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Urban Box Office Network, Inc. v. Interfase Managers, L.P.

United States District Court, S.D. New York
Oct 19, 2004
No. 01 Civ. 8854 (LTS) (THK) (S.D.N.Y. Oct. 19, 2004)


applying same principle to attorney-client privilege

Summary of this case from Chevron Corp. v. Donziger


No. 01 Civ. 8854 (LTS) (THK).

October 19, 2004


This breach of contract action was referred to this Court for general pretrial supervision, by the Hon. Laura T. Swain, United States District Judge. Presently before the Court is a dispute among the parties regarding the privileged status of certain of Defendants' documents. For the reasons that follow, the Court concludes that the documents cannot be withheld on the basis of the attorney-client privilege.


I. The Source of the Dispute

Plaintiff Urban Box Office Network, Inc. ("UBO") brought this action against Defendants Scott Hyten ("Hyten"), Interfase Managers, L.P., and various other limited partnerships with which Hyten and Interfase were associated (collectively "the Entities"), for breach of a stock purchase agreement. In the course of a voluminous document production, Defendants provided twenty-five documents ("the Documents") to Plaintiff which are communications between Hyten and attorneys at the law firm of Baker Botts, the attorneys for the Entities in other litigation. When questioned about the Documents at his deposition, Hyten invoked attorney-client privilege. Subsequent to the deposition, and after a review of the entire document production, Hyten's attorney advised Plaintiff's counsel that most of the Documents were listed on Defendants' privilege log and had been produced inadvertently, and requested their return. Plaintiff's counsel refused, and now seeks a ruling from this Court that any privilege that may have applied to the Documents has been waived because (1) the privilege was waived in two prior proceedings: a legal malpractice suit which the Entities brought against their Baker Botts attorneys, and an arbitration proceeding in Texas ("the Arbitration") in which the Entities directed Baker Botts to reveal the Documents, and Baker Botts did so reveal them; (2) any privilege which attached to the Documents is the Entities' privilege, not Hyten's, since the communications were with the Entities' attorneys, and the Entities reviewed the Documents and permitted Hyten's attorney to produce them to Plaintiff's counsel, having determined that they would not assert privilege as to any of the Documents; and (3) Defendants' carelessness in inadvertently producing the Documents was sufficient to constitute waiver of the privilege.

In fact, Plaintiff argues, it is only Hyten's attorney who has asserted privilege, and the Entities have still not claimed in this litigation that the Documents are privileged. (See Letter from Jonathan S. Abady, Esq., dated July 29, 2004.)

Defendants respond that there has been no waiver of the privilege because: (1) Defendants were not at fault for the inadvertent production of the Documents and promptly sought to rectify the mistake; (2) privilege is asserted in this litigation on behalf of Hyten and the Entities jointly, since they have engaged in a joint defense, and Hyten was an officer of the Interfase Entities; (3) although the Entities sued Baker Botts for malpractice, they did not reveal any privileged information or documents to Baker Botts; and (4) the production of the Documents during the Arbitration was confidential, compelled under Texas law, and did not amount to waiver of the attorney-client privilege in regard to any other litigation.

Because Plaintiff contends that Defendants waived the privilege at the Arbitration and thus cannot raise it at all in the instant case, some examination of the events surrounding the prior production of the Documents is required.

II. The Arbitration

In June 2001, several of the Entities' limited partners ("the Claimants") sued the parties responsible for managing a series of limited partnership venture capital funds ("the Respondents"). (See Affidavit of Winston Krause, Esq., dated Sept. 9, 2004 ("Krause Aff.") ¶ 6.) In addition to bringing various federal and state law claims, the Claimants sued derivatively on behalf of the funds. (See id.) The Respondents included several companies that are Defendants in the instant action. (See Affidavit of Kevin F. Lee, Esq., dated Sept. 10, 2004 ("Lee Aff.") ¶ 6.) The case was submitted to arbitration in Texas prior to the commencement of discovery. (See Krause Aff. ¶ 7; Lee Aff. ¶ 3.)

