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holding that where documents were obtained outside the normal discovery process but not wrongfully, ordinary attorney-client privilege analysis applies
Summary of this case from Kyko Global Inc. v. Prithvi Info. Solutions Ltd.Opinion
95 Civ. 10790 (RCC)
July 19, 2001
Opinion and Order
Before the Court are Defendants' four motions to preclude certain evidence and testimony from being introduced in the trial scheduled to commence on Tuesday, July 24, 2001. Plaintiff has filed her own motion to exclude testimony. The Court held a hearing on the privilege issues on Tuesday, July 17, 2001. For the reasons set forth below, Defendants' first motion to preclude is granted in part and denied in part, Defendants' remaining motions are denied, as is Plaintiff's motion to preclude. However, Defendants and the Ziffren firm are ordered to produce the backup tape containing the Marshall Budget document at issue in Plaintiffs motion. Finally, the parties and Ziffren are to enter a confidentiality agreement to preserve Ziffren's confidences and privileges.
I. Background
The Court presumes familiarity with this five-year-old case and will only briefly summarize the facts as they pertain to the motions at issue. Plaintiff, Jessica Josephson ("Plaintiff' or "Josephson"), brings this suit claiming, among other things, fraud, breach of contract and breach of fiduciary duty. In 1994 Plaintiff claims she formed a joint venture with Defendant Sherrie Marshall ("Marshall"), Defendant Sandra Kresch ("Kresch") and non-party Robert Cohen ("Cohen") to work together on mutually advantageous business opportunities. Complaint ¶ 17. Marshall is the principal stockholder and an officer and director of Defendant Marshall Company ("Marshall Company" and, collectively with Marshall and Kresch, "Defendants"). Id. ¶ 4. The members of the joint venture used the already-existing Marshall Company as the business organization under which they submitted their business proposals. Id. ¶ 28. Late in 1994, the European Commission ("EC") and the Marshall Company entered a contract under which the members of the joint venture would submit a study called "The U.S. Telecommunications and Audiovisual Environment." Id. ¶ 28.
Plaintiff alleges that she performed all of her obligations with respect to the EC contract, but that the members of the joint venture fraudulently usurped and took over the project. Id. ¶¶ 32, 33. Defendants argue, however, that Plaintiff was late in turning in her portion of the report and that the work she did submit was incomplete. Selter Decl. ¶ 17. As a result of her tardiness and unsatisfactory performance, Defendants and Cohen decided Josephson should be removed from the EC project. Id. ¶ 18. Josephson accepted delivery of the termination letter and a $5,000 check in payment of her services on April 20, 1995. Id. ¶ 19. She endorsed the check "under protest" and never submitted an invoice for travel in connection with the EC project. Id. She did, however, subsequently file this suit.
II. Discussion A. Defendants' Motion to Preclude #1
Defendants now request an order precluding Plaintiff from introducing Exhibits 60A through 60D and 60F on the grounds that they are privileged documents and that a former employee of Sherrie Marshall improperly took them from her home. According to Defendants, Clif Lord ("Lord"), Marshall's former assistant, confiscated the documents from Marshall's home, which served as the headquarters for the Marshall Company from 1998 until 1999, after she fled in June 1999 for reasons unrelated to this litigation. Essentially, Defendants argue Lord did not have authority to disclose these documents and that Plaintiff should be ordered to return them and be sanctioned.
"Specifically, Exhibit 60A is a handwritten account by Marshall of activity in the EC Hedge Fund Account. Marshall claims she prepared these notes in connection with a conversation she had with her attorney about possible third-party claims against Cohen. Apr. 10, 2001 Marshall Decl. ¶ 4. Exhibit 60B is a handwritten summary by Marshall regarding Cohen's reports for the EC project. Again, Marshall claims she used these notes when discussing possible third-party actions. Id. ¶ 5. Exhibit 60C is an October 5, 1996 memorandum from Marshall to defense counsel Michael Selter and Defendant Kresch, marked "Privileged and Confidential Attorney-Client Material, "and discussing possible responses to Cohen's administrative allegations regarding the management of the EC contract. Exhibit 60D is an October 5, 1996 memorandum from Marshall to Michael Selter and Defendant Kresch, also discussing possible responses to Cohen's complaints. It, too, is marked "Privileged and Confidential Attorney-Client Material." Exhibit 60F, dated April 7, 1997 and entitled "SM Private Reconciliation, "states the amount currently in the EC account, the amount that should have been there and the amount to be "made good by SM." Defendants submit this was prepared in connection with this lawsuit for a discussion with defense counsel. Id. ¶ 8.
