IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA
September 11, 2009
PATRIOT RAIL CORP., A DELAWARE CORPORATION, PLAINTIFF,
SIERRA RAILROAD COMPANY, A CALIFORNIA CORPORATION, DEFENDANT.
ORDER AND RELATED COUNTERCLAIMS
This matter was before the court on August 5, 2009, for hearing on: (1) plaintiff's motion to compel production of a document which defendant had inadvertently disclosed and then withdrew from disclosure, Dckt. No. 26; (2) plaintiff's motion to file under seal the unredacted declaration of plaintiff's counsel, Dckt. No. 27; and (3) the request of each party for attorney fees and costs in pursuing and defending these matters. Lisa Halko, Esq., and Sarah Asplin, Esq., appeared on behalf of plaintiff Patriot Rail Corporation ("Patriot"); and Scott Cameron, Esq., appeared on behalf of defendant Sierra Railroad Company ("Sierra"). After consideration of the moving and opposing papers and the arguments of counsel, and for the reasons that follow, the court denies plaintiff's motions to compel and to file under seal, and denies each party request for attorney fees.
This motion address the first three pages of a ten-page document which defendant disclosed. However, defendant contends that the first three pages (the pages now in dispute) are protected by attorney-client privilege and the work product doctrine. Copies of these pages were inadvertently disclosed by defendant to plaintiff's counsel but were either returned or destroyed upon notification by defendant of the claim of privilege. There is no claim of waiver because of the inadvertent disclosure and the defendant appears to have acted timely in correcting the error. Rather, the only dispute is whether the content of three pages are subject to either the attorney-client privilege and/or work product doctrine. The last seven pages of the document have been fully disclosed and are not in issue.
On April 1, 2009, plaintiff Patriot Rail Corporation propounded its Request for Production, Set Two, upon defendant Sierra Railroad Company. Request Number One sought "[a]ll documents and other tangible things illustrating Defendant's relationship and communications with McClellan Business Park." Defendant produced relevant documents the morning of June 4, 2009, immediately prior to plaintiff's deposition of Michael Hart, President of Sierra. After commencement of the deposition, during the lunchbreak, plaintiff's counsel reviewed the newly produced documents, including a ten-page document responsive to the above-noted production request, identified as Bates Number SRR 6786-6795. The document generally describes Sierra's business relationship with third party McClellan Business Park ("MCP" or "McClellan"). When the deposition resumed, plaintiff's counsel, Lisa Halko, asked Mr. Hart about the document. Mr. Hart responded initially, but defendant's counsel, Mr. Gonzalez, objected on the ground of inadvertent disclosure, stating that the first three pages, Bates Number SRR 6786-88, were drafted by Mr. Torgny Nilsson, Sierra's in-house counsel, and subject to attorney-client privilege. Plaintiff thereafter destroyed its copies of the disputed pages.
On June 9, 2009, defendant provided a privilege log, Ex. E to Halko Decl., which provides the following information as to the assertion a attorney client privilege:
Date Doc. Type/ Author Recipient Description Privilege
Bates No. Undated SRR 006786- T. Nilsson M. Hart, T. Nilsson Summary of Sierra Attorney-Client
SRR 006788 and Sierra Railroad Railroad's operations Privilege; management team at McClellan Park and Attorney Work opinions of T. Nilsson Product Doctrine re. same
Plaintiff filed this motion on June 16, 2009. On July 13, 2009, the court ordered defendant to produce the disputed pages for in camera review. The court deferred consideration of plaintiff's motion to file under seal the unredacted declaration of plaintiff's counsel, but directed that "[t]he parties may share the unredacted document pursuant to the provisions of their protective order approved by the district judge on May 21, 2009." Dckt. No. 28.
Defendant timely submitted the disputed pages on July 16, 2009, and the court has reviewed them in camera. On July 29, 2009, the parties filed their joint statement addressing this narrow discovery dispute.
Defendant's in-house counsel, Mr. Torgny Nilsson, filed a declaration in support of defendant's assertions of privilege, in which he states that he is, and "at all relevant times was, the General Counsel for Sierra Railroad Company and its subsidiaries Sierra Northern Railway and Sierra Entertainment." Nilsson Decl., Dckt. No. 32, at p. 1. Mr. Nilsson states that he wrote the disputed pages for the purposes of providing legal advice and in anticipation of possible litigation with McClellan,*fn1 and describes these circumstances as follows:
¶ 2. I prepared the first three pages of the document entitled "Sierra Benefits to MCP," which is now Bates labeled SRR 6786 through SRR 6788, when it became apparent that a dispute, which might lead to litigation, was arising between Sierra Northern Railway and the management of McClellan Business Park concerning Sierra Northern Railway's operation of the railroad facilities at McClellan Business Park.
¶ 3. In order for me to provide upper management at Sierra Northern Railway and Sierra Railroad Company with the best analysis of the arising dispute, and in order to decide the best course of action if and when that dispute led to litigation, I obtained information from those people in our company involved in obtaining and overseeing Sierra Northern Railway's operations at McClellan Business Park as to the history of Sierra Northern Railway's operations at McClellan Business Park, the benefits Sierra Northern Railway had brought to McClellan Business Park, and the arguments that might be made by both McClellan Business Park and Sierra Northern Railway in the event of any litigation. I also analyzed the potential merits and drawbacks of the arguments that might be made and the potential impact of those arguments.
