STEPHEN RASLAVICH, Bankruptcy Judge.
St. Joseph Regional Health Network, d/b/a St. Joseph Medical Center (St.Joe), Catholic Health Initiatives (CHI) and Bornemann Health Corporation d/b/a Bornemann Psychiatry Associates (Bornemann) seek to compel the production of certain documents. Plaintiff opposes the Motion. Briefs and supplemental replies were submitted. Oral argument was heard on September 18, 2013. The Court thereafter took the matter under advisement. For the reasons which follow, the Motion will be granted with minor exceptions.
The Court will grant the Defendants' Motion to Compel Production of Documents. Within 20 days of the date of the entry of the order which follows this opinion, the Plaintiff shall produce documents responsive to the 6 document requests to which it objected on the basis of privilege, relevance, and/or overbreadth. Only the four entries in the Plaintiffs' privilege log which the Court will discuss infra may the Plaintiff withhold on the basis of attorney work product. Such otherwise privileged information may potentially be obtained after further discovery and an additional showing of substantial need.
The Plaintiff (Debtor) was a mental health care provider. Prior to bankruptcy, it entered into a Management Services Agreement (MSA) with Defendants St. Joe and Bornemann. Under the MSA, the
After the close of the pleadings, the parties commenced discovery. Defendants assert that they have learned in discovery that Plaintiff never intended to expand the business. Defendants' Brief, 10. Instead, they maintain, the Plaintiff intended to sell the business at an auction at which the Debtor's principal's son would be the high bidder. Id. 11.
Defendants say that they learned of these facts through an indirect source. Through subpoenas of third parties, they say, they obtained information tending to belie any plans to expand. Defendants' Brief, 4-5. Although Defendants had earlier requested the same information, the Plaintiffs objected on the bases of privilege, relevance and overbreadth. Id. 6. It would be from the responses of George Chopivsky, Jr., the Debtor's principal, as well as his son, George Chopivsky, III, that the Defendants would learn of this revelation. Id. 7. That, in turn, caused the Defendants to renew the requests upon the Plaintiff for corroboration. When Plaintiff continued to refuse, this motion to compel was filed.
Six specific requests for documents are at issue. The requests were made in the Defendants' Second and Third requests for Production of Documents. Four of the requests were made in Second Request:
See Defendants' Brief, Ex. D, ¶¶ 21-22, 28-29. BBH has objected to these requests on the basis of overbroadness, relevance, and privilege. See id. Ex. F, G.
See id. Ex. E, ¶ 33-34. These requests were objected to on the basis of overbroadness and irrelevance. See id. Ex. K. Also made were the points that the damage calculations have either been previously produced; that they will be produced; or that they will be disclosed in expert witness discovery. See Plaintiff's Response, 10 and Supplemental Response, 8-9.
The general parameters for discovery are found in Rule 26:
F.R.C.P. 26(b)(1) made applicable by B.R. 7026 (emphasis added). See Barnes Foundation v. Township of Lower Merion, 1997 WL 256043, at *1 (E.D.Pa. May 9, 1997) (observing that Rule 26(b)(1) establishes the general scope of discovery). "Questions concerning the scope of discovery are among those matters which should be almost exclusively committed to the sound discretion of the district court." Id. citing Wisniewski v. Johns-Manville Corp., 812 F.2d 81, 90 (3d Cir.1987); Howze v. Jones & Laughlin Steel Corp., 750 F.2d 1208, 1213 (3d Cir.1984); Great West Life Assurance Co. v. Levithan, 152 F.R.D. 494, 496 (E.D.Pa.1994).
A claim of privilege is raised as to the second request for production of documents. Because a valid privilege will apply regardless of relevance, it must be dealt with first. The applicable rule of procedure prescribes how the privilege may be raised:
F.R.C.P. 26(b)(5) A privilege log is necessary to enable the opposing party (and the Court) to test the propriety of that assertion. Velocity Intern., Inc. v. Celerity Healthcare Solutions, Inc., 2010 WL 2196423, at *4 (W.D.Pa. June 1, 2010). Plaintiff submitted a privilege log on March 31, 2013. The rule reflects that the burden to establish a claim of privilege is on the party asserting the privilege. In re Grand Jury, 705 F.3d 133, 160 (3d Cir.2012).
