MARY ELLEN COSTER WILLIAMS, District Judge.
This matter comes before the Court on Plaintiffs' motions to compel the production of two attorney-client privileged documents from Third-Party Defendant GHSP, Inc. ("GHSP"). Plaintiffs contend that GHSP waived the privilege by placing confidential attorney-client communications on the same subject matter as these two documents "at issue" in this suit in support of its laches defense. The Court agrees and orders production of the documents.
In 1997, the United States Army Tank-automotive and Armaments Command ("TACOM") assigned AM General, LLC ("AM General"), the task of soliciting proposals for prototypes of the Engine Electrical Start System (the "EESS"), an engine starter device to be used in the production of High Mobility Multipurpose Wheeled Vehicles ("HMMWV"). Pls.' Am. Compl. ("Am. Compl.") ¶¶ 17, 20. AM General solicited proposals from several vendors, including Nartron Corporation ("Nartron") — the predecessor in interest of Plaintiffs UUSI, LLC, and Oldnar Corporation
On May 26, 1998, Nartron filed an administrative claim challenging the Department of the Army's procurement of KDS' EESS and alleging that the United States Government and its suppliers infringed U.S. Patent No. 5,570,666 ("the `666 patent"). Def.'s Mot. for Summ. J. ("Mot. for Summ. J."), Ex. 4. On February 28, 2000, TACOM denied Nartron's administrative claim, and stated that at a minimum, the U.S. Government had "a royalty free license to practice the invention or have it practiced on its behalf" and that the `666 patent "may well be invalid as a result of an `on-sale' bar."
On May 10, 2001, Nartron sent a letter to TACOM contracting officer Marie Gapinski, challenging the procurement of KDS' EESS and advising that Nartron's patents "covered significant development effort and large expenditures to develop EESS systems for the HMMWV." Am. Compl. ¶ 23. On June 11, 2001, TACOM's counsel from the Chief Intellectual Property Law Division sent Nartron a letter, advising Nartron of the procedure for filing an administrative claim. Mot. for Summ. J., Ex. 8.
In 2007, TACOM and AM General began replacing the EESS with the Smart Start System ("S3"), produced by KDS with all of the features of the EESS in addition to a starter lockout and a serial bus networking system. Am. Compl. ¶¶ 27, 32, 35.
In 2000, KDS retained the services of the law firm Reising Ethington and attorney Paul Ethington to handle KDS' intellectual property matters.
On December 14, 2000, Mr. Kasiewicz received a letter from Nartron's chief executive officer, Norman Rautiola, alleging that KDS' EESS infringed on various Nartron patents, including U.S. Patent Nos. 6,148,258 ("the `258 patent"), 6,009,369 ("the `369 patent"), and 5,729,456 ("the `456 patent"), and stating that Nartron "may have an interest in licensing your company for such product." Mot. for Summ. J., Ex. 1A. Mr. Kasiewicz forwarded this letter to KDS' patent counsel, Mr. Ethington, for his assessment of Nartron's claims. Kasiewicz Dep. 57:7-58:3, 142:19-143:1, 146:7-13.
On January 26, 2001, Mr. Ethington responded on behalf of KDS to Nartron's December 14, 2000 letter, requesting that Nartron identify the "features or aspects of KDS products that [Nartron] consider[s] to be covered by [its] patents" and that it also "identify which of the patents and patent claims [Nartron] consider[s] to be applicable." Mot. for Summ. J., Ex. 1B.
On August 17, 2003, Paul Ethington died. Pls.' Opp. to Defs.' Mot. for Summ. J., Ex. 36.
On January 29, 2001, Mr. Ethington sent Mr. Kasiewicz a memorandum, which is the subject of the instant motion to compel. Mr. Ethington's memorandum is entitled "NARTRON PATENTS 5,570,666; 5,729,456; 6,009,369; and 6,148,258," and was prepared in response to Mr. Kasiewicz's request for a brief statement on each of the main claims of Nartron's patents in issue. Pls.' Mot. to Compel ("Mot. to Compel"), Ex. C. The memorandum summarizes the elements of the claims of the `258 patent, the `369 patent, the `456 patent, and the `666 patent but does not contain any infringement analysis.
