In Columbia Data Products, Inc. v. Autonomy Corporation Limited, et al., No. 11-12077, 2012 WL 6212898 (D. Mass. Dec. 12, 2012) (Dien, U.S.M.J.), on a motion to compel, the U.S. District Court for the District of Massachusetts ordered the plaintiff, Columbia Data Products, Inc. (“CDP”), to produce to the defendants the audit report prepared by its expert accounting firm, including prior drafts of the audit report, e-mails between the expert accounting firm and CDP, including its attorneys, concerning the audit, and e-mails among CDP personnel concerning the audit. Although at first blush this ruling appears to strike a blow to the work product protection afforded to documents prepared by an expert for litigation and communications between an expert and the client’s attorney concerning the expert’s opinions and work product, upon closer examination, the Court’s reasoning and holding is consistent with prior precedents in both the First Circuit and Massachusetts.

In this case, CDP sued Autonomy Corporation Limited and its predecessors, Iron Mountain Incorporated and Iron Mountain Information Management, Inc. (collectively, the “Defendants”), asserting claims for copyright infringement, breach of contract, breach of the implied covenant of good faith and fair dealing, and unfair and deceptive trade practices pursuant to M.G.L. c. 93A (“Chapter 93A”). Specifically, CDP alleges the Defendants wrongfully copied and shipped CDP’s computer software, breached the terms of the parties’ software licensing agreement (the “License Agreement”), and engaged in various misrepresentations aimed at covering up their improper conduct.

Before filing suit against the Defendants, CDP exercised its rights under the License Agreement to have an independent accounting firm perform an audit of the Defendants’ books and records to determine the extent to which the Defendants had failed to pay royalty fees due to CDP for the alleged misuse of its software (the “Royalty Audit”). CDP engaged a national accounting firm (the “Accounting Firm”) to perform the Royalty Audit. Shortly thereafter, CDP’s outside counsel entered into a written agreement with the Accounting Firm whereby it agreed to perform certain services to assist outside counsel with providing legal advice to CDP. At no time before or during the audit did CDP inform the Defendants that its outside counsel had engaged the Accounting Firm to provide it with legal assistance. Instead, CDP at all times before and during the audit referred to the Accounting Firm as its “independent” auditor.

Although the Accounting Firm was not able to complete its audit work, it nevertheless issued an interim audit report to CDP based on the facts gathered and its analysis of those facts. In its interim audit report, the Accounting Firm concluded the Defendants owed CDP in excess of $23 million in unpaid royalty fees, which CDP seeks to recover from the Defendants in the lawsuit. In its cover letter to CDP enclosing the interim audit report, the Accounting Firm told CDP it was not authorized to distribute the interim audit report to the Defendants without its prior written consent. Nevertheless, CDP provided the Defendants with a copy of the interim audit report in an effort to resolve the issues raised in the report concerning the alleged unpaid royalty fees due to CDP. This effort failed, and CDP subsequently filed suit against the Defendants. After CDP filed its lawsuit against the Defendants, CDP’s outside counsel retained the Accounting Firm as its testifying expert for the litigation. As part of its expert services, the Accounting Firm agreed to: (1) update its interim audit report; (2) create a rebuttal expert report; and, (3) provide expert witness and trial testimony.

During discovery, the Defendants requested from CDP all documents related to the Royalty Audit, including drafts of the Accounting Firm’s interim audit report, e-mails between the Accounting Firm and CDP, including CDP’s attorneys, concerning the Royalty Audit, and e-mails among CDP’s employees concerning the Royalty Audit. The Defendants, however, did not seek documents following CDP’s retention of the Accounting Firm as its testifying expert beyond those required by Rule 26(b)(4) of the Federal Rules of Civil Procedure. Nor did the Defendants seek communications between CDP and its outside counsel concerning the Royalty Audit. CDP objected to the Defendants’ document requests on the grounds of the work product doctrine and the attorney-client privilege. Specifically, CDP argued, although the Accounting Firm conducted the Royalty Audit pursuant to the parties’ License Agreement, the Royalty Audit and its employees and attorneys’ e-mails with the Accounting Firm concerning the Royalty audit were prepared in anticipation of litigation and, therefore, protected from disclosure by the work product doctrine. CDP also argued, both its employees and its outside counsel’s e-mails with the Accounting Firm were protected by the attorney-client privilege because the Accounting Firm was retained by CDP’s outside counsel to assist counsel with the rendering of legal advice to CDP.

The Defendants countered that the work product protection does not apply to the Royalty Audit or any others documents related to the Royalty Audit because these documents were prepared in connection with the parties’ License Agreement as opposed to for use in the litigation. The Defendants further argued, even if these documents were protected from disclosure by either the work product doctrine or the attorney-client privilege, CDP waived this protection when it placed the Royalty Audit at issue in the litigation and voluntarily disclosed the interim audit report to the Defendants. The Court agreed with the Defendants’ arguments and ordered the production of the interim audit report, all drafts of the interim audit report, and all e-mails between the Accounting Firm and CDP, including its attorneys, concerning the Royalty Audit, and all e-mails among CDP’s employees concerning the Royalty Audit. In making this determination, the Court addressed each of the arguments raised by CDP and the Defendants.