Plaintiff has a different story. First, Lord had authority to enter "the office, as evidenced by the fact that he had keys. Lord Decl. ¶ 11. Selter Decl. ¶ 44. He found documents, which included the exhibits in question, after cleaning out his desk at Marshall's abandoned home. Lord Decl. ¶¶ 18-21. He then turned the documents over to Plaintiffs counsel. ¶¶ 23-26. Counsel called and sent a letter to the New York City Bar Association's Ethics Committee requesting a ruling about the circumstances of his receipt of the documents. The request went unanswered. Finally, the Plaintiff reminds the Court that Marshall systematically refused to turn over requested financial documents, until ordered to do so by the Court and then allegedly lost or destroyed them. P1. Res. Mem. #1 at 3; see also Mar. 9, 2001 Marshall Decl. ¶¶ 1, 13, 14, 16.
Defendants have "fail[ed] to draw the necessary distinction between a party that actively secures evidence that she is not entitled to and one that passively receives evidence from a questionable source. In the former situation, the court has the authority to preclude the use of the tainted material in order to deter the parties from engaging in extra-legal discovery and to prevent the judicial system from being complicit in the wrongdoing." Madanes v. Madanes 186 F.R.D. 279, 292 (S.D.N.Y. 1999) (citing Fayemi v. Hambrecht Quist. Inc., 174 F.R.D. 319, 324 (S.D.N.Y. 1997)). Defendants have not offered any proof that Plaintiff herself was involved in any wrongful conduct in securing these exhibits. Thus, assuming the evidence is not privileged, "there is no basis for requiring the return of the information obtained or prohibiting its use." Madanes, 186 F.R.D. at 292 (citing Schlaifer Nance Co. Inc. v. Estate of Warhol, 742 F. Supp. 165, 166 (S.D.N.Y. 1990)).
The exhibits' admissibility, therefore, turns on whether they are privileged. See Fisher v. United States, 425 U.S. 391, 403 (1976); Fed.R.Evid. 501. The basis for subject matter jurisdiction here is diversity of citizenship, therefore this Court applies New York privilege law. See Fed.R.Evid. 501; Nat'l Educ. Training Group v. Skillsoft Corp., No. M8-85 (WHP), 1999 WL 378337, at * 2 (S.D.N.Y. June 10, 1999). "New York law governing the attorney-client privilege is generally similar to accepted federal doctrine. . . ."Browne of New York City. Inc. v. AmBase Corp., 150 F.R.D. 465, 470 (S.D.N.Y. 1993). The privilege protects "confidential communications made between the attorney. . . and the client in the course of professional employment. . . ." N.Y. C.P.L.R. § 4503(a). "To sustain a claim of privilege, the party invoking it must demonstrate that the information at issue was a communication between client and counsel or his employee, that it was intended to be and was in fact, kept confidential, and that it was made in order to assist in obtaining or providing legal advice or services to the client."Browne of New York City. Inc. v. AmBase Corp., 150 F.R.D. at 470-71. The proponent of a privilege bears the burden of establishing its existence based on competent evidence, von Bulow v. von Bulow, 811 F.2d 136, 144 (2d Cir. 1987). Further, the privilege "must be narrowly construed to provide no broader protection than is necessary to accomplish its purpose given that its invocation constitutes an obstacle to the truth-finding process." Nat'l Educ. Training Group v. Skillsoft Corp. 1999 WL 378337, at *3 (internal citations omitted);see also United States v. Jacobs 117 F.3d 82, 87 (2d Cir. 1997) (noting the "purpose of the attorney-client privilege is to foster open communication between attorneys and their clients, so that fully informed legal advice may be obtained").
Here, Defendants claim Plaintiffs Exhibits 60C and 60D are protected by the attorney client privilege. At the hearing, Marshall testified that defense counsel, Michael Selter ("Selter"), is and has been her attorney throughout the course of this litigation. Further, she testified that she wrote the memos to explore and evaluate Cohen's possible claims against the Marshall Company as well as the possibility of filing a third-party complaint against him. Finally, she stated that both documents were only sent to her co-Defendant, Kresch, and Selter, although she admits that Lord may have faxed them for her. However, Marshall also testified that she used the "privileged and confidential" label on many documents, including Exhibit 60E, which Lord also turned over and which Defendants are not claiming is actually privileged. Further, she admitted that her attorney, Selter, may have stamped "confidential" on "hundreds" of documents turned over to Plaintiff during the course of discovery.
The Court's review of the exhibits in issue, however, supports Defendants' contention that they should be protected by the attorney-client privilege. Selter was and is Defendants' attorney, on their face, the memos appear to be sharing information so as to facilitate the rendering of legal advice and, finally, Marshall only sent the memos to Selter and Kresch.
