Prisma Capital Partners, Lp v. Kentucky Retirement Systems ( 2020 )

RENDERED: AUGUST 28, 2020; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2019-CA-000700-MR
PRISMA CAPITAL PARTNERS, LP; PACIFIC
ALTERNATIVE ASSET MANAGEMENT
COMPANY, LLC; AND GRAHMN N. MORGAN APPELLANTS
APPEAL FROM FRANKLIN CIRCUIT COURT
v. HONORABLE THOMAS D. WINGATE, JUDGE
ACTION NO. 18-CI-01243
KENTUCKY RETIREMENT SYSTEMS APPELLEE
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE: CALDWELL, JONES, AND TAYLOR, JUDGES.
JONES, JUDGE: Appellants Prisma Capital Partners, LP (“Prisma”), Pacific
Alternative Asset Management Company, LLC (“PAAMCO”), and Grahmn N.
Morgan (collectively with Prisma and PAAMCO, “Appellants”) submitted three
requests to Appellee Kentucky Retirement Systems (“KRS”) pursuant to
Kentucky’s Open Records Act, KRS1 61.870, et seq. (the “Open Records Act”).
The requests sought access to records related to KRS’s decision to endorse
litigation claims advanced in Mayberry, et al. v. KKR & Co., L.P., et al., Franklin
Circuit Court Case No. 17-CI-01348. KRS refused to disclose certain documents
created by the Mayberry Plaintiffs’ attorneys, asserting that they were exempt from
disclosure under KRS 61.878(1)(i) and (j) as “preliminary documents” and were
additionally protected by the work product doctrine, among other civil litigation
limitations. At the time the documents were produced, KRS and the Mayberry
Plaintiffs were adversarial parties and KRS’s Joint Notice had not yet been
proffered.
The Office of the Attorney General (“OAG”) initially ruled that the
documents were not exempted from disclosure as preliminary, concluding that the
withheld documents had forfeited their preliminary status upon being incorporated
into KRS’s Public Notice endorsing the Mayberry Plaintiffs’ claims. However, on
appeal, the Franklin Circuit Court held that the documents were protected from
disclosure under the work product doctrine. The circuit court found that the
documents had been created at the direction of KRS. Having reviewed the record
in conjunction with all applicable legal authority, we cannot agree that the work
product doctrine applies. The attorneys who created the documents worked for the
1
Kentucky Revised Statutes.
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Mayberry Plaintiffs, not KRS; likewise, there was no agreement in place between
KRS and the Mayberry Plaintiffs’ counsel at the time the documents were created
or shared that would make the documents KRS’s work product. Any privilege was
waived when the Mayberry Plaintiffs’ counsel voluntarily shared the documents
with KRS. Accordingly, having reviewed the record in conjunction with all
applicable legal authority, we REVERSE and REMAND the Franklin Circuit
Court’s order for reasons more fully explained below.
I. BACKGROUND
This appeal arises from a series of requests made by the Appellants to
Appellee KRS under Kentucky’s Open Records Act, KRS 61.870, et seq. In
response to the requests, KRS withheld two sets of records as attorney work
product, which are ultimately at issue in this appeal: (1) a nine-page string of
emails dated from March 20-26, 2018, between KRS, a state agency, and the
Mayberry Plaintiffs’ private counsel; and (2) a 110-page document entitled
“Overview of Pending Litigation” prepared by the Mayberry Plaintiffs’ attorneys
and shared with KRS on March 27, 2018. Division I of the Franklin Circuit Court
conducted an in camera review of the subject documents, at which time it
concluded that the records constituted KRS attorney work product. In doing so,
the circuit court remarked that the withheld records were “something else” and “I
don’t know if they’re work product, I don’t know if they’re common interest, but I
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can understand why perhaps they [KRS] don’t want you to see them.” V.R.2
4/10/19; 10:31:17.
Underlying this appeal is Mayberry, et al. v. KKR & Co. L.P., et al.,
Civil Action No. 17-CI-01348 (“Mayberry”), a “derivative” lawsuit in which eight
individual members of KRS-administered retirement plans represented by
contingency-fee counsel purported to advance their claim “on behalf of” KRS.
The Mayberry Plaintiffs originally sued current and former trustees and officers of
KRS, as well as certain outside advisors and investment managers, including
Appellants PAAMCO and Prisma, for leading KRS to enter into three “fund-of
funds” hedge-fund investments. The Plaintiffs alleged that these investments were
unsuitable, underperformed relative to the stock market, and increased KRS’s
unfunded pension liabilities. The Plaintiffs did not provide KRS with advance
notice that they were filing suit, nor did they obtain legal authorization to bring
claims on behalf of KRS. Rather, they opted to sue KRS as a nominal defendant,
contending that KRS’s Board of Trustees was conflicted and incapable of
evaluating whether KRS should assert the claim independently.
