intervenors in support of
Petitioners.
___________________
RHÔNE-POULENC RORER INC. and
ARMOUR PHARMACEUTICAL COMPANY,
Appellants,
v.
THE HOME INDEMNITY COMPANY,
a New Hampshire corporation,
v.
AETNA CASUALTY & SURETY INSURANCE;
AIU INSURANCE COMPANY; AMERICAN
CENTENNIAL INSURANCE COMPANY;
BIRMINGHAM FIRE INSURANCE COMPANY;
TRANSPORTATION INSURANCE COMPANY;
FIRST STATE INSURANCE COMPANY; GRANITE STATE
INSURANCE COMPANY; HARTFORD INSURANCE
COMPANY; ILLINOIS NATIONAL INSURANCE CO.;
INSCO, LTD; INSURANCE COMPANY OF THE STATE
OF PENNSYLVANIA; LEXINGTON INSURANCE COMPANY;
MANHATTAN FIRE & MARINE INSURANCE COMPANY;
MOTOR VEHICLE CASUALTY COMPANY; NATIONAL
UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA;
NEW ENGLAND REINSURANCE COMPANY; NEW HAMPSHIRE
INSURANCE COMPANY; OLD REPUBLIC INSURANCE
COMPANY; PACIFIC EMPLOYERS INSURANCE COMPANY;
PANTRY PRIDE, INC.; PROMETHEAN INSURANCE, LTD.;
PRUDENTIAL REINSURANCE COMPANY; PURITAN
INSURANCE COMPANY; REVLON, INC; TWIN CITY
INSURANCE COMPANY; THE LONDON MARKET
COMPANIES; and JOHN BARRINGTON HUME A
REPRESENTATIVE OF UNDERWRITERS AT LLOYDS
OF LONDON;
and
REVLON, INC.;
v.
CITY INSURANCE COMPANY; DRAKE INSURANCE
COMPANY; EXCESS INSURANCE COMPANY;
HENRIJEAN; THE HOME INSURANCE COMPANY;
PACIFIC EMPLOYER'S INSURANCE COMPANY; ROYAL
INDEMNITY COMPANY; ZURICH INTERNATIONAL
INSURANCE COMPANY; INSURANCE COMPANY OF
NORTH AMERICA; NATIONAL UNION FIRE INSURANCE
OF PITTSBURGH, PA; ALL CITY INSURANCE COMPANY;
EMPLOYERS MUTUAL CASUALTY COMPANY;
GIBRALTER CASUALTY COMPANY; LANDMARK
INSURANCE COMPANY; NEW ENGLAND INSURANCE
COMPANY; ROYAL INSURANCE COMPANY; REPUBLIC
INSURANCE COMPANY; INTERNATIONAL INSURANCE
COMPANY; PACIFIC INSURANCE COMPANY, LTD.;
ATLANTA INTERNATIONAL INSURANCE CO.; CENTURY
INDEMNITY COMPANY; LIBERTY MUTUAL INSURANCE
COMPANY; TRANSPORTION INSURANCE COMPANY;
MIDLAND INSURANCE COMPANY; PACIFIC
INSURANCE COMPANY LTD.; ATLANTA INSURANCE
COMPANY LTD.; CENTURY INDEMNITY COMPANY;
LIBERTY MUTUAL INSURANCE; MIDLAND INSURANCE
COMPANY; INTEGRITY INSURANCE COMPANY; UNION
INDEMNITY INSURANCE COMPANY; TRANSIT
CASUALTY COMPANY; ROYAL INSURANCE COMPANY;
ROYAL INDEMNITY COMPANY; NEW ENGLAND
INSURANCE COMPANY; INSURANCE COMPANY
OF NORTH AMERICA; NORTH STAR REINSURANCE COMPANY;
and NATIONAL CASUALTY INSURANCE COMPANY,
Appellees,
MORGAN, LEWIS & BOCKIUS; REED SMITH SHAW &
McCLAY; SHANLEY & FISHER, P.C.; HUGHES HUBBARD
& REED; MONTGOMERY McCRACKEN WALKER & RHOADS;
SKADDEN ARPS SLATE MEAGHER & FLOM; and COOPERS & LYBRAND,
Intervenors-appellants.
____________________
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
(D.C. Civ. No. 88-9752)
_____________________
Argued March 10, 1994
Before: MANSMANN, LEWIS, Circuit Judges
McKELVIE, District Judge*
_____________________
(Filed August 17, l994)
_____________________
*Hon. Roderick R. McKelvie, United States District Judge for the
District of Delaware, sitting by designation
STEPHEN J. MATHES (Argued)
WILLIAM R. HERMAN
Hoyle, Morris & Kerr
One Liberty Place, Suite 4900
1650 Market Street
Philadelphia, PA 19103
Attorneys for Appellants/Petitioners Rhône-
Poulenc Rorer Inc. and Armour Pharmaceutical
Company
JEFFREY B. ALBERT
Fox, Rothschild, O'Brien & Frankel
2000 Market Street
10th Floor
Philadelphia, PA 19103
JAMES W. CHRISTIE
Christie, Pabarue, Mortensen and Young
1880 JFK Boulevard
10th Floor
Philadelphia, PA 19103
ROY L. REARDON
JAMES P. BARRETT
ROBERT F. CUSUMANO (Argued)
DAVID J. WOLL
KEVIN G. LAURI
Simpson, Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attorneys for Appellee/Respondent The Home
Indemnity Company
H. MARC TEPPER
Margolis, Edelstein & Scherlis
Sixth and Walnut Streets
The Curtis Center, 4th Floor
Philadelphia, PA 19106
Attorney for Appellees/Respondents AIU
Insurance Company, Birmingham Fire Insurance,
Granite State Insurance Company, Illinois
National Insurance Company, Lexington Insurance
Company, National Union Fire Insurance Company of
Pittsburgh, Pennsylvania, New Hampshire Insurance
Company and Landmark Insurance Company
JOSEPH M. OBERLIES
Connor & Weber
2401 Pennsylvania Avenue
Suite 1C-47
Philadelphia, PA 19130
Attorney for Appellee/Respondent American
Centennial Insurance Company
RICHARD B. MARRIN
Ford, Marrin, Esposito & Witmeyer
88 Pine Street
Wall Street Plaza, 23rd Floor
New York, NY 10005
WILLIAM G. SCARBOROUGH
Stradley, Ronon, Stevens & Young
2600 One Commerce Square
Philadelphia, PA 19103
Attorneys for Appellee/Respondent Transport
Insurance Company
E. DOUGLAS SEDERHOLM (Argued)
RICHARD J. BORTNICK
White and Williams
One Liberty Place
Suite 1800
1650 Market Street
Philadelphia, PA 19103
Attorneys for Appellees/Respondents Pacific
Employers Insurance Company, Century
Indemnity Company and Insurance Company of
North America
WALTER A. STEWART
Manta & Welge
2005 Market Street
One Commerce Square
37th Floor
Philadelphia, PA 19103
Attorney for Appellees/Respondents Liberty
Mutual Insurance Company, Liberty Mutual
Insurance and Royal Indemnity Company
EDWARD M. DUNHAM, JR.