Defendants argue that Plaintiff's failure provide a privilege log earlier than 15 months after first making the objection constitutes a waiver of the privilege. Plaintiff responds that it withheld the documents on grounds other than just privilege. In other words, says Plaintiff, no privilege log is requires for documents not discoverable for other reasons. For its part, the Court considers waiver to be too harsh a punishment. The Plaintiff having since produced a privilege log, the Court dismisses the claim of waiver.
The first of the two types of privilege invoked is the attorney-client privilege. That privilege protects from disclosure confidential communications made between attorneys and clients for the purpose of obtaining or providing legal assistance to the client. In re Teleglobe Commc'ns Corp., 493 F.3d 345, 359 (3d Cir.2007) Although such communications may be both relevant and highly probative of the truth, they are shielded from production in order "to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice." Upjohn Co. v. United States, 449 U.S. 383, 389, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981).
In order for the attorney-client privilege to attach to a communication, "it must be `(1) a communication (2) made between privileged persons (3) in confidence (4) for the purpose of obtaining or providing legal assistance for the client.'" In re Teleglobe, supra, 493 F.3d at 359 (quoting Restatement (Third) of the Law Governing Lawyers § 68 (2000)). "If persons other than the client, its attorney, or their agents are present, the communication is not made in confidence, and the privilege does not attach." Id. at 361. The privilege "exists to protect not only the giving of professional advice to those who can act on it but also the giving of information to the lawyer to enable him to give sound and informed advice." Upjohn, supra, 449 U.S. at 390, 101 S.Ct. 677. "To the extent that the record is ambiguous as to the elements which are necessary to establish the claim of privilege, `the burden of proving that the attorney-client privilege applies is placed upon the party asserting the privilege.'" In re Grand Jury Empanelled February 14, 1978, 603 F.2d 469, 474 (3d Cir.1979) (quoting United States v. Landof, 591 F.2d 36, 38 (9th Cir.1978)).
Defendants demand production of communications made in the presence of Mr. Chopivsky III. To reiterate, he is neither a party to this litigation nor a principal of the Debtor; he is the son of George Chopivsky, Jr., the Debtor's principal. Disclosing a communication to a third party unquestionably waives the privilege. Teleglobe, 493 F.3d at 361. Notwithstanding, the Plaintiff insists that Mr. Chopivsky, III's presence during certain discussions
To demonstrate that Mr. Chopivsky III was the Debtor's agent, the Plaintiff offers the affidavit of his father, Mr. Chopivksy, Jr., as well as that of Mr. Chopivsky, III. The affidavit of Mr. Chopivksy Jr., the Debtor's principal, is dated July 12, 2013. It explains that when he was travelling and could not attend meetings, Mr. Chopvisky Jr. would rely on his son to handle business and legal matters relating to the Debtor. See Plaintiff's Supp. Response, Chopivsky, Jr. Affidavit ¶¶ 8-11. The affidavit of his son is also dated July 12, 2013 and says essentially the same things. It talks of his working closely with his father, with his father's request that he participate generally in communications with bankruptcy counsel, and to his reviewing and editing of draft documents prepared by the Debtor's counsel. See id. Chopivsky III Affidavit, ¶¶ 4-8. Once Mr. Chopivsky III decided to bid on the Debtor's assets, he obtained separate counsel. Id. ¶ 10 Both father and son explain that the son's participation was necessary to the successful prosecution of the bankruptcy case.
This explanation, however, is sharply at odds with Mr. Chopivsky Jr.'s testimony in his September 2012 deposition. At that time, he testified that his son did not work for the Debtor:
See Defendants' Supp. Brief, Ex. B, p. 230. With regard to the Debtor's disputes with the Defendants, Mr. Chopivsky Jr. was at that time unclear as to the extent of his son's involvement.