At the outset of the litigation, Respondents raised the affirmative defense that they had reasonably relied on the advice of counsel. (See Krause Aff. ¶ 8; Lee Aff. ¶ 6.) The Claimants subsequently sought production of the same Documents at issue in the instant case. The Respondents freely disclosed the Documents, believing that the Claimants, as limited partners and derivative claimants, were entitled to inspect the Documents by law, regardless of any assertion of privilege. (See Krause Aff. ¶¶ 9-10; Lee Aff. ¶ 8.) The Respondents' decision to turn over the Documents was memorialized in a Stipulation and Order, which noted that the production was made pursuant to "the agreement of counsel." (Order to Produce Documents at 1, attached to Letter from Mariann Meier Wang, dated Sept. 20, 2004, as Ex. A.)

Defendants do not explain why the Claimants requested the Documents; however, their submissions strongly suggest that the request pertained to the Respondents' advice of counsel defense. (See Letter from Frank J. Franzino, Jr., Esq., dated Aug. 20, 2004, at 3; Krause Aff. ¶ 8; Lee Aff. ¶ 6.)

Defendants insist that the Respondents' production of the Documents was never considered a waiver of privilege because, in regard to the Claimants, there was no privilege to waive. (See Lee Aff. ¶ 8.) Defendants also contend that the production of the Documents was not intended as "a blanket waiver of the attorney-client privilege," but was instead restricted solely to the Arbitration. (Krause Aff. ¶ 10; Lee Aff. ¶ 9.) Finally, Defendants contend that the parties to the Arbitration entered into a confidentiality agreement ("the Confidentiality Agreement") "limiting the use of the production to the Arbitration only," which further established that the Respondents did not intend the disclosure of the Documents to signify waiver of the privilege outside of the Arbitration. (Lee Aff. ¶ 9; see also Confidentiality Agreement, attached to Letter from Frank J. Franzino, Jr., Esq., dated Aug. 20, 2004 ("Franzino Ltr.") as Ex. B.)


I. Law of Attorney-Client Privilege and Its Waiver

The attorney-client privilege affords confidentiality to communications among clients and their attorneys, for the purpose of seeking and rendering an opinion on law or legal services, or assistance in some legal proceeding, so long as the communications were intended to be, and were in fact, kept confidential. See United States v. Int'l Bhd. of Teamsters, 119 F.3d 210, 214 (2d Cir. 1997); United States v. Doe (In re Six Grand Jury Witnesses), 979 F.2d 939, 943 (2d Cir. 1992);John Doe Corp. v. United States (In re John Doe Corp.), 675 F.2d 482, 487-88 (2d Cir. 1982); Bank Brussels Lambert v. Credit Lyonnais (Suisse) S.A., 160 F.R.D. 437, 441 (S.D.N.Y. 1995) (citing United States v. United Shoe Mach. Corp., 89 F. Supp. 357, 358-59 (D. Mass. 1950)). The privilege is among the oldest of the common law privileges and "exists for the purpose of encouraging full and truthful communication between an attorney and his client." In re von Bulow, 828 F.2d 94, 100 (2d Cir. 1987); accord United States v. Bilzerian, 926 F.2d 1285, 1292 (2d Cir. 1991). However, because the privilege "stands as an obstacle of sorts to the search for truth," it must be applied "only to the extent necessary to achieve its underlying goals." XYZ Corp. v. United States (In re Keeper of the Records), 348 F.3d 16, 22 (1st Cir. 2003); see also Salomon Bros. Treasury Litig. v. Steinhardt Partners (In re Steinhardt Partners), 9 F.3d 230, 235 (2d Cir. 1993) (finding that the privilege does not apply in situations where the client's conduct does not serve to "improve the attorney-client relationship") (quoting Permian Corp. v. United States, 665 F.2d 1214, 1221 (D.C. Cir. 1981)). Furthermore, "the burden of establishing the existence of an attorney-client privilege, in all of its elements, rests with the party asserting it." United States v. Doe (In re Grand Jury Proceedings), 219 F.3d 175, 182 (2d Cir. 2000) (quoting Int'l Bhd. of Teamsters, 119 F.3d at 214).

