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HomeMy WebLinkAbout2004-5692 Civil RITE AID HEADQUARTERS : IN THE COURT OF COMMON PLEAS OF CORPORATION, : CUMBERLAND COUNTY, PENNSYLVANIA Plaintiff : : CIVIL ACTION – LAW vs. : 04-5692 CIVIL : H. D. SMITH WHOLESALE : DRUG COMPANY and ALBERS : MEDICAL DISTRIBUTORS, INC., : JURY TRIAL DEMANDED Defendants : IN RE: OPINION PURSUANT TO RULE 1925 In March 2003 Rite Aid entered into a sales agreement with H.D. Smith whereby Rite Aid agreed to purchase approximately 3.3 million 10-milligram tablets of Lipitor that had been “repackaged” by Med-Pro, Inc. a drug repackaging company that was not named in this litigation. H.D. Smith had acquired the repackaged Lipitor from co-defendant Albers Medical Distributors, Inc. In May 2003 the FDA notified H.D. Smith about concerns of the authenticity of the repackaged medication that it had sold to Rite Aid. In response H.D. Smith immediately pulled any remaining repackaged Lipitor from its shelves, and notified Rite Aid of the recall. Rite Aid in turn issued a recall of all the Lipitor sold since its purchase of the potentially tainted Lipitor. Rite Aid initiated this litigation in November 2004 against H.D. Smith and Albers Medical, alleging numerous claims including fraud, misrepresentation, and civil conspiracy. Subsequent to the commencement of this litigation, in December 2005, H.D. Smith and Albers Medical were indicted for alleged mail fraud, wire fraud, and conspiracy to commit mail fraud. Thereafter, attorneys for H.D. Smith met with representatives of the Department of Justice (DOJ) to discuss the criminal investigation. During those discussions, the attorneys for H.D. Smith provided the DOJ with certain documents that had been prepared by the attorneys on behalf of NO. 04-5692 CIVIL H.D. Smith. After those discussions (and presumably as a result of them), the indictment charging H.D. Smith and Albers with various counts of fraud was dropped by the government, and H.D. Smith allegedly forfeited over two million dollars to the federal government. Rite Aid now seeks to compel production of those documents that were disclosed to the DOJ by H.D. Smith. H.D. Smith has objected on the grounds that the documents are protected by the attorney-client privilege and the work-product doctrine. In an order dated July 14, 2006, the undersigned granted Rite Aid’s Motion to Compel on the grounds that H.D. Smith had waived the protections of both the attorney-client privilege and work-product doctrine when it shared the 1 documents in question with the DOJ. H.D. Smith has now appealed that ruling. H.D. Smith first argues that despite its disclosure of the relevant documents to the DOJ, it is still permitted to invoke the attorney-client privilege in the instant proceeding. The attorney- client privilege, long recognized at common law, has been enacted by the Pennsylvania Assembly at 42 Pa.C.S.A. § 5928, which states that “[i]n a civil matter counsel shall not be competent or permitted to testify to confidential communications made to him by his client, nor shall the client be compelled to disclose the same, unless in either case this privilege is waived upon the trial by the client.” The Pennsylvania courts have explained the rationale for the privilege as follows: “The attorney-client privilege is intended to foster candid communications between legal counsel and the client so that counsel can provide legal advice based upon the most complete information possible from the client.” Joe v. Prison Health Servs., 782 A.2d 24, 31 (Pa.Commw. Ct. 2001), 1 We are inclined to believe that our order is interlocutory and not appealable. Nonetheless, we address the underlying issue. 2 NO. 04-5692 CIVIL citing Commonwealth v. Chmiel, 738 A.2d 406 (Pa. Super. Ct. 1999). Despite the broad policy concerns associated with it, the scope of the privilege is far from unlimited. To the contrary, courts have long held that the privilege, which works to prevent the consideration by the fact- finder of otherwise-relevant evidence, should be construed narrowly. See Westinghouse Elec. Corp. v. Republic of the Phillippines, 951 F.2d 1414, 1423 (3d Cir. 1991), citing In re Grand Jury Investigation (Sun Co.), 599 F.2d 1224, 1235 (3d Cir. 1979). Our courts have held that a waiver of the attorney-client privilege occurs whenever the client discloses the confidential information to a third party. See Prison Health Servs., 782 A.2d at 31. The record in this case is clear that H.D. Smith did just that- reveal confidential information to a third party, the DOJ. Nevertheless, H.D. Smith presses that it is still entitled to invoke the privilege in this proceeding, essentially arguing that it may “pick and choose” to whom it may disclose the confidential information. In