The work product privilege, which Defendants rely on to protect Exhibits 60A, 60B and 60F, is "distinct from, and broader than, the attorney-client privilege." Nat'l Educ. Training Group v. Skillsoft Corp., 1999 WL 378337, at * 5 (citing United States v. Nobles, 422 U.S. 225, 238 n. 11 (1975)). Analysis of the work-product privilege begins with Federal Rule of Civil Procedure 26(b)(3). Mount Vernon Fire Ins. Co. v. Try 3 Bldg. Servs., Inc., No. 96 Civ. 5590 (MJL)(HBP) 1998 WL 729735, at *3 (S.D.N.Y. Oct. 16, 1998). Primarily, this privilege "is intended to preserve a zone of privacy in which a lawyer can prepare and develop legal theories and strategy "with an eye toward litigation, 'free from unnecessary intrusion by his adversaries."
Rule 26(b)(3) states in relevant part: "[Al party may obtain discovery of documents and tangible things otherwise discoverable. . . and prepared in anticipation of litigation or for trial by or for another party. . . only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of the party's case and that the party is unable without undue hardship to obtain the substantial equivalent of the materials by other means."
Id. (quoting United States v. Adlman, 134 F.3d 1194, 1196 (2d Cir. 1998)). "At its core, the work-product doctrine shelters the mental processes of the attorney, providing a privileged area within which he can analyze and prepare his client's case." In re Leslie Fay Cos. Sec. Litig., 161 F.R.D. 274, 279 (S.D.N.Y. 1995) (quoting United States v. Nobles, 422 U.S. at 238)).
The proponent of the work-product privilege must demonstrate that the material in question is a document or tangible thing that was prepared in anticipation of litigation by or for a party, or by or for the party's representative. Compagnie Francaise d'Assurance Pour le Commerce Exterieur v. Phillips Petroleum Co., 105 F.R.D. 16, 41 (S.D N.Y. 1984); Fed.R.Civ.P. 26(b)(3). A document is prepared in anticipation of litigation if "in light of the nature of the document and the factual situation in the particular case, the document can be fairly said to have been prepared or 4obtained because of the prospect of litigation." United States v. Adlman, 134 F.3d at 1202(construing Rule 26(b)(3) broadly and noting that it "does not limit its protection to materials prepared to assist at trial"). A document that assists in a business decision is protected if the document was created because of the prospect of litigation. Id. at 1202. The documents do not have to be created at the request of an attorney. In re Copper Market Antitrust Litig., 200 F.R.D. 213, 221 (S.D.N.Y. 2001). Documents prepared in the ordinary course of business, however, or those "that would have been created in essentially similar form irrespective of the litigation" are not protected. Adlman, 134 F.3d at 1202. "Even if such documents might also help in preparation for litigation, they do not qualify for protection because it could not fairly be said that they were created "because of actual or impending litigation." Id.
Work product is discoverable, and potentially admissible, only upon a showing that the requesting party has "substantial need" of the materials and "is unable without undue hardship to obtain the substantial equivalent of the materials by other means." Fed.R.Civ.P. 26(b)(3). Opinion work product, that is, "the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation," is afforded heightened protection."Upjohn Co. v. United States, 449 U.S. 398, 402 (1981).
Here, Marshall's counsel elicited her testimony that, with respect to all three exhibits, she created these documents to assist her in her conversations with him about this litigation. However, the Court's in camera review of the documents belies her conclusory, self-serving testimony. Exhibit 62A is simply a summary of funds received and transferred, interest earned and projected gain in the EC account. There can be no doubt that, absent this litigation, such an accounting would have been created at some point during the EC project. Exhibit 60B is Marshall's summary of reports the Marshall Company prepared for the EC, with a focus on Cohen's contributions, or lack thereof. Again, the Court is hard-pressed to believe that litigation inspired this generic summary. Finally, Exhibit 60F, which Marshall admits she prepared to sort through what she owed and did not owe, contains information that would have been summarized and noted in the normal course of completing the EC project. Surely, none of these exhibits are the type of work product that deserves protection under the Rule. See United States v. Adlman, 134 F.3d at 1195 (finding accounting firm's report to attorney assessing tax consequences of expected litigation is protected work-product); In re Copper Market Antitrust Litig., 200 F.R.D. at 221 (affording work-product protection to documents prepared by public relations firm on behalf of client that hired the firm to ensure its public statements would not result in further exposure to litigation); Nat'l Educ. Training Group v. Skillsoft Corp., 1999 WL 378337, at *6 (protecting non-partys' notes at defendant's board meeting regarding defense counsel's confidential legal advice concerning pending litigation). Accordingly, Defendants here have not demonstrated that these documents, would not have been prepared "but for" the litigation, and they are admissible. United States v. Adlman, 134 F.3d at 1204.