Miller, Dunham, Doering & Munson
1515 Market Street
13th Floor
Philadelphia, PA 19102
Attorney for Appellee/Respondent Aetna
Casualty & Surety Company
SUSAN M. DANIELSKI
Cozen & O'Connor
The Atrium
1900 Market Street
Philadelphia, PA 19103
Attorney for Appellees/Respondents Pantry
Pride Inc.
and Revlon Inc.
THOMAS C. DELORENZO
Marshall, Dennehey, Warner, Coleman & Goggin
1845 Walnut Street
Philadelphia, PA 19103
Attorney for Appellees/Respondents Prudential
Reinsurance Company and Gibraltar Casualty
Company
DAVID F. ABERNETHY
Drinker, Biddle & Reath
1345 Chestnut Street
Philadelphia National Bank Building
Philadelphia, PA 19107-3496
Attorney for Appellee/Respondent
International Insurance Company
RONALD P. SCHILLER
Piper & Marbury
Two Penn Center Plaza
Suite 1500
Philadelphia, PA 19102
Attorney for Appellee/Respondent North Star
Reinsurance Company
THOMAS M. KITTREDGE (Argued)
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19103
Attorney for Intervenor Morgan, Lewis &
Bokius
KERRY A. KEARNEY
Reed Smith Shaw & McClay
Mellon Square
435 Sixth Avenue
Pittsburgh, PA 15219
Attorney for Intervenor Reed Smith Shaw &
McClay
RAYMOND M. TIERNEY, JR.
SUSAN SHARKO
Shanley & Fisher
131 Madison Avenue
Morristown, NJ 07962
Attorneys for Intervenor Shanley & Fisher
JEFF H. GALLOWAY
Hughes, Hubbard & Reed
One Battery Park Plaza
New York, NY 10004
Attorney for Intervenor Hughes, Hubbard &
Reed
JEREMY D. MISHKIN
Montgomery, McCracken, Walker & Rhoads
Three Parkway, 20th Floor
Philadelphia, PA 19103
Attorney for Intervenor Montgomery,
McCracken, Walker & Rhoads
ED YODOWITZ
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Attorney for Intervenor Skadden, Arps,
Slate, Meagher & Flom
MATTHEW J. BRODERICK
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attorney for Intervenor Coopers & Lybrand
_________________________________
McKELVIE, District Judge.
In this insurance coverage case, the district court has
ordered the insureds, their attorneys and their accountants to
produce documents that would normally be protected from
disclosure by the attorney client privilege, by the accountant
client privilege, or as attorney work product. The documents to
be produced were created before the insureds purchased coverage,
and contain evaluations of the insureds' potential liability to
consumers of their products.
The district court found the information in the documents
relevant to matters in issue in the action in that it may tend to
show whether or not the insureds expected or intended the claims
for which they seek coverage. The court held the insureds had
waived any right to maintain confidentiality of these documents
by filing this action for coverage and by putting in issue the
matter of their knowledge of facts relating to the claims.
The insureds have appealed from that order. They have also
filed a petition for a writ of mandamus directing the district
court to vacate and reverse the order. The six law firms and the
accounting firm that have been subpoenaed to produce documents
have moved to intervene and join in the insureds' requests for
relief.
For the reasons set out below, we will grant the
petitioners' request for relief and issue a writ of mandamus to
the district court and direct it to vacate its order that these
documents be produced.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
A. The Parties and the Nature of the Proceedings
Rhône-Poulenc Rorer Inc. is the successor to the Rorer Group
Inc. In the fall of 1985, soon after Pantry Pride, Inc. had
acquired Revlon, Inc., Rorer entered into an agreement with
Pantry Pride to purchase Revlon's ethical pharmaceutical
businesses, including USV and Armour Pharmaceutical Company. One
of Armour's products was Factorate, a blood clotting product
processed by Armour and sold principally for use by hemophiliacs.
Rorer formally acquired Armour on January 7, 1986. On April
21, 1986, Armour was named in the first of a series of lawsuits
filed by individuals who claimed Factorate had infected them with
the Human Immunodeficiency Virus (HIV), which is thought to be
the cause of Acquired Immunodeficiency Syndrome (AIDS). To date,
Armour has been joined as a defendant in more than two hundred
AIDS-related cases.
Rorer had purchased a general liability insurance policy
from The Home Indemnity Company on December 31, 1985, and looked
to it for coverage for the claims against Armour. In addition,
it sought coverage under a blanket excess policy it purchased
from Pacific Employers Insurance Company on July 29, 1986. Home
denied coverage for these AIDS-related claims.
In December of 1988, Rorer and Armour brought this suit in
the United States District Court for the Eastern District of
Pennsylvania. In the complaint, they allege they are insureds
under a primary comprehensive general liability insurance policy
provided by The Home Indemnity Company. They contend Home has
failed and refused to honor its obligations to defend and
indemnify them from liability for the AIDS-related claims. They
contend the district court has subject matter jurisdiction based
on diversity of citizenship of the parties under 28 U.S.C. §
1332. Rhône-Poulenc and Armour seek, among other things, a
declaration that Home accepted coverage for these claims.
Home answered the complaint by denying that Rhône-Poulenc
Rorer and Armour are entitled to the relief sought. In addition,
it has asserted a number of affirmative defenses and has filed a
counterclaim for a declaration that it does not owe a duty to
indemnify or defend the plaintiffs for the claims identified in
the complaint. Home has also filed a third party complaint
against Pantry Pride, Inc., Revlon, Inc. and a number of
insurance companies, including Pacific Employers Insurance
Company. Certain of the third-party defendant insurers have
filed fourth-party complaints against other insurers.