The attorney-client privilege is waived if the holder of the privilege voluntarily discloses or consents to disclosure of any significant part of the communication to a third party or stranger to the attorney-client relationship. See In re Grand Jury Proceedings, No. M-11-189 (LAP), 2001 WL 1167497, at *7 (S.D.N.Y. Oct. 3, 2001); In re Kidder Peabody Sec. Litig., 168 F.R.D. 459, 468 (S.D.N.Y. 1996). A party which seeks to uphold the privilege must take affirmative measures to maintain the confidentiality of attorney-client communications. See In re Steinhardt Partners, 9 F.3d at 235; In re von Bulow, 828 F.2d at 100; In re Horowitz, 482 F.2d 72, 82 (2d Cir. 1973). Furthermore, a party cannot waive the privilege selectively; voluntary disclosure in one case waives the privilege with respect to the disclosed communications in all subsequent cases.See In re Steinhardt Partners, 9 F.3d at 235; Bowne of N.Y. City, Inc. v. AmBase Corp., 150 F.R.D. 465, 478-80 (S.D.N.Y. 1993).

II. Application to Facts of this Case

The Court will assume, for purposes of this discussion, that each of the Documents in issue is actually a privileged attorney-client communication. The question, then, is whether that privilege was waived when the Respondents produced the Documents in the course of prior litigation or when they were produced "inadvertently" in this action.

Plaintiff contends that it has disputed the privileged designation of some of the documents on Defendants' privilege log, but it has reserved briefing that issue until the issue of general waiver has been decided.

A. Voluntariness of the Prior Production of the Documents

1. Lack of Compelled Production

Defendants dispute that their production of the Documents in the Arbitration was voluntary. They contend that the Respondents produced the Documents because Texas state law clearly entitled the Claimants to inspect them. (See Krause Aff. ¶ 10; Lee Aff. ¶ 8.) Defendants, however, do not cite any cases that articulate an automatic right of access to privileged documents in derivative suits under Texas law, nor do they indicate what cases the Respondents relied on in interpreting Texas law. In fact, the only case Defendants cite that discusses the issue of privilege in the context of a partnership is Abbott v. Equity Group, Civ. A. Nos. 86-4186, 86-3271 86-3593, 1988 WL 86826 (E.D. La. Aug. 10, 1988), which bases the relevant aspect of its holding exclusively on Louisiana law. See id. at *1. Defendants do not persuasively demonstrate that the Claimants would have had an absolute right under Texas law to inspect the Documents, based on their status as limited partners or as derivative claimants. Moreover, any claim that the limited partners had a right to examine the Documents because, as to them, there was no privilege, is belied by the Respondents' testimony that the privilege had been waived. (See Transcript of Arbitration Hearing, dated June 26, 2003 ("Arb. Tr."), at 8, attached to Letter from Jonathan S. Abady, Esq., dated Oct. 1, 2004, as Ex. A.)

Defendants further contend that production would have been compelled by Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970), which permits shareholders in derivative suits to abrogate the attorney-client privilege with respect to corporate documents. See id. at 1103-04. The Garner doctrine has since been expanded to apply to claimants in virtually any derivative action. See In re Pfizer Inc. Sec. Litig., No. 90 Civ. 1260 (SS), 1993 WL 561125, at *11 (S.D.N.Y. Dec. 23, 1993);Ivers v. Keene Corp. (In re Bairnco Corp. Sec. Litig.), 148 F.R.D. 91, 97-98 (S.D.N.Y. 1993). Garner, however, does not impose an automatic requirement that corporate defendants disclose privileged materials. Instead, Garner conditions shareholder abrogation of the privilege on a successful showing of good cause. See Garner, 430 F.2d at 1103-04 (in a derivative suit, "the availability of the [attorney-client] privilege [must] be subject to the right of the stockholders to show cause why it should not be invoked in the particular instance") (emphasis added); cf. RMED Int'l, Inc. v. Sloan's Supermarkets, Inc., No. 94 Civ. 5587 (PKL) (RLE), 2003 WL 41996, at *4 (S.D.N.Y. Jan. 6, 2003) ("The rationale of Garner is applicable to the instant case. . . . However, this is only the beginning of the analysis. The Court must now determine if plaintiffs have shown good cause to pierce the attorney-client privilege.") (footnote omitted); In re Pfizer Inc. Sec. Litig., 1993 WL 561125, at *13 (upholding attorney-client privilege, despite applicability of Garner, because plaintiffs failed to demonstrate good cause to abrogate the privilege); In re Bairnco Corp. Sec. Litig., 148 F.R.D. at 98 (applying "Garner's test of good cause"). Thus, while Garner may have compelled the Respondents to produce the Documents, it would have done so only if the Claimants had successfully shown good cause for the production.