In the introduction to the memorandum, Mr. Ethington states:
In response to Mr. Ethington's January 26, 2001 request that Nartron identify how KDS infringed its patents, Nartron, in a letter of April 10, 2001, stated that KDS was at a minimum infringing on claims 1 and 48 of the `258 patent and directed KDS to "immediately cease and desist all such activities." Mot. for Summ. J., Ex. 1C.
On May 24, 2001, Larry Lieb, a KDS engineer significantly involved in the design and building of the EESS for TACOM, authored handwritten notes (the "Lieb Notes") analyzing each claim of the `258 patent, the `369 patent, the `456 patent, and the `666 patent. Mr. Lieb testified:
Lieb Aff. ¶ 4, Sept. 24, 2014. These notes are also at issue in Plaintiffs' motion to compel.
In his handwritten notes, Mr. Lieb listed the claims of each patent and the elements thereunder, including his impressions next to each element. Mr. Lieb wrote "yes" next to every element of two claims — claims 1 and 17 concerning the composition and control of the glow plug controller — of the `369 patent. Mot. to Compel, Ex. E; Pls.' Mot. to Compel Infringement Analysis, Ex. A. According to Plaintiffs, because the purpose of the notes was to facilitate KDS' assessment of the merits of Nartron's patent infringement claims by providing relevant information to KDS' patent counsel, the "yes" next to every element of claims 1 and 17 suggests that Mr. Lieb believed that the EESS meets all of these elements and therefore infringes on the `369 patent. Mr. Lieb was not deposed, and his affidavit is his only testimony in the record concerning his notes. In Mr. Lieb's affidavit, which was submitted by GHSP, he does not explain what the "yeses" mean, but he does say that KDS management directed him to draft the notes in preparation for a meeting with counsel Ethington on Nartron's infringement claims.
Sometime between April 10, 2001, and June 6, 2001, Mr. Kasiewicz had one telephone conversation with Marie Gapinski, a nonlawyer contracting officer at TACOM, about Nartron's infringement claims. Kasiewicz Dep. 186:5-8, 191:11-15. According to Mr. Kasciewicz, during this conversation, Ms. Gapinski said that she was aware of Nartron's claims, that TACOM believed there was no basis for the infringement claims, and that any correspondence from Nartron concerning its patent infringement claims should be forwarded to her. Kasiewicz Dep. 153:21-154:1-16. In his deposition, which occurred well over 13 years after this conversation, Mr. Kasiewicz recounted his conversation with Ms. Gapinski as follows:
After Mr. Kasiewicz's telephone conversation with Ms. Gapinski, KDS's counsel, Paul Ethington, sent Nartron a letter on June 6, 2001, instructing Nartron to forward all correspondence regarding patent infringement allegations concerning the EESS to Ms. Gapinski. Mot. for Summ. J., Ex. 1D; Kasiewicz Dep. 191:11-15. This June 6, 2001 letter was the final communication between KDS and Nartron concerning Nartron's infringement claims. Nartron neither sent KDS additional correspondence regarding its infringement claims nor initiated any patent infringement litigation against KDS.
On May 14, 2004, GHSP acquired all shares of KDS stock for $7 million in cash, a $2 million promissory note, and up to $4 million in contingencies dependent on KDS' financial results during any given "Earn Out Period."
Under Section 7.7 of the Stock Purchase Agreement, no claim for indemnification could be asserted "unless written notice stating in reasonable detail the nature of the claim [was] given to the party against whom such claim [was] asserted
Under Sections 3.9, 5.3, and 5.9 of the Stock Purchase Agreement, and according to Mr. Kasiewicz's deposition testimony, GHSP had access to all of KDS' records during the pre-purchase inspection and after the closing date, including the four letters exchanged between Nartron and Paul Ethington concerning Nartron's patent infringement allegations. Mot. for Summ. J., Ex. 9-1; Kasiewicz Dep. 31:8-14, 144:4-7, 182:14-20, 187:11-15, 192:12-17, 222:25-223:23, 263:10-23. According to Mr. Kasiewicz, these four letters — dated December 14, 2000, January 26, 2001, April 10, 2001, and June 6, 2001 — were likely stored in KDS' file cabinet and maintained by KDS' bookkeeper, Rita Ayar. Kasiewicz Dep. 143:18-144:3, 181:21-23, 187:8-10, 192:8-11. Also according to Mr. Kasiewicz, KDS granted GHSP access to these records for its review prior to the acquisition and transferred these records to GHSP after the acquisition.
