In re Tyco (02-352/02-1357)

2004 DNH 053

• Court: District Court, D. New Hampshire
• Decided: March 19, 2004
• Docket: MD-02-1335-B
• Status: Published

Opinion

In re Tyco (02-352/02-1357) MD-02-1335-B 03/19/04

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

In re Tyco International, Inc. Multidistrict Litigation (MDL 1335) MDL DOCKET NO. 02-1335-B ____________________________________ DERIVATIVE & ERISA ACTIONS ____________________________________ Civil No. 02-352-B and 02-1357-B

Opinion No. 2004 DNH 053

MEMORANDUM AND ORDER

Mark Belnick seeks to compel Tyco International, Ltd. to

produce documents that Tyco claims are either privileged or

irrelevant.

I.

Tyco has refused to produce an undetermined number of

documents on the grounds that they are protected by the attorney-

client and work product privileges. These allegedly privileged

documents fall into two categories. The first category consists

of documents that Tyco voluntarily produced to either the

Securities and Exchange Commission ("SEC") or the New York

District Attorney. Belnick argues that Tyco waived its privilege

claims with respect to these documents by producing them to third parties. The second category consists of documents that were not

produced to either the SEC or the District Attorney but that

arguably concern the same subject matter as the disclosed

documents. Belnick argues that Tyco impliedly waived its

privilege claims with respect to these documents because they

concern the same subject matter as the disclosed documents. I

address Belnick's challenge to each category of documents

in turn.

A. Waiver by Production

Belnick relies on a well-established body of precedent to

support his contention that Tyco waived its privilege claims by

voluntarily producing documents to the SEC and the district

attorney. United States v. Mass. Inst, of Tech., 129 F.3d 681,

684 (1st Cir. 1997); Westinghouse Elec. Corp. v. Republic of the

Philippines, 951 F.2d 1414 (3d Cir. 1991); In re Martin Marietta

Corp., 856 F.2d 619 (4th Cir. 1988); In re Subpoenas Duces Tecum,

738 F.2d 1367 (D.C. Cir. 1984); Permian Corp. v. United States,

665 F.2d 1214 (D.C. Cir. 1981). That body of case law, however,

is not without exceptions. See, e.g., Cavallaro v. United

States, 284 F.3d 236, 249-50 (1st Cir. 2002) (disclosure serving

"common interest"); Diversified Indus, v. Meredith, 572 F.2d 596,

- 2 - 611 (8th Cir. 1977) (disclosure to government agency). Thus, the

first issue that I must resolve is whether the documents that

Belnick seeks are covered by any exception to the general rule

that privilege claims are waived when documents are produced to a

third party.

The Eighth Circuit has adopted a "limited waiver" rule under

which a party does not forfeit a privilege claim by producing

documents to a government agency. See Diversified Indus., 572

F.2d at 611. While Tyco plainly would benefit if I were to adopt

the Eighth Circuit's reasoning, that option is foreclosed by a

more recent First Circuit decision rejecting the Eighth Circuit's

limited waiver rule. See Mass. Inst, of Tech., 129 F.3d at 685.

Rather than abandon its argument in the face of First

Circuit precedent, Tyco proposes two narrower variations of the

rule. It first invokes case law recognizing that a party does

not forfeit a privilege claim by producing privileged documents

to a party with whom it shares a "common interest." See

Cavallaro, 284 F.3d at 249-50. Tyco contends that it is entitled

to rely on the common interest exception because it shares an

interest with both the SEC and the district attorney in seeing

that Belnick is held to account for misconduct that allegedly

- 3 - injured both Tyco and its shareholders.

While I can envision circumstances in which the common

interest exception might be available to a private party that has

chosen to share privileged documents with a government agency,

the documents at issue in the present case do not gualify for

such treatment. As the First Circuit has recognized, the common

interest exception exists to permit lawyers for parties bound by

a common interest to work together to achieve a shared goal. See

Mass. Inst, of Tech., 129 F.3d at 686. Most often, the exception

is invoked when counsel for co-defendants agree to share

privileged information while preparing a joint defense. See,

e.g.. In re Grand Jury Subpoena, 274 F.3d 563, 573 (1st Cir.

2001). The present case is guite different. Tyco is not engaged

in a joint action with either the SEC or the district attorney.

Instead, it has merely supplied documents that both agencies

reguire for their own investigations. Further, while Tyco may

share an interest with the SEC and the district attorney in

seeing that Belnick is held to account for any wrongdoing, both

agencies are acting pursuant to a broader mandate to protect the

public that may well put them in an adversarial relationship with

Tyco at some point in the future. Finally, unlike most cases in

- 4 - which the common interest exception applies, the agencies to whom

the documents have been produced have not agreed to maintain

their privileged status. As I explain infra, at most, the SEC

and the district attorney have agreed not to claim that Tyco

forfeited its privilege claims by producing the documents. In

light of these circumstances, this is not the kind of case that

the common interest exception was intended to reach. See Mass.