The Court notes that this explanation is inconsistent with Defendants' contention that the Respondents produced the Documents to comply with Texas law, as Garner was not decided on Texas law grounds. See Garner, 430 F.2d at 1097-1100 (resolving choice of law issue by basing decision on a combination of federal and Alabama state law interests).

Defendants do not contend that the Claimants made a successful showing of good cause, or that the arbitration tribunal compelled the Respondents to produce the Documents under Garner. Instead, Defendants argue that the tribunal, following Garner, would have eventually compelled the Respondents to produce the Documents had they objected to the Claimants' discovery demand. This argument, however, is based entirely on prediction, and does not demonstrate any actual compulsion to produce the Documents.Cf. Franzino Ltr. at 4 ("Applying Garner, . . . there can belittle doubt that . . . Defendants would have been compelled by the arbitration tribunal to make them available for inspection.") (emphasis added). In other words, the Respondents made a tactical decision, electing to produce the Documents voluntarily to avoid a discovery dispute they anticipated losing. The Court cannot equate the Respondents' decision to disclose the Documents with compelled disclosure.See In re Steinhardt Partners, 9 F.3d at 235 (finding that a party cannot "manipulate use of the privilege through selective assertion"); Bowne of N.Y. City, Inc., 150 F.R.D. at 479-80 (same) (citing In re John Doe Corp., 675 F.2d at 489); cf. Teachers Ins. Annuity Ass'n of Am. v. Shamrock Broad. Co., 521 F. Supp. 638, 642 (S.D.N.Y. 1981) (finding that a disclosure made pursuant to an SEC subpoena was voluntary because the disclosing party could have objected to the production demand).

2. The Respondents' Advice-of-Counsel Defense

If, however, the Claimants did have an absolute right to inspect the Documents, the clearest source of that right, based on Defendants' submissions, stemmed from the Respondents' adoption of an advice-of-counsel defense. (See Franzino Ltr. at 3; Krause Aff. ¶ 8; Lee Aff. ¶ 6; Arb. Tr. at 8.) A party typically cannot raise an advice-of-counsel defense without waiving the attorney-client privilege. See In re Grand Jury Proceedings, 219 F.3d at 182-83 ("[A] party cannot partially disclose privileged communications or affirmatively rely on privileged communications to support its claim or defense and then shield the underlying communications from scrutiny. . . . The quintessential example is the defendant who asserts an advice-of-counsel defense. . . .") (internal quotation marks and citations omitted). In fact, counsel for Baker Botts testified as to the Respondents' willingness to waive the privilege at the Arbitration. (See Arb. Tr. at 8.) As discussed, waiver of the privilege in one case renders it unavailable in later cases. Therefore, the Respondents' waiver of the privilege by raising an advice-of-counsel defense binds the Defendants in the instant case. See In re Steinhardt Partners, 9 F.3d at 235 ("The client cannot be permitted to pick and choose among his opponents, waiving the privilege for some and resurrecting the claim of confidentiality to obstruct others, or to invoke the privilege as to communications whose confidentiality he has already compromised for his own benefit.") (quoting Permian Corp., 665 F.2d at 1221); Bilzerian, 926 F.2d at 1292 ("[T]he privilege cannot at once be used as a shield and a sword. A defendant may not use the privilege to prejudice his opponent's case or to disclose some selected communications for self-serving purposes.") (citations omitted).