Id. 229. He was equally unsure of why his son wrote an email which proposes to set up a meeting with other officers of the debtor to discuss a strategy regarding a meeting with the Defendants:
Id. 228-231. The same response is given when asked why his son was given a copy of the Debtor's operating budget:
Id. 239. Equally, his answer to the question of whether he hoped his son would be the winning bidder demonstrates an affected disinterestedness; he demurred as to the prospect of his son owning the Debtor:
Id. 274-275
The general evasiveness of Mr. Chopivsky, Jr.'s original deposition testimony cannot be reconciled with the certainty of his later attestations. Over a ten month period, Chopivksy Jr.'s memory went from not remembering to what extent his son was involved in the Debtor's operation (or why) to complete clarity on that question. He testified to specifically requesting that his son be included in correspondence relating to the Debtor. He regularly included his son as an agent of the Debtor on correspondence with bankruptcy counsel. See Chopivsky Jr. Affidavit ¶¶ 10-11. This clarity comes at a time when it is in the Plaintiff's best interest to remember events just this way. The dichotomy is so striking as to be distressingly suggestive of intentional falsehood. The Court will not draw that conclusion, however, the Court finds this so patently incredible and abusive as to justify the imposition of judicial estoppel. Judicial estoppel is an equitable doctrine that entails "the intrinsic ability of courts to dismiss an offending litigant's complaint without considering the merits of the underlying claims when such dismissal is necessary to prevent a litigant from playing fast and
Alternatively, the Debtor argues that the privilege yet applies because both Chopivsky III and the Debtor share a common interest in withholding what was discussed. As a general proposition, the attorney-client privilege extends to matters of common interest between two or more persons represented by the same counsel:
Restatement (Third) Governing Lawyers § 75(1). The privilege also extends to persons represented by different counsel as to matters of common interest in the litigation:
Restatement, supra, § 76(1); see generally Teleglobe, supra, 493 F.3d at 362-366. The Court makes this observation with regard to both joint and separate representation because a different evidentiary standard applies depending on whether Mr. Chopivsky III was a co-client of the Debtor or whether he had obtained separate counsel at the time the withheld communications were made. As the Third Circuit explained:
Teleglobe, supra, 493 F.3d at 365-366 (emphasis added).
This analysis must be considered because the evidence as to when Mr. Chopivsky III obtained his own counsel is unclear. For example, Mr. Chopivksy Jr.'s affidavit states that his son's decision to retain separate counsel was made "sometime during the bankruptcy" after his son decided to bid on the Debtor. See Plaintiff's Supp. Response, Ex. A. Affidavit of George Chopivsky, Jr., ¶ 14. His son's affidavit corroborates this. See id. Affidavit of George Chopivsky III ¶ 10. Given that the auction occurred in August 2010, that means that he obtained his own counsel after the filing (December 24, 2009) but before August 2010. This 7 month period corresponds roughly with the time period of the privileged communications on the log (February 2010 to September 2010). So the Court cannot tell exactly when Mr. Chopivsky III had his own counsel and when he was jointly represented. In order to cut through this confusion, the Court will first analyze the record for commonality under the lesser standard applicable to separate representation. If the Plaintiff cannot meet that laxer standard, then this claim of privilege fails.
As to what similarity and types of interests qualify as "common" for purposes of this privilege, the Third Circuit observes that the Restatement takes a "flexible approach". Teleglobe, 493 F.3d at 365. The Restatement provides that "the common interest ... may be either legal, factual, or strategic in character. The interests of the separately represented clients need not be entirely congruent." Id. quoting Restatement § 76 cmt.e. What the Debtor points to as common interest as between it and Mr. Chopivsky III are the latter's willingness to assume the Defendants' lease. That, however, has nothing to do with the Debtor's claim against the Defendants for breach of contract. The ultimate result of that litigation may affect what is owed to St Joe for rent but that does not concern Mr. Chopivsky III. At auction, the winning bidder took all assets free and clear of liens with debts to attach to the proceeds. His gratuitous intention to assume the lease might also be motivated by a favorable rate per square foot (i.e., below market). The purported assumption of the St. Joe lease by Chopivsky III is not probative.
Neither is the alleged willingness of the Defendant landlord to subordinate its claim. That decision may have been motivated by a desire to obtain creditor support for the sale to the winning bidder. By relegating its claim, the Defendant landlord may have increased the distribution to those creditors whose claims would be otherwise diluted.
