We admit, discovery disputes rarely make for titillating blog posts. But a letter ruling issued towards the end of last year by Judge Shannon in Longview Power, LLC et al. v. First American Title Insurance Co. recently caught our eye. We thought writing about it would provide an important opportunity for blog readers (and this blog author) to brush up on the fundamental principles governing when the attorney client privilege, work product doctrine, and common interest doctrine apply to protect communications and documents exchanged between parties on the same side of a dispute against another party. 

The Discovery Dispute

In the adversary proceeding, First American Title Insurance Company sought to compel the Debtors, their collateral agent, their administrative agent, certain backstop parties, and each of the party’s respective counsel (collectively, the Common Interest Parties) to produce certain documents and communications being withheld under the common interest doctrine. At the center of the discovery dispute were First American’s assertions that the Common Interest Parties colluded to manufacture bankruptcy court jurisdiction over a non-bankruptcy insurance coverage dispute with First American by assigning a title policy from a non-debtor to a debtor.

First American argued that the documents and communications relating to the Debtors’ amended plan (under which the assignment was contemplated), the assignment, and the title policy were central to proving that the Common Interest Parties were colluding with each other to manufacture jurisdiction. First American requested the Bankruptcy Court review in camera the documents at issue to determine if the common interest applied. To the extent the Bankruptcy Court determined any documents were protected by the work product doctrine, First American further requested they nonetheless be produced because it had a “substantial need” for, and no alternative way to obtain, the information contained in the documents.

The Common Interest Parties, on the other hand, responded that all the documents and communications sought by First American were protected by the common interest doctrine because the parties shared a joint interest in formulating, negotiating and confirming a joint plan of reorganization. Confirmation of the plan, in turn, required that the Common Interest Parties obtain a declaration that First American was obligated to provide coverage under the title policy at issue. Next, the Common Interest Parties argued that in camera review of the documents was, at best, premature, and the parties should meet and confer regarding any documents listed on the privilege logs provided to First American before wasting judicial resources. Lastly, the Common Interest Parties contended that First American’s arguments regarding “substantial need” were unavailing because they confused the absolute protections of the attorney-client privilege with the qualified protections of the work product doctrine, which may be overcome upon a showing of substantial need, or under a heightened showing of “rare and exceptional” circumstances when “core” documents and communications – work product reflecting attorney mental impressions, conclusions, opinions, or legal theories – are at issue.

To resolve the motion to compel, the Bankruptcy Court was required as a preliminary matter to determine whether the documents were protected by an underlying privilege, either the attorney-client privilege or work product doctrine, and then whether they were protected by the common interest doctrine.

Attorney-Client Privilege

In the Third Circuit, the attorney-client privilege applies to protect communications between an attorney and a client when: (1) the asserted holder of the privilege is or sought to become a client; (2) the person to whom the communication was made is (a) a member of a bar of a court, or his subordinate, and (b) in connection with this communication is acting as a lawyer; (3) the communication relates to a fact of which the attorney was informed (a) by his client (b) without the presence of strangers (c) for the purpose of securing primarily either (i) an opinion on law or (ii) legal services (iii) or assistance in some legal proceeding, and (d) not for the purpose of committing a crime or tort; and (4) the privilege has been (a) claimed and (b) not waived by the client. These elements have been further distilled by courts in the Third Circuit into four main elements: (1) a communication; (2) made between privileged persons; (3) in confidence; (4) for the purpose of obtaining or providing legal assistance for the client. Privileged persons include the client, the attorney, and any of their agents that help facilitate attorney-client communications or the legal representation.

Work Product Doctrine

The federal work product doctrine is set forth in Federal Rule of Civil Procedure 26(b)(3)and is distinct from and broader than the attorney-client privilege. It protects the mental processes of the attorney and the materials prepared by the attorney or by others on behalf of the attorney.

The Third Circuit has adopted a two-part test for ascertaining whether a document is protected by the federal work product doctrine:  “(1) whether ‘litigation could reasonably have been anticipated’ at the time the document was created, and (2) whether the document was prepared ‘primarily for the purpose of litigation.’”  Documents created in the ordinary course of business, even if useful in subsequent litigation, are not protected by the work product doctrine.”  Id.  Courts in the Third Circuit also recognize that there is both a subjective and objective element in determining whether documents were prepared in anticipation of litigation. The initial focus of the inquiry is on the ‘unilateral belief’ that litigation will result. However, the anticipation of litigation must also be objectively reasonable.

In the Third Circuit, the party claiming protection of the doctrine bears the burden of demonstrating that the documents were prepared by or for counsel in preparation for trial or in anticipation of litigation.  If the party seeking to preclude discovery is successful in showing that the materials are protected by work product, the burden then shifts to the opposing party to establish that, notwithstanding that designation, the materials should still be produced.