Defendants are thus left with the unconvincing argument that the Respondents produced the Documents because they believed the Claimants had an indisputable right to them, but cannot provide any justification for this belief. Furthermore, the Respondents admittedly relied on an advice-of-counsel defense, which traditionally exposes attorney-client communications relating to such advice to full discovery. See In re Grand Jury Proceedings, 219 F.3d at 182-83. Consequently, the Court finds that the Respondents' production of the Documents was voluntary and resulted in waiver of the privilege.

B. The Confidentiality Agreement

Defendants contend that they may still assert attorney-client privilege despite any past waiver because the Documents fell under the Confidentiality Agreement, thus preserving their confidentiality. The Confidentiality Agreement, however, does not alter the fact that the Respondents waived the privilege, and is thus irrelevant to determining whether Defendants can raise the privilege in the instant case. See Bowne of N.Y. City, Inc., 150 F.R.D. at 480-81 ("[E]ven if the disclosing party requires, as a condition of disclosure, that the recipient maintain the materials in confidence, the agreement does not prevent the disclosure from constituting a waiver of the privilege; it merely obligates the recipient to comply with the terms of any confidentiality agreement.").

Defendants cite Teachers Insurance to support their contention that a party may disclose privileged materials pursuant to a confidentiality agreement without waiving the privilege. (See Franzino Ltr. at 4.) Teachers Insurance, however, involved a party making disclosures to the SEC under subpoena, not to private litigants, see Teachers Ins. Annuity Ass'n of Am., 521 F. Supp. at 639, and based the relevant part of its holding on the inapposite theory that "in some circumstances the disclosure of privileged communications to a government agency for enforcement purposes may be so desirable a goal as to justify a rule of selective waiver." Bowne of N.Y. City, Inc., 150 F.R.D. at 481. Furthermore, subsequent cases have "plainly undermined" the selective waiver theory. Id. (citing In re John Doe Corp., 675 F.2d at 489).

Furthermore, while Defendants contend that the Documents were subject to the Confidentiality Agreement, they have not represented or submitted competent evidence demonstrating that the Respondents designated the Documents as "Confidential" or "For Counsel Only," as was required to invoke confidentiality under the Confidentiality Agreement. (See Confidentiality Agreement ¶¶ 1-4.) Therefore, even if the Confidentiality Agreement could maintain the Documents' privileged status, the Respondents' failure to invoke the Confidentiality Agreement would constitute waiver. See Bowne of N.Y. City, Inc., 150 F.R.D. at 481. Defendants have not shown that the Confidentiality Agreement constituted the sort of "genuine confidentiality" that is the "traditional price" of the attorney-client privilege. Permian Corp., 665 F.2d at 1222; accord In re Horowitz, 482 F.2d at 82 ("It is not too much to insist that if a client wishes to preserve the privilege . . . he must take some affirmative action to preserve confidentiality.").

Having determined that Defendants cannot raise the privilege in the instant case, there is no need for the Court to determine the validity of Plaintiff's other arguments for finding waiver of the privilege.


For the foregoing reasons, Plaintiff is entitled to full discovery of the inadvertently produced Documents, as well as any other documents disclosed at the Arbitration.


Summaries of

Urban Box Office Network, Inc. v. Interfase Managers, L.P.

United States District Court, S.D. New York
Oct 19, 2004
No. 01 Civ. 8854 (LTS) (THK) (S.D.N.Y. Oct. 19, 2004)

applying same principle to attorney-client privilege

Summary of this case from Chevron Corp. v. Donziger

applying same principle to waive attorney-client privilege

Summary of this case from Chevron Corporation v. Salazar
Case details for

Urban Box Office Network, Inc. v. Interfase Managers, L.P.

Case Details


Court:United States District Court, S.D. New York

Date published: Oct 19, 2004


No. 01 Civ. 8854 (LTS) (THK) (S.D.N.Y. Oct. 19, 2004)

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