¶ 4. I at all times considered the document to be privileged as it was prepared in anticipation of litigation and its distribution was limited to those of Sierra's upper management who had a need to know the information so that they could best direct my actions in the growing dispute with the management of McClellan Business Park and in any resulting litigation. I am informed and believe that the document was never, prior to the instant litigation with Patriot, provided to anyone other than Mike Hart, President of Sierra Railroad Company, and David Magaw, Vice-President of Sierra Railroad Company and President of Sierra Northern Railway. In the document, I attempted to play "devil's advocate" by presenting what I anticipated would be McClellan Business Park's side of the growing dispute in an effort to communicate to Sierra's senior management the issues that were involved in the dispute.
¶ 5. I provided the document to the firm of Weintraub Genshlea Chediak, Sierra Railroad Company's counsel in the instant litigation with Patriot, as the document appeared to be responsive to Patriot's request for the production of documents in conjunction with Mike Hart's deposition. But at the time I did so, I believed the document to be protected by the attorney-client privilege and I did not expect the document to be produced to Patriot. The fact that the documents were prepared in addressing a potential growing dispute with McClellan Business Park, rather than Patriot, did not, in my opinion, in any way affect the privileged nature of the documents in the litigation with Patriot.
Nilsson Decl., at pp. 2-3; see also Jt. Stmt. at 14.
Plaintiff responds that the "dominant purpose" test should control the court's analysis of defendant's asserted privilege, and that the dominant purpose of the disputed document was to provide business, not legal, advice. According to plaintiff, the document, including the three pages in issue, were prepared in the ordinary course of business, rather than in anticipation of litigation, and that plaintiff has a substantial need for the document because the information contained therein (in particular, information upon which to impeach the testimony of Mr. Hart regarding the true nature of defendant's relationship with McClellan) cannot be obtained elsewhere.
"The party asserting attorney-client privilege has the burden of establishing all of the elements of the privilege." United States v. Munoz, 233 F.3d 1117, 1128 (9th Cir. 2000). "[T]he essential elements of the attorney-client privilege [are]: (1) [w]here legal advice of any kind is sought, (2) from a professional legal adviser in his capacity as such, (3) the communications relating to the purpose, (4) made in confidence (5) by the client, (6) are at this instance permanently protected (7) from disclosure by himself or by the legal adviser, (8) unless the protection be waived." Admiral Ins. v. United States District Court for District of Arizona, 881 F.2d 1486, 1492 (9th Cir. 1989). "[B]ecause the privilege has the effect of withholding relevant information from the fact-finder, it applies only where necessary to achieve its purpose." Fisher v. United States, 425 U.S. 391, 403  (1976); United States v. Gray, 876 F.2d 1411, 1415 (9th Cir. 1989) (the privilege is 'narrowly and strictly construed'). Nevertheless, the attorney client privilege, once properly asserted, is absolute. See Westinghouse Elec. Corp. v. Republic of the Philippines, 951 F.2d 1414, 1429, (3d Cir. 1991)." Modesto Irrigation District v. Gutierrez, 2007 WL 763370, 13 (E.D. Cal. 2007).
In contrast, "[t]he work product doctrine, codified in Federal Rule of Civil Procedure 26(b)(3), protects 'from discovery documents and tangible things prepared by a party or his representative in anticipation of litigation.' Admiral Ins. Co. v. United States District Court, 881 F.2d 1486, 1494 (9th Cir.1989). Such documents may only be ordered produced upon an adverse party's demonstration of 'substantial need [for] the materials' and 'undue hardship [in obtaining] the substantial equivalent of the materials by other means.' Fed. R. Civ. P. 26(b)(3)." In re Grand Jury Subpoena (Mark Torf/Torf Environmental Management), 357 F.3d 900, 906 (9th Cir. 2004). However, such weighing of interests does not apply to work product containing an attorney's mental impressions and opinions, which remain inviolate. See Admiral Ins. Co., supra, 881 F.2d 1486, 1494 (9th Cir. 1989) (citing Upjohn v. United States, 449 U.S. 383, 401 (1981) (work product doctrine accords special protections against disclosing an attorney's mental impressions and opinions, but "other work-product materials nonetheless may be ordered produced upon an adverse party's demonstration of substantial need or inability to obtain the equivalent without undue hardship"); see also Hickman v. Taylor, 329 U.S. 495, 511-512 (1947).*fn2
The "'dominant purpose' test," on which plaintiff relies, was well summarized by the California Court of Appeal, Fourth District, in 2,022 Ranch, L.L.C. v. Superior Court, 113 Cal.App.4th 1377, 1390-1395 (4th Dist. 2003). The court explained:
In certain instances it is difficult to determine if the attorney-client privilege (or work product privilege) attaches to a communication, particularly where there may be more than one purpose for that communication: Where it is clear that the communication has but a single purpose, there is little difficulty in concluding that the privilege should be applied or withheld accordingly. If it appears that the communication is to serve a dual purpose, one for transmittal to an attorney in the course of professional employment and one not related to that purpose, the question presented to the trial court is as to which purpose predominates. This "dominant purpose" test not only looks to the dominant purpose for the communication, but also to the dominant purpose of the attorney's work. Thus, the attorney-client privilege would not apply without qualification where the attorney was merely acting as a negotiator for the client, or merely gave business advice, or was merely acting as a trustee for the client.