One of Home and Pacific Employers' affirmative defenses is
that the claims identified in the complaint are excluded from
coverage because they do not result from "occurrences." The
insurers agreed to indemnify and defend against claims relating
to bodily injury that is caused by an occurrence. An occurrence
is defined in the Home policy as "an accident, including
continuous or repeated exposure to conditions, which results in
bodily injury or property damage neither expected nor intended
from the standpoint of the insureds." The insurers argue that
the alleged transmission of HIV from Factorate was known when the
insurance policies were purchased, that the resulting injuries
were not "neither expected nor intended," and that the resulting
claims are not insured.
A second affirmative defense asserted by the insurers is
that Rorer and Armour wrongfully obtained the coverage by
intentionally failing to disclose their knowledge of the
potential for these claims. A third defense is that Armour sold
the products knowing that they would create an unreasonable risk
of harm to others and that the resulting claims are, therefore,
uninsurable.
B. The Discovery Sought by Home and Pacific Employers
In connection with these defenses, Home and Pacific
Employers have sought discovery from the plaintiffs on what
information they may have had prior to purchasing the policies
that would have suggested that Armour's products might transmit
the HIV virus and that Armour would be subject to claims for
injuries suffered as a result of transmitting that virus.
During a September, 1992 deposition, Robert E. Cawthorn,
Rhône-Poulenc Rorer's chairman and chief executive officer,
testified to the investigation and analysis undertaken by Rorer
in connection with its decision to purchase Armour. Cawthorn
testified that at the time Rorer was negotiating to purchase
Armour he and others at Rorer were aware of reports in the press
that blood products might have transmitted the AIDS virus and had
sought and obtained advice from counsel with regard to
liabilities for claims alleging damages for transmitting the
virus. He testified:
We had got the advice of outside counsel on
the potential legal liabilities in this area
and had learned that blood products are not
considered in most states as products, per
se, and are not subject to the same liability
laws as regular pharmaceutical products. We
had learned that there was some precedence
[sic] in terms of transmission of the
hepatitis virus which these plasma products
had transmitted to hemophiliacs. And that,
in fact, my recollection is we were told that
there had been no successful cases against
the fractionaters [sic] and hepatitis because
of the particular legal situation. And the
opinion was that that should hold, also, for
the AIDS virus.
After the deposition, Home and Pacific Employers moved for
an order extending the time for completion of discovery and
compelling Rhône-Poulenc and Armour to produce all evaluations of
their potential liability for AIDS-related claims, including any
documents confirming the advice described by Cawthorn. In
response to the motion, Rhône-Poulenc and Armour produced copies
of four documents, subject to an agreement with the insurers that
the production would not waive any privilege with respect to any
other communication.
The first of the four documents produced is the minutes of
the November 26, 1985, meeting of the Board of Directors of Rorer
Group Inc. During this meeting the Board considered the Armour
acquisition. Those minutes show that John W. Eckman chaired the
meeting, and that Cawthorn and Rorer's general counsel, Richard
H. Lange, were present. Also present were representatives of the
accounting firm of Coopers & Lybrand and the investment banking
firm of First Boston Corporation, as were attorneys from the law
firms of Hughes, Hubbard & Reed; Skadden, Arps, Slate, Meagher &
Flom; and Montgomery, McCracken, Walker & Rhoads. The following
summary is included in the minutes:
In response to a question by Mr. Eckman concerning
Armour's product liability exposure, Mr. Lange said
that Armour's products are not regarded as drug
products, with associated strict liability, and that it
has been necessary to prove negligence by the
manufacturer as a basis for liability. In addition,
many states have legislation limiting liability for
blood products. There have been only about six to
eight AIDS contamination suits to date in the industry,
none of them against Armour. Revlon has carried an
umbrella excess liability policy of $60 million, and
the benefits of a substantial portion of this coverage
will be available for USV/Armour product claims arising
during the pre-acquisition period.
The second document produced by the insureds is a copy of an
April 10, 1986, letter from John S. Allee, an attorney with
Hughes, Hubbard & Reed, to Richard Lange, forwarding to Lange a
copy of the third document produced, a memorandum by Hughes
Hubbard titled "Survey of Blood Immunity Statutes and Case Law."
This survey provides a state-by-state analysis of the law
applicable to entities engaged in the preparation, distribution
and use of human blood and blood products.
The fourth document is a copy of an April 18, 1986, letter
from Allee to Lange following up on the April 10 letter and
suggesting steps Lange should consider as a part of his risk
assessment and reduction efforts. In producing a copy of this
seven page letter, Rhône-Poulenc and Armour redacted
approximately one half of the typed material on the fifth page
and the entire sixth page, and reported to the insurers that the
deleted material contained very general advice of a legal nature
as well as Allee's mental impressions.
On receiving copies of these documents, Home and Pacific
Employers continued to pursue their motion to compel, and asked
the court to enter an order directing the plaintiffs to produce
all documents in their possession, custody or control relating to
the 1985 and early 1986 assessments of potential AIDS-related
claims.
In the briefing in support of their motion, the insurers
argued that these documents would disclose what information the
insureds had about the AIDS-related claims at the time they
obtained the coverage, the advice they received on whether those
claims would be asserted, and their intent or expectation as to
whether they would become obligated to pay damages as a result of
those claims. Home and Pacific Employers argued that this
information would be relevant to a number of issues in the
litigation, including whether the AIDS-related claims fell within
the definition of an "occurrence" under the policy, whether Rorer
and Armour had sufficient knowledge of the probability of the
AIDS-related claims so that in obtaining the coverage they had
breached duties owed the insurers by failing to disclose facts
relating to the risk that Armour's products transmitted the HIV
virus, and whether or not the probability of the AIDS-related
claims was sufficiently clear at the time the insureds obtained
the coverage that they would not be insurable as fortuitous
claims.
Home and Pacific Employers argued that by filing the suit
and putting these matters in issue, Rhône-Poulenc and Armour had
waived any right to object to the disclosure of the requested
documents on the grounds of privilege or work product. The
insurers also argued Rhône-Poulenc and Armour had waived any
protection from disclosure by failing to file timely objections
to the initial discovery requests seeking the disclosure of these
documents and by failing to identify them on a list of documents
being withheld as privileged or as work product. With regard to
the redacted portion of the April 18 Hughes Hubbard letter, they
argued Rorer had disclosed the letter to First Boston after the
acquisition and thus had waived the privilege. They further
argued that by producing a portion of the letter Rhône-Poulenc
and Armour had waived the privilege as to the balance of the
contents, including the advice that had been redacted.