Inst. of Tech., 129 F.3d at 685-86; United States v. Bergonzi,

216 F.R.D. 487, 496 (N.D. Cal. 2003).

Tyco next argues that it did not forfeit its privilege

claims because it produced the documents pursuant to agreements

that they would remain privileged. When Tyco produced many of

the documents at issue, it did so with cover letters stating that

production "would not constitute a waiver of any privilege,"

(Opp'n Mot. to Compel Produc. Ex. 2) "does not waive any

privilege," (Id. Ex. 7) and "is not a waiver of any privilege"

(Id. Ex. 6). Tyco has also produced an affidavit from an

assistant district attorney who states that "I agreed with

counsel for Tyco that Tyco would produce the documents called for

by the Grand Jury without the People thereafter claiming that

production of such documents constituted a waiver of the

- 5 - attorney-client privilege." (Id. Ex. 4.) Tyco contends that its

letters and the assistant district attorney's affidavit evidence

its agreements with the SEC and the district attorney that the

documents at issue would remain privileged. It also argues that

its agreements bar third parties such as Belnick from claiming

that Tyco forfeited its privilege claims. I disagree on both

counts.

Tyco makes too much of its alleged agreements with the SEC

and the district attorney. At most, the agreements bar both

agencies from later claiming that Tyco forfeited its privilege

claims by producing the documents. This is far different from an

agreement to treat the documents as if they were privileged, an

agreement that neither agency made when they obtained the

documents that Tyco agreed to produce.1 In any event, I am

1 While Tyco's non-disclosure agreement with the SEC has more conditions than its agreement with the district attorney, it still falls short by allowing the SEC to freely disclose any documents to any third party "to the extent that the [SEC] staff determines that disclosure is otherwise reguired by law or would be in furtherance of the SEC's discharge of its duties and responsibilities." (Decl. in Support of Tyco's Opp'n Ex. A at 2.) See, e.g., Bergonzi, 216 F.R.D. 487 (agreement between SEC and company to keep documents confidential but allowing the SEC to disclose documents as reguired by law or in furtherance of its duties held to be a waiver of privilege and not a confidentiality agreement). "By giving the Government, whether the SEC or the [district attorney], full discretion to disclose the [documents]

- 6 - persuaded by case law from other circuits holding that agreements

with government agencies to maintain the privileged status of

voluntarily produced documents are not enforceable against third

parties. See, e.g.. In re Columbia/HCA Healthcare Corp. Billing

Practices Litig., 293 F.3d 289, 303-04 (6th Cir. 2002); Permian

Corp., 665 F.2d at 1219-22; Bergonzi, 216 F.R.D. at 497 n.ll;

Bowne of New York City, Inc. v. AmBase Corp., 150 F.R.D. 465, 480

(S.D.N.Y. 1993). I therefore hold that Tyco waived its attorney-

client and work product privilege claims with respect to any

documents that it voluntarily produced to either the SEC or the

New York District Attorney.

B. Implied Waiver

Belnick also argues that Tyco waived potential privilege

claims with respect to any communication that involves the same

subject matter as any privileged communication that Tyco

voluntarily disclosed to either the SEC or the district attorney.

Implied waiver claims of this sort defy categorical analysis

because they reguire a fact specific assessment of the extent to

which the party claiming the privilege would achieve an unfair

in certain circumstances, the terms of the Agreements run counter to the [c]ompany's assertion the communication was intended to remain confidential." Id. at 494.

- 7 - result if it were permitted to selectively disclose privileged

communications. See In re Keeper of the Records, 348 F.3d at 23.

I cannot make this assessment now because I do not have

sufficient information about the documents at issue to evaluate

Belnick's argument. Accordingly, I deny Belnick's motion to

compel the production of documents subject to his implied waiver

claim without prejudice to his right to renew his motion after

Tyco has produced a privilege log describing the documents at

issue.2

2 Belnick also argues that Tyco waived its right to assert its privilege claims with respect to any communication that either Tyco or the plaintiffs in the ERISA, Derivative and Securities Actions placed in issue by suing him. I agree with the general proposition that a client may not sue its attorney for legal misconduct and at the same time prevent the attorney from obtaining privileged communications on the same subject that the attorney needs to defend himself. See United States v. Schmidt, 105 F.3d 82, 89 (2d Cir. 1997); Bieter Co. v. Blomguist, 156 F.R.D. 173, 179 (D. Minn. 1994). I also agree that an attorney may sometimes be permitted to disclose privileged information in response to a suit initiated by a third party where that disclosure is reguired to defend against a claim that the attorney engaged in legal misconduct. See, e.g., Meyerhofer Empire Fire & Marine Ins. Co., 497 F.2d 1190, 1195 (2d Cir. 1974). The nature and scope of the waiver that results from the initiation of such suits, however, presents a difficult issue that I cannot resolve on the present record. Thus, I deny the motion to compel to the extent that it is based on this argument without prejudice to Belnick's right to renew the motion after Tyco has produced a privilege log that identifies the documents which may be the subject of such a claim. III.