so arguing, it implicitly relies upon Diversified Indus. v. Meredith, 572 F.2d 596 (8th Cir. 1978). Diversified Industries dealt with the disclosure of documents to the Securities and Exchange Commission (SEC) during an investigation. In ruling that the defendant was permitted to exert the privilege in a separate proceeding, the Eighth Circuit, in the space of a single paragraph, worked an unprecedented expansion of the attorney-client privilege through its creation of the “selective waiver” doctrine. This doctrine, which states that a client is entitled to “selectively waive” the privilege to certain parties, yet continue to exert it against others, Id. at 611, was based upon, in the court’s own language, the rationale that “[t]o hold otherwise may have the effect of thwarting the developing procedure of corporations to employ independent 3 NO. 04-5692 CIVIL outside counsel to investigate and advise them in order to protect stockholders, potential stockholders and customers.” Id. The “selective waiver” doctrine has been soundly rejected by every federal appellate 2 court that has considered the issue. In contrast, not a single federal appellate court has followed 3 Diversified Industries. Based upon these cases, this Court declines to adopt the “selective waiver” approach of Diversified Industries, for the same reason that the third circuit refused to do so in Westinghouse. In that case the third circuit stated that “selective waiver does not serve the purpose of encouraging full disclosure to one’s attorney in order to obtain informed legal assistance; it merely encourages voluntary disclosure to government agencies, thereby extending the privilege beyond its intended purpose.” 951 F.2d at 1425. We conclude that the documents in question are not protected by the attorney-client privilege because H.D. Smith already has waived it by disclosing the documents to the DOJ. H.D. Smith also argues that the documents are protected by the privilege afforded by the work-product doctrine. Pa. R.C.P. No. 4003.3 states, in pertinent part, that “[t]he [scope of] discovery shall not include disclosure of the mental impressions of a party's attorney or his or her conclusions, opinions, memoranda, notes or summaries, legal research or legal theories.” 2 In re Steinhardt Partners, L.P., 9 F.3d 230, 235 (2d Cir. 1993); Westinghouse, 951 F.2d at 1424-26; In re See Martin Marietta Corp., 856 F.2d 619, 623-24 (4th Cir. 1988); In re Columbia/HCA Healthcare Corp. Billing Practices Litigation, 293 F.3d 289, 302-04 (6th Cir. 2002); Genentech v. United States Int’l Trade Comm’n, 122 F.3d 1409, 1417 (Fed.Cir.1997); Permian Corp. v. United States, 665 F.2d 1214, 1220-21 (D.C. Cir. 1981). 3 But see Columbia, 293 F.3d at 299 (noting that three district courts have followed the eighth circuit). 4 NO. 04-5692 CIVIL The privilege afforded by the work-product doctrine, although accepted by the Pennsylvania courts as having a broader scope than the attorney-client privilege, see Nat’l R.R. Passenger Corp. v. Fowler, 788 A.2d 1053 (Pa. Commw. Ct. 2001), is also not an unlimited 4 privilege. Like the attorney-client privilege, it too can be waived through disclosure of the documents to third parties, but only under circumstances in which the party receiving the documents is an adverse party. Westinghouse, 951 F.2d at 1428. As such, the mere disclosure of protected documents to a non-adverse party “to further the goal of enabling the client to seek informed legal assistance” would not result in a waiver of the privilege. Id. The record is clear in this case that H.D. Smith disclosed the protected documents to an adverse party. The DOJ was conducting a criminal investigation into H.D. Smith’s activities and as such was an adverse party. H.D. Smith’s decision to disclose the documents was not made to enable H.D. Smith “to seek informed legal assistance,” the purpose behind the work-product doctrine; rather, it was made in an effort to cooperate with the DOJ to avoid criminal charges. As in the case of the attorney-client privilege, H.D. Smith cannot “pick and choose” to whom it raises the privilege afforded by the work-product doctrine. November 6, 2006 ___________________________________ Kevin A. Hess, J. 4 See, e.g., the Explanatory Comment to Pa. R.C.P. No. 4003.3 (stating that there are “situations under the Rule where the legal opinion of an attorney becomes a relevant issue in an action,” and therefore discoverable). 5 NO. 04-5692 CIVIL Thomas A. Schmutz, Esquire Melissa Miller, Esquire Maxine M. Woelfling, Esquire For the Plaintiff Thomas French, Esquire Timothy J. Nieman, Esquire For Defendant H. D. Smith Larry B. Selkowitz, Esquire Mark D. Bradshaw, Esquire Cathy J. Dean, Esquire For Defendant Albers Medical Distribution :rlm 6