The insurers asked the district court to enter an order
compelling Rhône-Poulenc and Armour to produce all evaluations or
assessments of their potential liability for AIDS-related claims
arising from Armour's blood products, including those in their
possession and those in the possession of their present and
former agents and attorneys. This request includes documents in
the possession of the law firms that had advised Rorer in
connection with the acquisition of Armour: Hughes, Hubbard &
Reed; Skadden, Arps, Slate, Meagher & Flom; and Montgomery,
McCracken, Walker & Rhoads, as well as the accounting firm
Coopers & Lybrand, and three law firms that have represented
Armour in connection with the AIDS-related claims: Morgan, Lewis
& Bockius; Shanley & Fisher; and Reed Smith Shaw & McClay.
C. The Magistrate Judge's Orders Providing for the
Production of Documents
The district court referred the motion to a magistrate
judge. By an opinion and order dated March 30, 1993, the
magistrate judge found the advice in the April 18 Hughes Hubbard
letter relevant to matters in issue in the litigation, including
whether the underlying claims arose from a fortuitous event or
circumstance and were not the result of a known loss, and whether
the injuries giving rise to the claims were not expected or
intended. The magistrate judge held that as Rhône-Poulenc and
Armour had brought the action and had put their own conduct and
the conduct of their counsel in issue, they had waived any right
to object to the disclosure of the documents based on the
attorney client privilege or the work product doctrine.
In addition, the magistrate judge noted that a related
rationale for a finding of waiver is that the selective use of
privileged information may garble the truth. In that situation,
he noted, fairness demands a party be allowed to examine the
whole picture. The magistrate judge therefore ordered the
redacted portions of the April 18 letter produced and scheduled
further argument on the balance of the documents sought by the
insurers.
The magistrate judge heard further argument from the parties
on April 13, 1993. During that argument, counsel for the
insurers argued that Rhône-Poulenc and Armour had wrongfully
failed to disclose the existence of the assessments in response
to discovery requests. At the conclusion of the argument, the
magistrate judge reviewed the basis for his March 30 opinion and
found that the insurers had sought production of the documents
long before the end of discovery. He directed Rhône-Poulenc and
Armour to produce the liability assessments sought by the
insurers and also directed counsel for the insurers to prepare
and submit for approval subpoenas to be delivered to the law
firms and accounting firm directing them to produce the documents
sought by the insurers.
By letter dated April 20, 1993, counsel for the insurers
submitted to the magistrate judge copies of proposed subpoenas
addressed to the six law firms and the accounting firm. On April
21 the magistrate judge entered an order approving the subpoenas
and providing that any objections to the subpoenas must be
presented to the district court within five days from the date of
the order. Thereafter, the insurers' counsel delivered subpoenas
issued by the Southern District of New York on Hughes Hubbard,
Skadden Arps, and Coopers & Lybrand at their offices in New York
City and sought production of the documents at Simpson Thatcher &
Bartlett's offices in New York on May 3, 1993. They delivered
subpoenas issued by the Eastern District of Pennsylvania on
Morgan Lewis, and Montgomery McCracken at their offices in
Philadelphia and sought production of the documents at Fox,
Rothschild, O'Brien & Frankel's offices in Philadelphia on May 3,
1993. They also delivered subpoenas issued by the Eastern
District of Pennsylvania on Shanley & Fisher at its offices in
Morristown, New Jersey and on Reed Smith at its offices in
Philadelphia and sought production of the documents at White and
Williams' offices in Philadelphia on May 3, 1993. The subpoenas
sought production of the following documents:
1. All documents, including, but not limited to, time
billing records, that reflect the date of your
retention by plaintiffs and/or the purpose of your work
for plaintiffs.
2. All documents concerning actual or potential AIDS-
related claims against plaintiffs or against any other
company or entity which manufactured and/or distributed
blood products, to the extent that such documents were
received or created, or are contained in files
pertaining to, your work for plaintiffs.
3. All documents that constitute, were reviewed in
preparation for, or are contained in files concerning
actual or potential AIDS-related claims.
4. All documents concerning insurance coverage for
actual or potential AIDS-related claims against
plaintiffs.
5. All documents concerning (i) blood shield statutes;
(ii) the nature and scope of liability arising from the
manufacture and/or sale and/or use of blood products
generally; and (iii) the nature and scope of liability
arising from the manufacture and/or sale and/or use of
Armour's blood products in particular.
6. All documents concerning information and/or advice
pertaining to plaintiffs' actual or potential liability
for AIDS-related claims arising from the manufacture
and/or sale and/or use of Armour's blood products
communicated by Rorer or any agent or representative of
Rorer to persons and/or entities interested in
acquiring Armour or any of its assets in 1986.
7. All documents concerning information and/or advice
pertaining to plaintiffs' actual or potential liability
for AIDS-related claims arising from the manufacturer
and/or sale and/or use of Armour's blood products
communicated by you or others to Rorer in connection
with the attempted sale of Armour in 1986.
8. All documents concerning information and/or advice
pertaining to plaintiffs' actual or potential liability
for AIDS-related claims arising from the manufacture
and/or sale and/or use of Armour's blood products
communicated by Rorer or any agent or representative of
Rorer to others in connection with the attempted sale
of Armour in 1986.
Rhône-Poulenc and Armour did not appeal the March 30 order
directing them to produce the redacted portion of the April 18
Hughes Hubbard letter. They did, however, take an appeal to the
district court from the magistrate judge's April 13 order, and
moved to quash the subpoenas. Skadden Arps and Morgan Lewis also
moved to quash and the district court granted their motions. In
addition, all seven firms served objections to the subpoenas on
the grounds that they sought documents protected from disclosure
as privileged and as work product and on the grounds of
relevance, vagueness and oppressiveness. The presentation of
these matters resulted in a clarification of the status of
certain discovery requests, of Rhône-Poulenc and Armour's
responses to those requests, and of agreements that had
apparently been reached by the parties but had not been filed
with the court. The rediscovery of this information caused
counsel for the insurers to abandon the argument that Rhône-
Poulenc and Armour had wrongfully failed to identify these
documents in discovery or had waived objections to producing them
by failing to respond to discovery requests or by failing to list
the documents on a privilege log. Thereafter, the district court
found that these procedural matters would not be controlling on
an appeal from the magistrate judge's order, as it appeared the
magistrate judge would have ordered production of the documents
in any event.