What the Court does find quite probative on this question is the inherent conflict between the Debtor's primary duty and Mr. Chopivsky III's purported interest. Mr. Chopivsky III was never an officer or owner of the Debtor.
If the information is not protected by the circumstances under which it was communicated, it might nonetheless warrant privilege from the circumstances under which it was created. What is referred to as attorney work-product is likewise protected. See Hickman v. Taylor, 329 U.S. 495, 505, 67 S.Ct. 385, 91 L.Ed. 451 (1947) (recognizing the work-product doctrine as a product of federal common law). It has since been codified in the federal rules of civil procedure:
Fed.R.Civ.P. 26(b)(3). In general, under Rule 26(b)(3), a party may not obtain discovery of documents prepared by counsel in anticipation of litigation or for trial without showing a "substantial need" for these documents. See Hickman v. Taylor, 329 U.S. at 511, 67 S.Ct. 385. "The doctrine is designed to protect material prepared by an attorney acting for his client in anticipation of litigation.... Federal Rule of Civil Procedure 26(b)(3) makes clear, however, the necessity that the materials be prepared in anticipation of litigation, and not `in the ordinary course of business, or pursuant to public requirements unrelated to litigation.'" United States v. Rockwell Int'l, 897 F.2d 1255, 1265-66 (3d Cir.1990) (quoting United States v. El Paso Co., 682 F.2d 530, 542 (5th Cir.1982) (citation omitted)). The Third Circuit has explained that a document is prepared in "anticipation of litigation" even when litigation is not imminent. The test is whether "in light of the nature of the document and the factual situation in the particular case, the document can fairly be said to have been prepared or obtained because of the prospect of litigation." United States v. Rockwell Intern., 897 F.2d at 1266. An objective standard is applied. See, e.g., Advanced Technology Associates, Inc. v. Herley Industries, Inc., 1996 WL 711018, at *6 (E.D.Pa. Dec. 5, 1996.) The party asserting work product protection bears the burden of demonstrating that the documents at issue were "prepared in anticipation of litigation." Conoco, Inc. v. United States, 687 F.2d 724, 730 (3d Cir.1982)
Courts in this Circuit have adopted a "two part test for ascertaining whether the documents (or things) at issue should be protected under the work product doctrine." SmithKline Beecham Corp. v. Apotex Corp. 232 F.R.D. 467, 483 (E.D.Pa.2005) "The first prong of the inquiry is the `reasonable anticipation' test, which requires that the court determine at what point in time litigation could reasonably have been anticipated." In re Gabapentin Patent Litig., 214 F.R.D. 178, 183 (D.N.J.2003) (citation omitted); see also Martin v. Bally's Park Place Hotel & Casino, 983 F.2d 1252, 1260 (3d Cir.1993). Second, the Court must determine whether the documents were "produced because of the prospect of litigation and for no other purpose." Gabapentin, supra, 214 F.R.D. at 184. Documents prepared in the ordinary course of business, even if useful in subsequent litigation, are not protected by the work product doctrine. Id. "Even where the reasonable anticipation of litigation is established, whether the document comes within the purview of the work product privilege still depends primarily on the reason or purpose for the documents' production." Id. citing In re Grand Jury Investigation, 599 F.2d 1224, 1229 (3d Cir.1979).
From a review of the allegations in the First Amended Complaint, the Court can divine when it was that the Debtor/Plaintiff could have reasonably anticipated that the parties' dispute would go to litigation. To recapitulate, the Plaintiff was formed in November 2007. In March 2008 it entered into the MSA with the Defendants to manage the inpatient psychiatric facility. The Defendants were to handle billings and collections for the Plaintiff. In April 2008, Plaintiff commenced operations at those facilities. By September 2008, a "seamless" switchover
The Court turns now to the question of which of the withheld documents were prepared primarily for the purposes of litigation. All of the 220 documents withheld as work product post-date February 2009. See Defendants' Supp Brief, Ex. "A," Privilege Log March 31, 2013. They span roughly from March 2010 to September 2010. Yet, of the 220 documents withheld as "work product," the only entries specifically referencing litigation are ## 107— 109 (8/25/2010) and # 319 (July 29, 2010). The other 216 entries which are claimed to be work product are described generically as bankruptcy strategy. In its Supplemental Response, Plaintiff argues that such information is irrelevant because it pertains to the main bankruptcy proceeding, and not the litigation. See Plaintiff Supp. Response, 8. If that is so, then it has no place on a privilege log; relevance is not an established ground for asserting privilege.