The Court first addressed CDP’s work product protection argument. The Court explained, in United States v. Textron Inc. & Subsidiaries, 577 F.3d 21, 27 (1st Cir. 2009) (en banc), the First Circuit adopted the “prepared for” test which asks, were the documents at issue “prepared for use in possible litigation.” The Court further explained, the “prepared for” test is narrower than the “because of” test, the test employed by the First Circuit pre-Textron, as it does not protect documents which are prepared both for a business purpose and “because of” existing or expected litigation. Like the “prepared for” test, however, the “because of” test does not protect from disclosure documents either “prepared in the ordinary course of business” or, “that would have been created in essentially similar form irrespective of the litigation.”

Applying the “prepared for” test to the audit materials at issue, the Court ruled the record before it did not support a determination that these materials were prepared by the Accounting Firm and CDP for use in litigation. Instead, the factual record before the Court demonstrated: (1) CDP notified the Defendants that it was invoking its right to conduct the Royalty Audit under the terms of the License Agreement; (2) CDP engaged the Accounting Firm to conduct the Royalty Audit to provide CDP with “the full story” regarding the Defendants’ use of its software; (3) CDP repeatedly described the Accounting Firm to the Defendants as an “independent” auditor retained for the sole purpose of exercising CDP’s rights under the License Agreement; (4) CDP never suggested to the Defendants that the Accounting Firm was retained to provide expert advice in anticipation of litigation; (5) had CDP done so, the Defendants never would have agreed to allow the Accounting Firm to interview their employees and to have access to the Defendants’ sensitive financial information; (6) the Accounting Firm’s engagement letter with CDP for the Royalty Audit provides that the Accounting Firm agreed to perform procedures aimed at analyzing and quantifying royalty fees and declined to provide any opinions, attestations or assurances, and disclaimed any suggestion that its work included legal advice; and, (7) it was only after the parties were engaged in the ongoing litigation that the Accounting Firm was retained by CDP’s outside counsel as CDP’s testifying expert in the litigation. The Court held, these facts taken cumulatively demonstrate that the Accounting Firm’s audit work was aimed at uncovering facts regarding royalties owed to CDP under the License Agreement, and do not indicate or even suggest CDP retained the Accounting Firm to conduct the Royalty Audit for use in a future lawsuit. Accordingly, the Court ruled the audit-related material at issue was not protected from disclosure to the Defendants on the grounds of the work product doctrine. The Court also stated in dicta, were it to have applied the “because of” test, which Massachusetts courts follow, instead of the “prepared for” test, its ruling still would be the same.

The Court next addressed CDP’s argument that its audit material was protected from disclosure by the attorney-client privilege. The Court explained, unlike the attorney-client privilege, no accountantclient privilege exists under federal law. To fall within the scope of the attorney-client privilege, it was CDP’s burden to demonstrate the following three elements: (1) the communications with the Accounting Firm were necessary or, at least highly useful, for the effective consultation between CDP and its outside counsel; (2) the communications with the Accounting Firm served to translate the information between CDP and its outside counsel; and, (3) the communications with the Accounting Firm were made for the purpose of rendering legal advice, rather than business advice. With respect to the e-mails among CDP’s employees, the Court held these communications did not meet the requirements of any of the three elements described above and, further, CDP did not even attempt to explain how they could. As for the remainder of the audit material at issue, specifically, the e-mails between the accounting firm and CDP, including its attorneys, regarding the Royalty Audit, and drafts of the interim audit report, the Court held no evidence in the record suggests that the Accounting Firm was necessary, or at least highly useful, in facilitating outside counsel’s legal advice, or that CDP’s outside counsel was relying on the Accounting Firm to translate or interpret information communicated between it and CDP.

To the contrary, in its engagement letter for the Royalty Audit, the Accounting Firm expressly declined to provide legal advice or to assist with legal matters, and stated its role was limited to analyzing and quantifying software license fees payable to CDP by the Defendants. Accordingly, the Court ruled the attorney-client privilege did not apply to any of the audit-related material requested by the Defendants.

The Court also ruled, even assuming the audit-related materials at issue were protected from disclosure by either the attorney-client privilege or the work product doctrine, because both CDP’s breach of contract claim and Chapter 93A claim against the Defendants were premised on the information derived from the Royalty Audit and interviews the Accounting Firm conducted in connection with the Royalty Audit, CDP waived any protection afforded to the audit materials by placing them directly at issue in the litigation. Under First Circuit precedents, the Court explained, fairness concerns underlie the scope of the implied waiver of the attorneyclient privilege and the work product doctrine. Applying fairness principles to the audit-related materials at issue, the Court held, because CDP had put the audit report, the audit process, and the Accounting Firm’s status as an independent auditor directly at issue in the litigation, under these circumstances, full disclosure was fair. Otherwise, CDP would gain an unfair advantage over the Defendants in the litigation because CDP would be able to use the Accounting Firm’s status and work performed as an “independent” auditor as a “sword” against the Defendants, while at the same time “shielding” its audit work from disclosure to the Defendants on the grounds of the attorney-client privilege and the work product doctrine.

This decision reinforces well-established law in the First Circuit and Massachusetts, that a plaintiff is not allowed to, on the one hand, rely on its expert’s report or affidavit to set forth the basis of its claims against a defendant, and then, on the other hand, expect a court to shield the expert’s report or affidavit, along with the facts and assumptions relied upon to reach the conclusions in the report or affidavit, from the defendant on the basis of either the work product doctrine or the attorney-client privilege. A contrary outcome would be inherently unfair.