D. The District Court's Order Denying Objections to the
Magistrate Judge's Order and Denying Motions to Quash
The district court heard argument on the appeal and motions
to quash on July 28, 1993. By an opinion and order dated August
6, 1993, and entered on August 9, the court found:
In accordance with [the magistrate judge's]
findings, this court adjudges the subpoenas
to pertain to directly relevant information.
At issue is Plaintiffs' knowledge of the
liabilities associated with the acquisition
of Armour. The issues put into question by
this lawsuit focus around Plaintiffs'
knowledge of the underlying claims and when
they became aware of such claims. This court
finds that the documents The Home and PEIC
seek will aide in disclosing what and when
Plaintiffs knew of the underlying claims.
Thus, the information contained in the
requested documents is directly relevant.
Therefore, in this instance this court finds
it necessary to invade the attorney-client
privilege.
The district court denied the insureds' objections to the
magistrate judge's order and the motions to quash, and reinstated
Skadden Arps and Morgan Lewis' obligations to produce documents
identified in the subpoenas. By that decision, the district
court held: (1) in filing the action for a declaration of
insurance coverage, Rhône-Poulenc and Armour had put in issue the
knowledge they had as to potential AIDS-related claims at the
time they purchased the coverage; (2) by putting their knowledge
of those matters in issue, they had waived the privilege to
prevent the disclosure of attorney client and accountant client
communications relevant to those matters; and (3) by putting
their knowledge of these matters in issue, they had also waived
the protection from disclosure of the work product of their
attorneys.
Plaintiffs, their attorneys and accountants sought
reargument on that decision and by an order dated October 4,
1993, the district court denied their motion.
E. The Appeal and Petition for a Writ of Mandamus
On October 15, 1993, Rhône-Poulenc and Armour filed
petitions with this court for a stay of the August 6 order and
for a writ of mandamus directing the district court to vacate and
reverse the August 6 order. On October 19, 1993, Rhône-Poulenc
and Armour filed a notice of appeal from that order and the
court's order denying the motion for reargument.
We have entered orders staying the discovery, consolidating
the proceedings on the petition and the appeal, and granting the
petition to intervene filed by the six law firms and Coopers &
Lybrand.
II. DISCUSSION
A. Jurisdiction and Scope of Review
Rhône-Poulenc and Armour urge us to find that we have
jurisdiction to hear this appeal under 28 U.S.C. § 1291. Section
1291 states that the courts of appeals have jurisdiction over
appeals from all final decisions of the district courts of the
United States. Generally, discovery orders are not final and not
reviewable under this section. However, under the collateral
order doctrine a discovery order is appealable where it meets the
following three criteria:
First, the order must conclusively determine the
disputed question. Second, the order must resolve an
important issue completely separate from the merits of
the action. Third and finally, the order must be
effectively unreviewable on appeal from a final
judgment.
Smith v. BIC Corp., 869 F.2d 194, 198 (3d Cir. 1989).
Rhône-Poulenc and Armour argue that each element of this
test is present here because: (1) the order they appeal from
conclusively determines that they must disclose privileged
communications and work product; (2) the order resolves issues
totally separate from the merits of the case; and (3) the order
will not be effectively reviewable after judgment, as the
privilege and confidentiality for the information in the
documents will be lost when they are produced.
In Smith, we held that the public disclosure of trade
secrets is not effectively reviewable. A trade secret is
valuable because it allows a business to obtain an advantage over
competitors who do not know or use it. The damage suffered by a
business due to public disclosure of trade secrets cannot be
remedied by an appellate court because the court cannot make the
information secret again. Here, however, an appellate court can
remedy any damage resulting from the erroneous disclosure of
documents after judgment. As the United States Court of Appeals
for the Tenth Circuit recently explained:
The practical consequences of the district court's
decision on the controversy between the parties can be
effectively reviewed on direct appeal following a
judgment on the merits. If this court determines that
privileged documents were wrongly turned over to the
plaintiffs and were used to the detriment of defendants
at trial, we can reverse any adverse judgment and
require a new trial, forbidding any use of the
improperly disclosed documents. Plaintiffs would also
be forbidden to offer at trial any documents,
witnesses, or other evidence obtained as a consequence
of their access to privileged documents.
Boughton v. Cotter Corporation, 10 F.3d 746, 749 (10th Cir.
1993).
As the district court's order is effectively reviewable on
appeal from a final judgment, section 1291 does not give us
jurisdiction to hear an appeal at this time.
Alternatively, the insureds argue that we should decide the
matter pursuant to our authority to issue a writ of mandamus
under the All Writs Act, 28 U.S.C. § 1651(a), which provides that
the federal courts may issue all writs "necessary or appropriate
in aid of their respective jurisdictions and agreeable to the
usages and principles of law." The two prerequisites for the
issuance of a writ of mandamus are that the petitioners have no
other adequate means to obtain the relief sought and that they
have shown that their right to the writ is clear and
indisputable. Kerr v. United States Dist. Court, 426 U.S. 394,
96 S. Ct. 2119,
48 L. Ed. 2d 725 (1976).
Mandamus may properly be used as a means of immediate
appellate review of orders compelling the disclosure of documents
and information claimed to be protected from disclosure by
privilege or other interests in confidentiality. Haines v.
Liggett Group Inc., 975 F.2d 81, 89 (3d Cir. 1992); Cipollone v.
Liggett Group, Inc.,
785 F.2d 1108, 1118 (3d Cir. 1986); Sporck
v. Peil,
759 F.2d 312, 314, 315 (3d Cir. 1985), cert. denied,
474
U.S. 903; Bogosian v. Gulf Oil Corp.,
738 F.2d 587, 592 (3d Cir.
1984). See also, Chase Manhattan Bank, N.A. v. Turner & Newall,
PLC.,
964 F.2d 159 (2d Cir. 1992); In re von Bulow,
828 F.2d 94
(2d Cir. 1987). We find that the petitioners have no other
adequate means to attain relief from the district court's order
that compels the disclosure of privileged information and work
product. In addition, we find that the district court has
committed clear errors of law in ordering that information
disclosed. The petitioners' right to the writ is, therefore,
clear and indisputable. We will exercise mandamus jurisdiction
to resolve the issues raised by the petitioners.