On or around December 17, 2009, Nartron assigned U.S. Patent Nos. 5,287,831 ("the `831 patent"), 5,327,870 ("the `870 patent"), 5,413,072 ("the `072 patent"), and 5,507,255 ("the `255 patent), as well as the `456 patent, the `369 patent, and the `258 patent to UUSI. Am. Compl. ¶ 3. This assignment "included the right to assert infringement actions and to collect damages or seek other remedies regardless of when the infringement occurred, including past infringement."
On April 3, 2012, Plaintiffs filed the instant action alleging that Defendant infringed on the `831, `870, `456, `369, and `258 patents based on Defendant's use or manufacture of the EESS and the S3. On March 17, 2014, Plaintiffs filed an amended complaint alleging that, in addition to infringing these patents, Defendant also infringed on the `072 patent and the `025 patent. Neither the Ethington Memorandum nor the Lieb Notes addresses the `072 patent or the `255 patent. Specifically, Plaintiffs allege that the S3 infringes all of these patents and that the EESS infringes all of these patents except for the `831 patent. Am. Compl. at Counts I-IV.
In January 2013, Plaintiffs sent GHSP a request for the production of documents. On April 12, 2013, at the request of the parties, this Court entered a Protective Order that provided in part:
Order of April 12, 2013. On July 22, 2013, GHSP responded and produced 11,831 documents labeled GHSP000001 to GHSP152935. Dougherty Aff. ¶¶ 3, 12, Aug. 11, 2014. This document production included the Lieb Notes, marked GHSP 141138 to GHSP 141140, as well as two copies of the Ethington Memorandum, marked GHSP 141141 to GHSP 141154. Mot. to Compel, Ex. E; Pls.' Mot. to Compel Infringement Analysis 2; Lieb Aff. ¶ 4. When lead counsel for GHSP, Kevin Dougherty, reviewed documents KDS provided GHSP, Mr. Dougherty located and withheld a copy of the Ethington Memorandum on the basis of the attorney-client privilege. Dougherty Aff. ¶ 11.
GHSP filed a motion for summary judgment on laches and estoppel grounds, arguing that Plaintiffs' infringement claims should be dismissed. Specifically, GHSP argued that Plaintiffs unreasonably delayed filing suit until 2012, despite having actual and constructive knowledge of their infringement claims as early as December 14, 2000, when Nartron sent KDS its initial letter asserting patent infringement claims. According to GHSP, because Plaintiffs unreasonably "sat on their rights," GHSP suffered economic and evidentiary prejudice — it was exposed to liability, it could no longer seek timely indemnification from KDS, and it lost the input of former KDS engineers involved in the design and manufacture of the EESS, in addition to the legal advice of KDS' patent counsel, Paul Ethington. Motion for Summ. J. 16-18.
GHSP relied upon the affidavit of Mr. Kasiewicz — in particular his determination that Nartron's infringement claims had no merit — to assert prejudice due to Plaintiffs' delay in filing their complaint. In this affidavit, Mr. Kasiewicz testified:
Kasiewicz Aff. ¶ 5. Mr. Kasiewicz further testified that KDS did not disclose Nartron's infringement claims to GHSP in the Stock Purchase Agreement because of "these discussions" and because he had heard nothing more from Nartron concerning its infringement claims:
Kasiewicz Aff. ¶¶ 5, 10, 12.
On January 27, 2014, Plaintiffs issued a subpoena directing Reising Ethington to produce documents that included opinions relating to the patents in issue and any documents concerning the Ethington Memorandum. Hoffman Aff., Ex. A. On February 3, 2014, counsel for GHSP advised Reising Ethington that GHSP, as the successor in interest to KDS, had not waived the attorney-client privilege between KDS and Reising Ethington, and later objected to the production of any privileged documents. Nonetheless, on February 26, 2014, Reising Ethington produced 17 pages to Plaintiffs in response to the subpoena, including the Ethington Memorandum.
On May 6, 2014, in their opposition to GHSP's motion for summary judgment, Plaintiffs included the Lieb Notes as evidence of willful infringement, arguing that the notes placed KDS and GHSP on notice that their product infringed Nartron's patents. Pls.' Opp. to Mot. for Summ. J. 25. In response to Plaintiffs' willful infringement claim, GHSP argued that KDS had a good-faith belief that the EESS did not infringe Nartron's patents.