Tyco also claims that Belnick's motion to compel should be

denied because the documents that Belnick seeks are irrelevant.

Tyco challenges the relevancy to all or part of requests 3, 5,

20, 21, 23, 26, and 27. It asserts these requests seek documents

not relevant to the claims or defenses in the ERISA and

Derivative Actions. For most of the requests, I disagree.

The Federal Rules of Civil Procedure were amended in 2000 to

allow parties to "obtain discovery regarding any matter, not

privileged, that is relevant to the claim or defense of any party

. . . ." Fed. R. Civ P. 26(b)(1). The amended rule also

establishes that "[f]or good cause, the court may order discovery

of any matter relevant to the subject matter involved in the

action." Id. Thus, I must decide if the information sought by

Belnick is relevant to a party's claim or defense. If I find

that it is not, I must then decide if the information sought is

relevant to the subject matter of the action, and if so, whether

Belnick also seeks to compel Tyco to produce certain documents generated by the Boies Schiller firm in connection with its investigations of Tyco. I also deny this request without prejudice to Belnick's right to renew his motion after Tyco has produced a privilege log identifying the documents at issue.

- 9 - the discovery request is supported by good cause. See 6 James

William Moore, Moore's Federal Practice § 26.41[7][c] (3d ed.

2003). It is important to note in making this determination,

however, that

[t]his more narrowly defined focus . . . does not mean that a fact must be alleged in a pleading for a party to be entitled to discovery of information concerning that fact. All it means is that the fact must be germane to a claim or defense alleged in the pleading for information concerning it to be a proper subject of discovery.

Id. at § 26.41[6][c]; see also Fed. R. Civ. P. 26(b)(1) advisory

committee notes 2000 amendment ("[a] variety of types of

information not directly pertinent to the incident in suit could

be relevant to the claims or defenses raised in a given action.

For example, other incidents of the same type . . . could be

properly discoverable under the revised standard") . I also

temper my analysis with the understanding that discovery rules

are to be construed liberally, "with a predisposition toward

allowing discovery." Moore's Federal Practice, supra, at §

26.41[6][c]. With this in mind, I evaluate each challenged

discovery request in turn.

Looking first to Request No. 3, Belnick seeks production of

all documents concerning bonuses that Tyco paid to certain

- 10 - employees in connection with their work on a 2000 SEC

investigation of Tyco. Documents that are responsive to this

request are directly relevant to the claim in the ERISA Action

that Belnick accepted an unauthorized and undisclosed bonus from

Kozlowski (ERISA Amend. Compl. 5 75).

Belnick's Request No. 5 seeks all Retention Agreements

between Tyco and any Tyco employee from 1995 to date. Documents

that are responsive to this request are also relevant to the

claim in the ERISA Action that Belnick received excessive

compensation under an unauthorized employee agreement (ERISA

Amend. Compl. 5 75).

Request's No. 20 and 21 seek materials relating to a former

Tyco director. Lord Michael Ashcroft. These materials are

relevant to the Derivative Action claim that Tyco purchased Lord

Ashcroft's Florida residence in 1997 and structured the purchase

to conceal Tyco's involvement (Derivative Action Second Amend.

Compl. 5 13 6).

Belnick's Request No. 23 seeks production of documents

related to the retention of Boise Schiller and the scope of its

authority at Tyco after January 1, 2002. These materials are

relevant to the claim in the Derivative complaint that Boise

- 11 - Schiller expanded the scope of its investigation to include the

use of company funds, accounting, and disclosures (Derivative

Action Second Amend. Compl. 5 262).

Finally, Reguests No. 26 and 27 seek documents relatingto

Belnick's destruction of documents and his use of Tyco computer

eguipment after his termination from Tyco. Belnick admits these

reguests are also relevant to Tyco's allegations in Tyco v.

Belnick, Case No. 03-CV-1342-B, that Belnick deleted files from

his computer and destroyed other, unidentified documents.

Nevertheless, Tyco argues that it should not be reguired to

respond to the reguests because they are not relevant to any

claim or defense raised in the ERISA or Derivative Complaints,

the actions in which the discovery has been sought. I reject

this argument. Because these reguests are clearly relevant to

claims raised in Tyco v. Belnick, I see no reason to force

Belnick to refile the same reguest in that case.

IV.

For the reasons set forth in this Memorandum and Order, I

grant Belnick's motion to compel in part and deny it in part

without prejudice (Doc. No. 94). Tyco is ordered to produce

- 12 - documents that it previously provided to the SEC and the District

Attorney and any other non-privileged documents that are

responsive to Belnick's document requests. It shall also produce

a privilege log of any withheld documents. The clerk shall

schedule a telephone conference with the parties to discuss the

implementation of this order.

SO ORDERED.

Paul Barbadoro Chief Judge

March 19, 2004

cc: All Counsel of Record

- 13 -