B. Whether Rhône-Poulenc and Armour have Waived the
Attorney Client Privilege by Filing this Suit to
Establish Insurance Coverage
Federal Rule of Civil Procedure 26(b)(1) provides:
Parties may obtain discovery regarding any
matter, not privileged, which is relevant to
the subject matter involved in the pending
action, whether it relates to the claim or
defense of the party seeking discovery or to
the claim or defense of any other party,
including the existence, description, nature,
custody, condition, and location of any
books, documents, or other tangible things
and the identity and location of persons
having knowledge of any discoverable matter.
The information sought need not be admissible
at the trial if the information sought
appears reasonably calculated to lead to the
discovery of admissible evidence.
Rule 26 thus provides that relevant but privileged matters
are not discoverable. As a result, it frequently occurs that a
party has documents containing information relevant to matters of
consequence in the action, but does not produce the documents or
disclose confidential communications, and the information is not
offered into evidence at trial. In this case, Home and Pacific
Employers seek to discover more than just information on what
facts Rorer and Armour had gathered about potential AIDS-related
claims before they purchased the policies. They also seek to
discover the advice counsel provided to Rorer with regard to the
legal significance of those facts and documents that identify and
disclose communications relating to that advice. Those
communications and the documents containing those communications
would normally be protected from disclosure by the attorney
client privilege.
As the claims and defenses in issue in this action arise
under state law, Federal Rules of Evidence 501 and 1101(c)
provide that we should apply state law in determining the extent
and scope of the attorney client privilege.1 The parties and
1
Rule of Evidence 501 reads:
Rule 501. General Rule
intervenors agree that we should look to the privilege rules of
the forum state, the Commonwealth of Pennsylvania, as
establishing the privilege for the attorney client communications
in issue in this case.2 No one has argued, however, that there
are any principles or rules of law as to the attorney client
privilege unique to Pennsylvania that should control the
resolution of our decision on these matters.
The traditional elements of the attorney client privilege
that identify communications that may be protected from
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.
Rule of Evidence 1101(c) reads:
(c) Rule of privilege.
The rule with respect to privileges applies at all
stages of all actions, cases, and proceedings.
2
Pennsylvania has codified the attorney-client privilege at 42
Pa.C.S.A. § 5928 (Purdon 1982) as follows:
In a civil matter counsel shall not be competent or
permitted to testify to confidential communications
made to him by his client, nor shall the client be
compelled to disclose the same, unless in either case
this privilege is waived upon the trial by the client.
disclosure in discovery are: (1) the asserted holder of the
privilege is or sought to become a client; (2) the person to whom
the communication was made (a) is a member of the bar of a court,
or his or her subordinate, and (b) in connection with this
communication is acting as a lawyer; (3) the communication
relates to a fact of which the attorney was informed (a) by his
client (b) without the presence of strangers (c) for the purpose
of securing primarily either (i) an opinion of law or (ii) legal
services or (iii) assistance in some legal proceeding, and (d)
not for the purpose of committing a crime or tort; and (4) the
privilege has been (a) claimed and (b) not waived by the client.
See In re Grand Jury Investigation, 599 F.2d 1224, 1233 (3d Cir.
1979) citing United States v. United Shoe Machinery Corp., 89 F.
Supp. 357, 358-59 (D.Mass. 1950); see also, 8 Wigmore, Evidence,
§ 2292, at 554 (J. McNaughton rev. 1961) (1st ed. 1904).
While documents may be protected from disclosure in
discovery because they contain confidential communications that
are privileged, that protection may be inapplicable to facts
incorporated in the communication. Upjohn Co. v. United States,
449 U.S. 383, 395-396,
101 S. Ct. 677,
66 L. Ed. 2d 584 (1981).
[T]he protection of the privilege extends
only to communications and not to facts. A
fact is one thing and a communication
concerning that fact is an entirely different
thing. The client cannot be compelled to
answer the question, `What did you say or
write to the attorney?' but may not refuse to
disclose any relevant fact within his
knowledge merely because he incorporated a
statement of such fact into his communication
to his attorney.
Id. (quoting City of Philadelphia, Pa. v. Westinghouse Elec.
Corp.,
205 F. Supp. 830, 831 (E.D.Pa. 1962)).
Evidentiary privileges are an exception to the general rule
that relevant evidence is admissible. Privileges forbid the
admission of otherwise relevant evidence when certain interests
the privileges are thought to protect are regarded as more
important than the interests served by the resolution of
litigation based on full disclosure of all relevant facts. The
privilege forbidding the discovery and admission of evidence
relating to communications between attorney and client is
intended to ensure that a client remains free from apprehension
that consultations with a legal adviser will be disclosed. See
Hunt v. Blackburn, 128 U.S. 464, 470,
9 S. Ct. 125,
32 L. Ed. 488
(1888). See Wigmore, § 2290, at 543. The privilege encourages
the client to reveal to the lawyer confidences necessary for the
lawyer to provide advice and representation. Upjohn Co. v.
United States,
449 U.S. 383, 389,
101 S. Ct. 677, 682,
66 L. Ed. 2d
584 (1981). See E. Cleary, McCormick on Evidence, § 87, at 314
(3d ed. 1984). As the privilege serves the interests of justice,
it is worthy of maximum legal protection. Haines v. Liggett
Group Inc.,
975 F.2d 81, 90 (3d Cir. 1992).
If we intend to serve the interests of justice by
encouraging consultation with counsel free from the apprehension
of disclosure, then courts must work to apply the privilege in
ways that are predictable and certain. "An uncertain privilege--
or one which purports to be certain, but rests in widely varying
applications by the courts--is little better than no privilege."
In re von Bulow, 828 F.2d at 100.
There is authority for the proposition that a party can
waive the attorney client privilege by asserting claims or
defenses that put his or her attorney's advice in issue in the
litigation. For example, a client may waive the privilege as to
certain communications with a lawyer by filing a malpractice
action against the lawyer. See Wigmore, § 2327, at 638. A
defendant may also waive the privilege by asserting reliance on
the advice of counsel as an affirmative defense. Chevron Corp.
v. Pennzoil Co., 974 F.2d 1156 (9th Cir. 1992) (party's claim
that its tax position was reasonable because it was based on
advice of counsel puts advice in issue and waives privilege); see
also, Hunt v.
Blackburn, 128 U.S. at 470, (client waives
privilege when she alleges as a defense that she was misled by
counsel). See generally, E. Cleary, McCormick on Evidence § 93,
at 343 (3d ed. 1984). In an action for patent infringement,
where a party is accused of acting willfully, and where that
party asserts as an essential element of its defense that it
relied upon the advice of counsel, the party waives the privilege
regarding communications pertaining to that advice. Mellon v.