Under Rule 26(b)(3), if the party seeking discovery can show that it 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, the court may order production of work product. Rule 26(b)(3), however, also provides that, even when the requisite showing has been made, the court “shall protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation.” Many courts define this second category of work product as “core work product” or “opinion work product and will generally afford such work product near absolute protection from discovery, requiring a heightened showing of “extraordinary circumstances” to compel disclosure.

Common Interest Doctrine

The common interest doctrine is an exception to the general rule that disclosure of attorney-client privileged communications to a third party waives the privilege. It permits attorneys representing different clients with similar legal interests to share information, without the need to disclose it to others. Under the common interest doctrine, when a party shares a communication protected by the attorney-client privilege with a common interest member, the disclosure does not waive privilege. In this sense, it can be helpful to view the common interest doctrine as an extension of the attorney-client privilege.

In the Third Circuit, the party invoking the protection of the federal common interest doctrine must establish that: “(1) the communications were made by separate parties in the course of a matter of common interest; (2) the communication was designed to further that effort; and (3) the privilege has not otherwise been waived.”  The common interest parties are not required to have “a complete unity of interests,” but their legal interests must be “substantially similar.” Thus, the common interest doctrine can apply even when parties do not see eye to eye on several issues. Moreover, it is not sufficient for the party seeking the protection of the common interest doctrine merely to show that a unified legal interest theoretically existed. Id. at 496. Rather, it must show that the parties demonstrated cooperation in developing a common legal strategy. Id. at 497.

Parties who share a common interest may choose to memorialize their relationship in a formal agreement, known as a common interest agreement, which can provide evidence that a common relationship exists between certain parties as of a certain date. But the absence of a common interest agreement, as was the case with the Common Interest Parties, is not fatal to parties asserting the protection of the common interest doctrine and may, in certain instances, provide greater flexibility in asserting the doctrine. So long as the common interest parties can show that communications were given in confidence and the clients understood them to be so given, a common interest can be asserted. By forgoing a formal agreement, the parties can circumvent potentially drawn-out negotiations regarding hypothetical circumstances of when the common interest doctrine applies and when it does not.

The Bankruptcy Court’s Letter Ruling

Judge Shannon ultimately granted First American’s request for in camera inspection of the withheld documents and communications but denied the motion to compel. To determine whether the documents and communications were protected by the common interest doctrine, Judge Shannon needed to first determine whether the attorney-client privilege protected the communications between each client and their respective attorneys. Upon review, he concluded that the documents and communications contained information the attorney-client privilege was designed to protect, such as “comments and mental impressions made by either the attorneys or the clients regarding the title insurance policy, the amended plan, and the assignment agreement, as well as advice by counsel on the formation of the plan of reorganization and the interplay of the potential proceeds under the title policy and the distribution of value to creditor under a plan.” They did not contain information regarding strategy and intent to manufacture jurisdiction in the Bankruptcy Court, contrary to First American’s suspicions.

Judge Shannon also determined that First American failed to meet its burden of showing substantial need or extraordinary circumstances warranting him to compel disclosure of the withheld documents. Because the contents of the documents reflected “core” work product — which in most courts enjoy absolute or near absolute protection from disclosure — First American was required to show “extraordinary justification” warranting disclosure, which it failed to do. Moreover, upon in camera inspection, the contents of the documents were not “materially responsive” to First American’s allegations of collusion to manufacture jurisdiction.

Having determined the withheld documents were privileged, the Bankruptcy Court then analyzed whether a common interest existed. The Bankruptcy Court noted that many of the communications were marked “common interest” when sent, reflecting the parties’ intent to keep the communications within a limited group. Furthermore, the Bankruptcy Court accepted as a valid basis to support the common interest doctrine the Common Interest Parties’ “common end goal of developing and confirming a plan of reorganization.”

Conclusion

Judge Shannon’s letter ruling provides a few takeaways for parties who intend to assert the protection of the common interest doctrine or to attack such an assertion. First, it is a good idea to regularly mark any communications or documents exchanged amongst common interest members as subject to the common interest doctrine. Doing so can provide explicit evidence of the parties’ intent to have those communications and documents protected from disclosure, as Judge Shannon noted in his letter ruling. Second, if the party seeking to withhold documents prevails against a motion to compel, it can be an empty victory if they are still required to produce documents to the court for in camera inspection. Where a judge, rather than a jury, presides over a trial on the issues, in camera review of documents may impact a judge’s perceptions of the merits of the case, even if those documents are never produced to the opposing side. Lastly, the Bankruptcy Court’s willingness to accept as a basis for the common interest protection, the Common Interest Parties’ goal to propose and confirm a chapter 11 plan seems to provide parties a broad basis for asserting the common interest doctrine.