B. Defendants' Motion to Preclude #2
In their second motion to preclude, Defendants argue that, pursuant to Federal Rules of Evidence 702 and 403, the testimony and report of Kenneth Shear ("Shear") should not be admitted because Shear is not a qualified expert and his testimony would be prejudicial, confusing, and misleading. Shear's proposed testimony and report, centers on his belief that Marshall did not, in fact, create the "Projected Budget and Workdays for EC Project" ("Marshall Budget") document on December 12, 1994, as the footer on the document reflects. P1. Ex. 49, Selter Decl., Ex.7.
According to Defendants, Marshall created the Marshall Budget on her computer in the Marshall Company's offices, which at the time were leased from the law firm Ziffren, Brittenham, Branca Fischer ("Ziffren"). Selter Decl. ¶ 30. It is unnecessary to relay the conflicting factual allegations concerning the creation and electronic storage of the Marshall Budget here. The crux of the matter is that Defendants did not turn over the document until well after the first document request, Marshall could not locate it during a subsequent request for electronic records in 1997 and the Ziffren firm's network administrator, Lee Schwing ("Schwing"), subsequently informed her it was available on a firm back-up tape. The back-up tape also allegedly indicated that the Marshall Budget had been created on December 12, 1994. Selter Decl. ¶ 37.
Counsel for Ziffren objected to Plaintiffs request for her expert, Shear, to examine the back-up tape unless it could be done in a manner that would preserve and protect the firm's privileges and confidences.Id. at ¶ 42. Plaintiff did not move to compel the firm to allow Shear access to the tape. Id. Without having examined the back-up tape, Shear's report states that "[substantial doubt exists as to the validity of the December 12, 1994 date on which the file. . . was allegedly written." Pl. Ex. 56, Selter Decl., Ex. 7. Accordingly, Defendants argue Shear is not qualified to give expert testimony concerning Ziffren's actions and that his testimony would be contrary to the "undisputed facts" surrounding the creation and retention of the Marshall Budget.
Federal Rule of Evidence 702 governs the admissibility of expert testimony. "[T]he trial court must determine whether the proffered expert testimony is relevant, i.e., whether it 'ha[s] any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence,' and whether the proffered testimony has a sufficiently 'reliable foundation' to permit it to be considered.'"Campbell v. Metro. Prop. Cas. Ins. Co., ___ F.3d ___, 2001 WL 204022 (2d Cir. Feb. 20, 2001) (quoting Fed.R.Evid. 401; Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 597 (1993)).
Federal Rule 702 states: "If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case." The Rule was amended to reflect the Supreme Court's decisions in Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993) (charging trial judges with gatekeeper responsibility to exclude unreliable expert testimony), andKumho Tire Co. v. Carmichael, 526 U.S. 137 (1999) (clarifying that the gatekeeper function applies to all expert testimony, not just that based on scientific knowledge). See Advisory Committee Notes to 2000 Amendment.
At the outset, Plaintiff must demonstrate that Shear's testimony is relevant. Fed.R.Evid. 402. Thereafter, if the Plaintiff qualifies Shear as an expert at trial, by indicating whether his theory has been tested, whether it has been subjected to peer review and publication, whether it has a known or potential rate of error and whether it has been generally accepted, then the Court will permit him to testify as an expert. See Daubert, 509 U.S. at 590-594. The Court will not permit the parties to try this case in its pre-trial motions instead of before the jury. Shear is an attorney and has been working in the field of electronic data retrieval for several years. Further, he has published articles on the topic and has qualified and testified as an expert witness on several occasions. Shear Resume, Lord Decl., Ex. E. Plaintiff will have the opportunity to qualify Shear as an expert and demonstrate the relevance of his proffered testimony at trial.
Defendants also charge that Shear's testimony would violate Federal Rule of Evidence 403, which precludes otherwise relevant testimony that, at is "substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence." Fed.R.Evid. 403. Again, if the origination date of the Marshall Budget is relevant to the jury's determination of the facts and Shear is qualified as an expert, the Court will weigh any possible prejudice to Defendants by his testimony at that time. Accordingly, Defendants' Motion to Preclude #2 is denied.