Beecham Group PLC, 17 U.S.P.Q.2d 1149, 1151 (D.N.J. 1991); see
also, e.g., W.L. Gore & Associates, Inc. v. Tetratec Corp., 15
U.S.P.Q.2d 1048, 1051 (E.D.Pa. 1989) (client waived privilege by
asserting reliance upon advice of counsel as an essential element
of his defense).
In these cases, the client has made the decision and taken
the affirmative step in the litigation to place the advice of the
attorney in issue. Courts have found that by placing the advice
in issue, the client has opened to examination facts relating to
that advice. Advice is not in issue merely because it is
relevant, and does not necessarily become in issue merely because
the attorney's advice might affect the client's state of mind in
a relevant manner. The advice of counsel is placed in issue
where the client asserts a claim or defense, and attempts to
prove that claim or defense by disclosing or describing an
attorney client communication. North River Insurance Company v.
Philadelphia Reinsurance Corporation, 797 F. Supp. 363, 370
(D.N.J. 1992); Pittston Company v. Allianz Insurance Co.,
143
F.R.D. 66, 71 (D.N.J. 1992).
Thus, in a patent suit, where an infringer is alleged to
have acted willfully, the advice of the infringer's lawyer may be
relevant to the question of whether the infringer acted with a
willful state of mind. However, the advice of the infringer's
counsel is not placed in issue, and the privilege is not waived,
unless the infringer seeks to limit its liability by describing
that advice and by asserting that he relied on that advice. When
the advice of counsel is asserted as a defense by the infringer,
the patent owner may explore facts that would make it more
probable than not that the infringer did not rely in good faith
on that advice, including for example, what the advice was, when
it was given, whether the alleged infringer's conduct suggests he
had relied on the advice and whether he had knowledge of facts
that would have led him to believe it would not be reasonable to
rely on that advice. See, e.g., Underwater Devices Inc. v.
Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983).
Finding a waiver of the attorney client privilege when the
client puts the attorney's advice in issue is consistent with the
essential elements of the privilege. That is, in leaving to the
client the decision whether or not to waive the privilege by
putting the attorney's advice in issue, we provide certainty that
the client's confidential communications will not be disclosed
unless the client takes an affirmative step to waive the
privilege, and we provide predictability for the client
concerning the circumstances by which the client will waive that
privilege. This certainty and predictability as to the
circumstances of a waiver encourage clients to consult with
counsel free from the apprehension that the communications will
be disclosed without their consent.
Some decisions have extended the finding of a waiver of the
privilege to cases in which the client's state of mind may be in
issue in the litigation. These courts have allowed the opposing
party discovery of confidential attorney client communications in
order to test the client's contentions. See, e.g., Byers v.
Burleson, 100 F.R.D. 436 (D.D.C. 1983); Hearn v. Rhay,
68 F.R.D.
574 (E.D.Wash. 1975). These decisions are of dubious validity.
While the opinions dress up their analysis with a checklist of
factors, they appear to rest on a conclusion that the information
sought is relevant and should in fairness be disclosed.
Relevance is not the standard for determining whether or not
evidence should be protected from disclosure as privileged, and
that remains the case even if one might conclude the facts to be
disclosed are vital, highly probative, directly relevant or even
go to the heart of an issue.
As the attorney client privilege is intended to assure a
client that he or she can consult with counsel in confidence,
finding that confidentiality may be waived depending on the
relevance of the communication completely undermines the interest
to be served. Clients will face the greatest risk of disclosure
for what may be the most important matters. Furthermore, because
the definition of what may be relevant and discoverable from
those consultations may depend on the facts and circumstances of
as yet unfiled litigation, the client will have no sense of
whether the communication may be relevant to some future issue,
and will have no sense of certainty or assurance that the
communication will remain confidential.
A party does not lose the privilege to protect attorney
client communications from disclosure in discovery when his or
her state of mind is put in issue in the action. While the
attorney's advice may be relevant to the matters in issue, the
privilege applies as the interests it is intended to protect are
still served by confidentiality.
It appears that one matter in issue in this case is whether
or not the insureds knew, before they obtained coverage, that
Armour's pharmaceutical products were causing the transmission of
HIV. Rhône-Poulenc has not waived the attorney client privilege
by filing this lawsuit or by placing its state of mind in issue.
As Rhône-Poulenc and Armour have not interjected the advice of
counsel as an essential element of a claim in this case, the
district court erred in affirming the magistrate judge's decision
and in finding they must disclose documents relating to the AIDS-
related evaluation that would otherwise be protected from
disclosure by the attorney client privilege. Accord, Remington
Arms Co. v. Liberty Mut. Ins. Co., 142 F.R.D. 408 (D.Del. 1992).
In summary, we emphasize that our holding is not meant to
preclude disclosure of the knowledge the insureds possessed at
the time they obtained coverage. Facts are discoverable, the
legal conclusions regarding those facts are not. A litigant
cannot shield from discovery the knowledge it possessed by
claiming it has been communicated to a lawyer; nor can a litigant
refuse to disclose facts simply because that information came
from a lawyer. Rather than separately review each subpoena
served on the law firms, it should suffice to say that each
subpoena seeks the production of both privileged and discoverable
documents. Because some documents may contain both discoverable
and privileged information it would be appropriate, if not too
burdensome, to redact them accordingly. See Bogosian v. Gulf Oil
Corp., 738 F.2d 587, 595 (3d Cir. 1984); In re Martin Marietta
Corp.,
856 F.2d 619, 626 (4th Cir. 1988). On remand the insurers
may redraft the subpoenas in a manner consistent with this
opinion.
C. Whether Rhône-Poulenc and Armour have Waived the
Accountant Client Privilege by Filing this Suit to
Establish Insurance Coverage
In affirming the magistrate judge's decision approving the
subpoena served on Coopers & Lybrand, the district court did not
speak to the accountant client privilege recognized under
Pennsylvania law.3 On remand, the district court should
determine the applicability of the accountant client privilege,
and whether that privilege has been waived. If there has been a
waiver, the district court should then determine the extent of
that waiver. The district court should also examine the other
objections to the subpoena.