Larry Lieb, the author of the Lieb Notes, Dougherty Aff. ¶ 16, confirmed the following:
On July 30, 2014, this Court denied GHSP's motion for summary judgment because the record was not sufficiently developed to warrant a judgment on either laches or equitable estoppel, but did not strike the laches or estoppel defenses, and permitted the parties to amplify the record on these defenses. Tr. 135:9-22, Jul. 30, 2014.
On July 17, 2014, Plaintiffs filed a motion to compel, challenging GHSP's assertion of the privilege with respect to the Ethington Memorandum, and arguing that the Lieb Notes were linked to the Ethington Memorandum because the notes alluded to a meeting with Paul Ethington and contained an analysis of the same four patents-in-suit summarized in the Ethington Memorandum. Mot. to Compel 5-6. On August 11, 2014, GHSP filed its response to Plaintiffs' motion to compel and argued that there was no waiver of privileged material pursuant to the claw back provision of the Court's Protective Order and Federal Rule of Evidence 502(b).
On September 10, 2014, Plaintiffs filed a motion challenging GHSP's assertion of privilege regarding the Lieb Notes, arguing that the Lieb Notes were not privileged and that, even if they were, any privilege had been waived because GHSP selectively relied on certain of KDS' communications with Paul Ethington to assert its laches defense in its motion for summary judgment. Pls.' Mot. to Compel Infringement Analysis 8.
On February 18, 2015, after obtaining new counsel, Plaintiffs filed a supplemental brief, arguing that because GHSP disclosed and relied on communications with counsel to assert its laches and estoppel defense in its motion for summary judgment, GHSP waived any privilege by placing these communications "at issue." Pls.' Supp. Brief 6. Plaintiffs contended:
On March 18, 2015, this Court held a hearing on Plaintiffs' motion to compel challenging GHSP's assertions of privilege with respect to the Ethington Memorandum and the Lieb Notes.
Plaintiffs claim that GHSP impliedly waived the attorney-client privilege with respect to the Ethington Memorandum and the Lieb Notes when it placed these privileged documents "at issue" by invoking its laches defense. The Court agrees.
The Federal Circuit has recognized the implicit waiver of the attorney-client privilege when privileged information is "at issue." This concept was first articulated in
The "at-issue" waiver is grounded in principles of fairness; the waiver applies when a party relies on advice of counsel to assert a claim or defense that in fairness requires the examination of privileged material.
The "at-issue" waiver applies where the privilege holder makes assertions, the truth of which can only be assessed by the examination of the privileged communications.
Plaintiffs' "at-issue" waiver claim in this case relates exclusively to GHSP's laches defense — GHSP claims that Plaintiffs' delay in filing suit prejudiced it because the company it acquired, KDS, never advised it of potential patent infringement claims that Nartron had raised as early as 2000, and GHSP's right to seek indemnification from KDS for alleged patent infringement had expired by the time this suit was filed.
In this Court's view, based upon the existing record, attorney-client privileged information shared between KDS and its counsel, Mr. Ethington, was at least part of the reason KDS did not believe it had any obligation to disclose Nartron's potential patent infringement claims to GHSP in the acquisition. Specifically, KDS' founder and president, Mr. Kasiewicz, testified that as a result of discussions with his counsel, Mr. Ethington, and a nonattorney TACOM contact, he "concluded that Nartron's patent infringement claims had no merit." Kasiewicz Aff. ¶ 5. Because Nartron did not notify KDS that it was pursuing patent infringement claims for over three years — from June 6, 2001, until the acquisition on May 14, 2004 — Mr. Kasiewicz "assumed Nartron did not intend to pursue its claim" and "simply forgot about it."