C. Defendants' Motion to Preclude #3
Defendants' third motion to preclude requests the Court to exclude the expert testimony of Peter Hamilton ("Hamilton") because he is not qualified to give his opinion about the value of the EC as a client or the value of Plaintiffs contribution to the project. Defendants argue that his testimony would be irrelevant and that his opinion that Plaintiff deserves an origination fee is contrary to other factual evidence. In response, Plaintiff argues Defendant never took Hamilton's deposition and therefore cannot speculate on what he does and does not know. Hamilton Decl. ¶ 2. Although his resume indicates that he has not testified as an expert witness and his only publication appears to be on the subject of independent films, Hamilton Report. Pl. Ex. 56, Selter Decl. Ex. 7, Hamilton purports to be an expert in the field of EC consulting and telecommunications. Hamilton Decl. ¶¶ 3-9 (outlining his experience with the EC, government projects and telecommunications ventures). Plaintiff will be given the opportunity to demonstrates the relevance of his testimony and attempt to qualify him at trial. Defendants' Motion to Preclude #3 is denied.
D. Defendants' Motion to Preclude #4
Defendants' final motion centers on Plaintiffs damages claims. First, they request the Court to preclude evidence relating to compensatory damages for Plaintiffs fraud claims because she seeks benefit of the bargain damages, which Defendants claim are not recoverable under these circumstances. The Court previously held that Plaintiff is limited to proving her "out-of-pocket fees" as fraud damages. March 26, 1999 Sum. J. Order Tr. at 9. That holding will stand. Defendants also argue the Court should preclude evidence about an origination fee, travel expenses, promotional expenses or lost opportunities and punitive damages because there is insufficient evidence to support their award. As this Court stated in its summary judgment order, "Defendants can argue their position to the jury." Id. The motion is denied.
E. Plaintiff's Motion to Preclude
Finally, Plaintiff moves to preclude the live or deposition testimony of Lee Schwing, Ziffren's network administrator. Essentially, Plaintiff argues that Schwing's testimony that she believes the December 12, 1994 Marshall Budget document is the same as that stored on the back-up tape is "worthless" and "compromised" because she never examined the back-up tape and she admits to destroying a second back-up tape in May 1997. Plaintiff submits only the back-up tape is credible proof that the Marshall Budget was actually created on December 12, 1994 and requests the Court to consider this motion as one to compel discovery. Further, Plaintiff argues Schwing's testimony should be excluded under Federal Rule of Evidence 702, or if she is considered a layperson, under Federal Rule of Evidence 701(c).
"Plaintiff also requests that the Court exclude this testimony nunc pro tunc, as if the motion had been timely made on or before April 13, 2001, the date on which the Court ordered preclusion motions be filed. It is unnecessary to address the timeliness of Plaintiffs motion because it is denied.
c As far as the Court is aware, Defendants only consider calling Schwing as a fact witness. Defendants have not proffered any evidence of Schwing's qualifications as an expert and she has not submitted an expert's report. Non-experts may provide opinion testimony if it is "(a) rationally based on the perception of the witness, (b) helpful to a clear understanding of the witness' testimony or the determination of a fact in issue, and (c) not based on scientific, technical, or other specialized knowledge within the scope of Rule 702." Fed.R.Evid. 701. If called, Schwing will be allowed to testify regarding facts and her opinion as permitted by Rule 701. Plaintiffs motion is denied.
With respect to the tape, this lawsuit has been pending for over five years. Plaintiff has known since September 1997 that Ziffren would not turn over the back-up tape. Now for the first time, on the eve of trial, Plaintiff seeks the Court's assistance in obtaining this tape. The Court will not allow further delay in resolving this matter and notes it has broad discretion in managing discovery. Soobzokov v. CBS. Inc., 642 F.2d 28, 30 (2d Cir. 1981). Plaintiff timely served the Ziffren firm with a deposition and document subpoena. Selter Decl. Ex. 10. This is not a situation in which Plaintiff is springing a surprise witness on Defendants. Defendants have known for a long time that Plaintiff wanted the back-up tape. Although the Court does not approve of last-minute discovery requests and will not reward this type of behavior in the future, here, in the wake of questionable conduct throughout the course of discovery by Defendants and in the search for the truth, the Ziffren firm is ordered to turn over the back-up tape to the Plaintiff by 8 p.m. on Friday, July 20, 2001. The parties and the Ziffren firm are directed to enter a confidentiality agreement to preserve the firm's confidences and privileges.
III. Conclusion
For the reasons explained above, Defendants' Motion to Preclude #1 is granted with respect to Exhibits 60B and 60C. It is denied with respect to Exhibits 60A, 60B and 60F. All of Defendants' other motions are denied, as is Plaintiffs motion to preclude. Defendants must turn over the back-up tape to the Plaintiff by 8 p.m. on Friday, July 20, 2001. Jury selection will begin on Tuesday, July 24, 2001 at 10 a.m.
So ordered.