3
Pennsylvania has codified the accountant client privilege at
63 Pa.C.S.A. § 9.11a (Purdon 1994) as follows:
Except by permission of the client or person or entity
engaging him . . . a certified public accountant . . .
shall not be required to, and shall not voluntarily,
disclose or divulge information of which he may have
become possessed relative to and in connection with any
professional services as a certified public accountant.
. . . The information derived from or as the result of
such professional services shall be deemed confidential
and privileged[.]
D. Whether Rhône-Poulenc and Armour have Waived the
Attorney Client Privilege by Failing to Object to
Discovery Requests and by Failing to Serve a Privilege
Log
In their motion to compel, Home and Pacific Employers also
argued that Rhône-Poulenc and Armour had wrongfully failed to
object to the disclosure of documents in their response to the
insurers' discovery requests, and had wrongfully failed to serve
a list identifying the documents they were withholding. Home and
Pacific Employers sought an order from the magistrate judge
finding that by failing to object and to supply a list of
documents being withheld, Rhône-Poulenc and Armour had waived the
protection of the attorney client privilege.
It appears from the transcript of the April 13, 1993,
hearing on their motion to compel that the magistrate judge did
look to the plaintiffs' failure to list privileged documents as a
basis for granting the insurers' motion to extend the time for
discovery. The magistrate judge did not, however, find that the
insureds' failure to object and to provide a list of privileged
documents was a waiver of the privilege. The failure to object
was not a basis for his decision to order these documents
produced.
As we noted above, in connection with the appeal to the
district court from the magistrate judge's decision, Home and
Pacific Employers abandoned this waiver argument after Rhône-
Poulenc put on the record documents that suggest Home had agreed
to defer the insureds' obligation to respond to certain discovery
requests. In their briefing on the petition and this appeal,
Home and Pacific Employers have sought to reintroduce this issue
into the case and have suggested that the magistrate judge and
district court concluded that a major factor warranting expedited
disclosure of these documents was the petitioners' concealment of
the documents. That argument is neither consistent with the
facts nor supported by the record. Therefore, we find that the
magistrate judge was correct in disregarding the failure to
object.
E. The Extent of Rhône-Poulenc and Armour's Waiver of the
Attorney Client Privilege by Cawthorn's Testimony and
the Disclosure of the Hughes Hubbard Correspondence
Home and Pacific Employers also argued to the magistrate
judge that Rhône-Poulenc and Armour had waived the protection of
the privilege for the AIDS-related evaluation documents when
Cawthorn testified about the investigation and when Rhône-Poulenc
produced the First Hughes Hubbard report and all but a portion of
the second. The magistrate judge apparently agreed, at least to
the extent that he found in his March 30, 1993, memorandum
opinion that in fairness the selective disclosure of privileged
communications required disclosure of the whole picture and
ordered the disclosure of the redacted portion of the second
Hughes Hubbard letter. Rhône-Poulenc and Armour did not appeal
that decision to the district court.
Neither the magistrate judge nor the district court relied
on this waiver by disclosure as a basis for granting the
insurers' motion to compel the production of the documents
relating to the AIDS-related evaluation. As this issue was never
presented to the district court, we need not address its merits.
F. Whether Rhône-Poulenc and Armour have Waived the
Protection From Disclosure for Their Attorneys' Work
Product
There are numerous substantive and procedural errors with
the subpoenas approved by the magistrate judge. In granting the
petitioners the relief they seek and in finding they are not
obligated to produce the documents identified in the subpoenas,
we will not address each of these issues. Two principal matters
lead us to the conclusion that the subpoenas should not have been
approved or issued. First, it appears the magistrate judge and
the district court's decisions to approve the subpoenas were
based on their conclusion that Rhône-Poulenc and Armour's
privilege to protect the disclosure of confidential attorney
client communications had been waived as the insureds' state of
mind was in issue in the action. As noted above, we have
concluded that these decisions constituted an error of law.
Second, it appears the magistrate judge and the district
court had concluded that a finding that the insureds had waived
the attorney client privilege necessarily meant they had also
waived the protection from disclosure for the work product of the
firms that had represented and advised them. For a number of
reasons, one does not lead to the other. As a factual matter, if
the state of mind of the insureds is in issue, papers reflecting
the work product of counsel that were not shared with or
communicated to the clients are not relevant. Work product that
was not communicated to the client cannot affect the client's
state of mind. See Thorn EMI North America, Inc. v. Micron
Technology, Inc., 837 F. Supp. 616 (D.Del. 1993). In approving
the subpoenas and denying the motions to quash, the court failed
to determine whether the documents sought were relevant to the
matters in issue or were reasonably calculated to lead to the
discovery of admissible evidence.
More significantly, in ordering the broad range of documents
produced, the magistrate judge and the district court failed to
consider that the protection stemming from the work product
doctrine belongs to the professional, rather than the client, and
that efforts to obtain disclosure of opinion work product should
be evaluated with particular care. See Fed. R. Civ. P. 26(b)(3);
Hickman v. Taylor, 329 U.S. 495, 509,
67 S. Ct. 385,
91 L. Ed. 451
(1947) ("Not even the most liberal of discovery theories can
justify unwarranted inquiries into the files and the mental
impressions of an attorney."); Haines v. Liggett Group Inc., 975
F.2d at 94 ("This court has accorded an attorney's work product
almost absolute protection from discovery."); In re Grand Jury
Proceedings (FMC Corp.), 604. F.2d 798, 801 n. 4 (3d Cir. 1979)
(right to assert the privilege belongs to the attorney).
We find the district court erred in denying the motions to
quash these subpoenas. While the subpoenas may identify certain
documents that are discoverable, as drafted and served they
appear to seek the production of documents that are protected
from disclosure as the work product of attorneys or by the
attorney client privilege.
While Rhône-Poulenc and Armour's disclosure of the Hughes
Hubbard reports may provide a basis for finding that certain of
the documents identified by the subpoenas are discoverable, it
appears that the subpoenas are generally directed to documents
for which there is no basis for believing there had been or could
be a waiver by the clients.
III. CONCLUSION
We find that the district court erred in affirming the
magistrate judge's decision finding Rhône-Poulenc and Armour had
waived the attorney client privilege by putting their state of
mind in issue, and erred in denying the motions to quash the
subpoenas served on the law firms. The district court should
reconsider its decision not to quash the subpoena served on the
accounting firm. We will dismiss the appeal. We will issue a
writ of mandamus, and direct the district court to vacate its
Order of August 6, 1993, and to quash the subpoenas served on the
law firms. We will remand the case for further proceedings.
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