2,022 Ranch, supra, 113 Cal.App.4th at 1390-1391 (citations and internal quotations omitted).
The court's in camera review supports the declaration of Mr. Nilsson. The document, including the three pages in question, demonstrates that its purpose was to provide legal advice. The disputed pages were written by Mr. Nilsson in his capacity as in-house counsel for defendant Sierra Railroad Company, during a period of conflict between Sierra and McClellan Business Park. The document was directed to Sierra management, and addressed the parameters of Sierra's contract with McClellan and Sierra's obligations thereunder. The document was disclosed in confidence, and was not further disclosed except for its inadvertent disclosure to plaintiff. Given the legal purpose and content of the document, and its preparation by Sierra's in-house counsel for management's eyes only, defendant's assertion of attorney-client privilege was proper and should be upheld.
Defendant's inadvertent disclosure did not effect a waiver of the attorney-client privilege. Courts commonly consider five factors to evaluate waiver of privilege by inadvertent disclosure: "(1) the reasonableness of the precautions taken against disclosure; (2) the time taken to rectify the error; (3) the scope of the discovery; (4) the extent of the disclosure; and (5) the overriding issue of fairness." In re Sause Bros. Ocean Towing, 144 F.R.D. 111, 115 (D. Or. 1991) (citations omitted). The court's consideration of these factors demonstrates that, while greater precautions could initially have been taken to protect the document, disclosure was minimal, the scope of information contained therein was narrow, and the error was immediately rectified; defendant's quick efforts to secure and protect the document render its continued protection a fair result. Thus, based on the relevant factors, the court finds no waiver of the attorney-client privilege by inadvertent disclosure.
Plaintiff's remaining arguments seek to overcome defendant's subsequent assertion of work product protection. While the contested document was prepared in the midst of a growing dispute between Sierra and McClellan, a dispute relevant to the instant litigation, it cannot reasonably be said that the document was prepared in anticipation of litigation. Rather, the document provides legal advice in the ordinary course of business, and is therefore not subject to work product protection.*fn3 Nonetheless, the disputed pages remain protected pursuant to the attorney-client privilege.
Finally, plaintiff has filed an application fo file under seal the declaration of Lisa L. Halko. The sealing order is sought because the declaration describes or characterizes the disputed three pages. The court finds no compelling reason to file Ms. Halko's declaration, whether redacted or unredacted, and therefore denies plaintiff's application for a sealing order. Plaintiff's motion does not meet the requisite elements for sealing, a procedure narrowly tailored to protect highly confidential information. The court appreciates counsel's sensitivity to the privilege issue and the efforts to avoid divulging defendant's privileged information. However, the information contained in, and attached to, Ms. Halko's declaration, does not appear to actually disclose the contents of the disputed pages. Nor does it appear to be the type of information that is traditionally kept confidential, and plaintiff has not demonstrated a compelling reason that it be sealed. See Kamakana v. City and County of Honolulu, 447 F.3d 1172, 1178-79 (9th Cir. 2006); Foltz v. State Farm Mut. Auto Ins. Co., 331 F.3d 1122, 1135 (9th Cir. 2003). Moreover, the parties have had full access to Ms. Halko's declaration pursuant to their protective order. The court's rulings herein are based not on the contents of Ms. Halko's declaration, but on the contents of the disputed document itself, pursuant to the court's in camera review, as well as Mr. Nilsson's declaration regarding the purpose and preparation of the document, and the arguments of counsel in their consolidated joint statement and at the hearing on this matter. Therefore plaintiff's application for a sealing order is denied and the Clerk of Court is directed to return the materials lodged with that application to Ms. Halko.
The requests of both parties for fees and costs are denied based on the court's conclusion that the positions of both parties were reasonable.
For the foregoing reasons, IT IS HEREBY ORDERED that:
1. Plaintiff's motion to compel production of the three-page document withheld by defendant based on attorney-client privilege, and identified as Bates Number SRR 6786-88, Dckt. No. 26, is DENIED;
2. The Clerk of Court is directed to return to defendant's counsel the court's copy of the document identified as Bates Number SRR 6786-88, submitted for in camera review on July 16, 2009.
3. Plaintiff's motion to file under seal the unredacted declaration of plaintiff's counsel, Dckt. No. 27, is DENIED;
4. The Clerk of Court is directed to return to plaintiff's counsel the court's copy of Ms. Halko's declaration submitted in camera pursuant to her motion, Dckt. No. 27; and,
5. The request of each party for attorney fees and costs in pursuing and defending these matters is DENIED.