But as to the four log entries which do appear to be related to the litigation, they are not required to be produced unless there is a showing of substantial need. See In re Cendant Corp. Sec. Litig., 343 F.3d 658, 663 (3d Cir.2003) (citing Fed.R.Civ.P. 26(b)(3) (explaining that notwithstanding the establishment of the privilege, a party seeking disclosure of documents claimed as work product must demonstrate substantial need for the materials in the preparation of his case and is unable without undue hardship to obtain the substantial equivalent of the materials by other means.)) So before demanding that the Plaintiff produce the 4 entries logged as relating to the litigation, Defendants must undertake other means of discovery in an attempt to obtain the same information. If that fails and Defendants continue to maintain that the withheld information is both highly relevant and the sole source of such evidence, then they may move to compel its production. In that event, the Court will conduct an in camera review to determine if the withheld information warrants protection.
As noted above, the Plaintiff's refusal to respond to certain discovery was not limited to privilege, but rested on relevance grounds as well. Indeed, the polestar of discovery is relevance which the applicable rule defines broadly to include "information [which] need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence." Fed.R.Civ.P. 26(b)(1). "The presumption that such matter is discoverable, however, is defeasible." Pearson v. Miller, 211 F.3d 57, 65 (3d Cir.2000). "Once an objection is raised as to relevancy, the party seeking discovery bears the burden of demonstrating the relevance of the sought information to the issues in litigation." Lesemann v. GNC, Inc., 2003 WL 22872035, at *1 (E.D.Pa. Oct. 9, 2003). When there is no doubt
In arguing for, and against, relevance of the requested documents, the Court sees that the parties disagree as to what documents, exactly, Defendants are requesting. The Defendants summarize the requested information as demanding "documents pertaining to the Debtor's decision to file the bankruptcy, the decision to liquidate, and calculations of the damages alleged." See Defendants' Brief, 4. Plaintiff is under the misapprehension that Defendants seek different information from it. Specifically, Plaintiff believes that Defendants ask for document and communications about the bankruptcy, about the value of the Debtor today were it still operating, and about the details of any bids on the Debtor. Most surprisingly, Plaintiff believes that the Defendants have requested from it "hundreds of pages of non-relevant bankruptcy documents including court filing, communications regarding bankruptcy strategy, schedules, claims analyses, preparation for bankruptcy court appearances, communications regarding the creditors committee, trustee reports, as well as analysis of this adversary proceeding." See Plaintiff's Response, 7-8; Plaintiff's Supp. Response, 8-9.
The Court finds that the Plaintiff has misread the motion. The motion seeks the enforcement of these six document requests and nothing more:
See Exhibit D, ¶¶ 21-22; 28-29 Ex.E, ¶ 33-34. This is confirmed by the Motion and Proposed Form of Order: documents are sought from the Plaintiff as demanded in the 6 requests set forth supra. None of the six requests asks for documentation related to bankruptcy case administration. The Court now turns to the six requests to analyze them for relevance.
Again, these requests demand:
See Defendants' Brief, Ex. D. Second Request for Production. The Court considers Plaintiff's claim of irrelevance of little persuasion. On the surface, one might question what the decision to file bankruptcy might have to do with this litigation. As the Defendants point out, however, the bankruptcy filing is the alleged ultimate result of the Defendants' derelictions under the MSA. See Defendants' Brief, 14. The failure of the Defendants to bill and collect revenue for Plaintiff as promised is the alleged precipitating factor that caused the company's demise and ensuing bankruptcy. The extent of the Defendants' misfeasance may be reflected in the documents which the company's principals reviewed when they decided upon Chapter 11. Similarly, they may have discussed the extent to which the blame for the company's demise may be laid at the feet of the Defendants. The Defendants have thereby demonstrated to the Court that such information is at least reasonably likely to lead to admissible evidence. That, in turn, makes it discoverable.