A crucial underpinning of GHSP's laches defense is that Mr. Kasiewicz's discussions with counsel informed KDS' conclusion that Nartron's patent infringement claims had no merit, thus causing KDS' management to believe that Nartron was not pursuing infringement claims and Mr. Kasiewicz to "simply [forget] about it." Kasiewicz Aff. ¶ 12. GHSP proffered Mr. Kasiewicz's affidavit on that point and placed that privileged information squarely "at issue." However, during the course of discovery, two other documents surfaced which appear to contradict Mr. Kasiewicz's testimony that Mr. Ethington advised KDS that Nartron's patent infringement claims were meritless. The Ethington Memorandum summarizing the claims of Nartron's patents-in-suit coupled with the notes of KDS engineer, Larry Lieb, prepared at KDS' management's direction for his meeting with Mr. Ethington about Nartron's claims, facially suggest that Mr. Lieb and Mr. Ethington believed that there
These two privileged documents cover the same subject matter as the attorney-client privileged discussions between Mr. Kasiewicz and Mr. Ethington referenced in paragraph five of the Kasiewicz affidavit. Mr. Kasiewicz's rendition of his discussions with Mr. Ethington reflects that Mr. Ethington opined that there was no infringement, while the Ethington Memorandum coupled with the Lieb Notes suggest the opposite — that there was infringement. It would be unfair for GHSP to waive the attorney-client privilege with respect to the Ethington-Kasiewicz discussions on Nartron's claims of patent infringement but then invoke the privilege to shield documents authored by counsel and a KDS engineer that also reflect their discussions on Nartron's infringement claims.
Laches is an equitable defense.
GHSP attempts to retreat from KDS' apparent reliance on Mr. Kasiewicz's discussions with his counsel, Mr. Ethington, to suggest that it was not the advice of counsel, but a conversation with a TACOM contracting officer, that persuaded Mr. Kasiewicz that Nartron's infringement claims were meritless. GHSP challenged Plaintiffs' interpretation of paragraph five of the Kasiewicz affidavit, arguing that Mr. Kasiewicz only referenced "discussions" with TACOM contracting officer Ms. Gapinski, and not "discussions" with patent counsel, in his affidavit. Tr. 29:8-22, Mar. 18, 2015. Paragraph five states:
Kasiewicz Aff. ¶ 5. Specifically, GHSP argues that the words "these discussions" in the last sentence of paragraph five only refer to Mr. Kasiewicz's discussions with nonattorney Ms. Gapinski of TACOM. Tr. 28:11-14, 32:6-25, Mar. 18, 2015. A careful reading of the language in paragraph five of the Kasiewicz affidavit refutes GHSP's interpretation. In this paragraph, Mr. Kasiewicz refers to "these discussions" — the discussions that form the basis of his conclusion on the merits of Nartron's infringement claims — in the plural. Kasiewicz Aff. ¶ 5. In his deposition testimony, Mr. Kasiewicz asserted that he
To support its interpretation of paragraph five, GHSP refers to select excerpts of Mr. Kasiewicz's deposition testimony:
Kasiewicz Dep. 153:16-155:19, 163:17-164:14. According to GHSP, these excerpts show that Ms. Gapinski's advice was the sole basis for Mr. Kasiewicz's conclusion that Nartron's infringement claims were meritless. However, such a conclusion is not reasonably inferred from the quoted colloquy given that GHSP's counsel invoked the privilege to instruct KDS' founder, Mr. Kasiewicz, not to testify about what his counsel said about Nartron's patent infringement claims, and Mr. Kasiewicz could not address counsel's discussions or advice.
Moreover, Mr. Kasiewicz's deposition testimony also suggests that because Mr. Ethington was KDS' designated patent counsel, KDS typically deferred to his advice on the merits of any and all infringement claims, including Nartron's claims; Mr. Kasiewicz asked Mr. Ethington for his opinion on the Nartron infringement claims; and Mr. Kasiewicz had ongoing communications with Mr. Ethington about Nartron's infringement claims. Mr. Kasiewicz testified:
Kasiewicz Dep. 57:7-58:3, 61:6-9, 94:25-95:4, 142:23-143:1, 146:7-9, 151:10-13. This excerpt from Mr. Kasiewicz's deposition suggests that any conclusion KDS made about infringement would be based upon the advice of its patent counsel, Mr. Ethington.
While the record at this juncture is not a model of clarity,
The attorney-client privilege generally ceases to exist upon waiver, so GHSP's assertion that the claw back provision of the Court's Protective Order preserves the privilege will not resurrect the privilege as it applies to the Ethington Memorandum and the Lieb Notes.
GHSP placed attorney-client communications between KDS and its counsel Paul Ethington regarding the merits
The Court will convene a telephone status call on