These requests demand production of
Id. The challenge to the relevance of these two requests is weak. The claim that the Debtor would have expanded the business with Defendants' promise of assistance is one of the reasons that Plaintiff entered into the MSA in the first place. The Defendants' failure to properly bill and collect for services rendered, if true, not only cost Plaintiff potentially $2 million in direct losses but also made it impossible to expand the business. See Defendants' Brief, Ex. A, First Amended Complaint, ¶ 64. The inability to expand is alleged to have cost the Plaintiff $25 million in consequential damages. Defendants question the premise underlying the consequential damages claim and therefore ask for the production of documents on this point. Defendants' Brief, 10. The Court finds that Requests ## 28 and 29 ask for relevant information.
Requests ## 33 and 34 ask for documents relied on by Plaintiff in when calculating its consequential damage claims:
See id., Ex. E. Plaintiff has refused to respond to these requests at this time arguing that it is premature. Such information, it explains, bears not on liability, but rather on damages. It assures Defendants, however, that the damages calculation will be furnished by its expert witness as required under the scheduling order. As that order does not require identification of that witness until February 2014 and its delivery of the expert report until March 2014, it will not be produced at this time. See Twelfth Pretrial Scheduling Order, ¶ 4.
The Court finds that explanation to be wholly unsatisfactory. "The law is well settled that information regarding damages is as discoverable as information which pertains to liability." Caruso v. Coleman Co., 157 F.R.D. 344, 348 (E.D.Pa.1994) citing Security Ins. Co. v. Meyer Trading Co., 1987 WL 8207, at *1 (E.D.Pa. March 20, 1987). A leading commentator explains that "[a]s a general matter, it is clear that discovery as to damages is proper." 8 Fed.Prac. & Proc. Civ. § 2008.04 (3d ed.) While in many cases trials of liability and damages are bifurcated, this is done where the issue of damages is truly separate from liability. Id. In this case, the Plaintiff has offered no evidence that the two elements of Plaintiff's case are so distinct as to be triable in phases. To the contrary, the Defendants correctly read the Complaint to allege that the direct damages ($2 million) and the consequential damages ($25 million) are both the alleged result of the Defendants' breaches under the MSA. See Defendants' Brief, 3. There do not appear to be any efficiencies to be had from bifurcation. Plaintiff's withholding of the requested information is not sanctioned by the general rule requiring the production of relevant evidence. The Court finds these requests to ask for relevant information. Accordingly, the Plaintiff must respond to these requests.
Plaintiff's final challenge to the requests is that they are overbroad. The Advisory Committee Note to Rule 26 contemplates that when a party objects to discovery requests as being impermissibly overbroad, "the court would become involved to determine whether the discovery is relevant to the claims or defenses and, if not, whether good cause exists for authorizing it so long as it is relevant to the subject matter of the action." Fed.R.Civ.P. 26 Advisory Committee Note (2000), subdivision (b)(1). A leading commentator explains that "when relevance has been demonstrated courts will scrutinize claims that the burden of producing requested information is disproportionate; and an unsupported burden objection is not a guaranteed protection against responding to discovery." 8 Fed. Prac. & Proc. Civ. § 2008.1(3d ed.)
As with the relevance objection, the Plaintiffs maintain that Defendants' request for all documents and communication relating to the bankruptcy includes hundreds of pages of irrelevant documents. The documents consist, by and large of, bankruptcy case administration documents, as opposed to anything related to this litigation. See Plaintiff's Response, 8. Additionally it has produced a privilege log of over 700 entries which likewise consist of material pertaining to the main proceeding and not this litigation. See Plaintiff's Supplemental Response, 2 and 8. This, Plaintiff maintains, constitutes a discovery request of exaggerated scope.
But, again, general bankruptcy case administration documents were not requested. Indeed, one would be on safe ground to say that what was requested pertains
Accordingly, the Court does not find the requests to be unreasonable in scope.
With the exception of the four privilege log entries found to constitute work product, the Plaintiff must respond to all six requests for production discussed above.
An appropriate Order follows.