The Mayberry Defendants, Prisma and PAAMCO among them,
sought dismissal of the case on February 23, 2018, claiming that the Mayberry
Plaintiffs, having not been denied any benefits under their respective plans, lacked
2
Video record.
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standing to bring their claim. With the motions to dismiss pending, the circuit
court asked KRS what its stance was relative to the lawsuit. This prompted a
series of emailed interactions between KRS and the Mayberry Plaintiffs’ counsel
spanning March 20-26, 2018. At the time of these emails, KRS was not
represented by the Mayberry Plaintiffs’ counsel.
Records available to this Court show that the Mayberry Plaintiffs’
counsel and consultants then met with KRS’s legal counsel at KRS’s offices on
March 27, 2018. At the time, there was no joint agreement between KRS and the
Mayberry Plaintiffs, and the parties were still adversarial. While the substance of
that meeting has not been disclosed, KRS admitted before the Attorney General
that “[the Mayberry] Plaintiffs’ counsel presented the [Overview of Pending
Litigation] in confidence to KRS’s counsel and special litigation committee”
during that meeting. R.3 at 619, 622.
The Appellants subsequently sent an Open Records Act request to
KRS on April 2, 2018, seeking “any and all documents or correspondence” from
the Mayberry Plaintiffs or their counsel to KRS “consisting of, or relating to,
demands, requests and/or authorizations to pursue any or all of the claims that are
asserted or could be asserted in the Action.” R. at 71-72. On April 17, 2018, KRS
3
Record.
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responded to the request and asserted simply that the documents being sought were
“preliminary documents” exempt from inspection under KRS 61.878(1)(i) and (j).
Two days after KRS’s refusal, the Mayberry Plaintiffs and “Nominal
Defendant” KRS filed a Joint Notice with the circuit court indicating that KRS had
created a special litigation committee of its board to investigate and consider the
claims asserted in the Mayberry action. According to the Joint Notice, KRS “will
not pursue the claims asserted by [the Mayberry] Plaintiffs” but the claims “appear
to have merit,” and KRS “believes that it is in the best interests of KRS for [the
Mayberry] Plaintiffs to continue their pursuit of these claims on a derivative basis
on KRS’s behalf.” R. at 340-45. The Joint Notice did not disclose any basis for
KRS’s decision.
As a result of this Joint Notice, the Appellants resubmitted their first
request to KRS on April 30, 2018. On the same day, they sent a second request to
KRS for the production of documents and communications related to the Joint
Notice, including communications with the Mayberry Plaintiffs and their counsel
and any information that KRS and its special litigation committee relied upon in
reaching its decision to endorse the Mayberry Plaintiffs’ claims on behalf of KRS.
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KRS responded to both requests on May 31, 2018, producing some of
the documents requested4 and providing three reasons for withholding the
remainder. First, KRS asserted that the communications between KRS, KRS’s
attorneys, the Mayberry Plaintiffs, and the Mayberry Plaintiffs’ attorneys were
protected by the common interest privilege of KRE5 503(b)(3). Second, it stated
that any communications related to settlement were exempt from disclosure under
KRE 408. KRS’s third and final proffered reason was that the requested
documents were outside the scope of discovery under CR6 26.02.
On October 1, 2018, the Appellants sought review of the denial of
their request by the OAG, to which KRS responded on October 9, 2018. The OAG
requested that KRS submit copies of the withheld records for an in camera review
of the documents on October 10, 2018, and provide a detailed statement describing
the withheld documents and the specific applicable exemptions for each. KRS
refused to comply with the OAG’s request for unredacted copies of the documents
but did identify the two sets of documents it was withholding: (1) the March email
4
It was at this time that KRS produced the attendance list for the March 27, 2018, meeting at
KRS’s offices between the Mayberry Plaintiffs’ counsel and consultants and KRS’s counsel and
representatives.
5
Kentucky Rules of Evidence.
6
Kentucky Rules of Civil Procedure.
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correspondence between KRS and the Mayberry Plaintiffs’ private counsel; and (2)
the Overview of Pending Litigation packet.
On December 14, 2018, the OAG ruled in favor of the Appellants,
finding that “KRS violated the Open Records Act in failing to satisfy its burden of
proof concerning responsive records withheld by refusing to provide copies of the
disputed records to the Attorney General for in camera review per KRS
61.880(2)(c).” R. at 326-28. The OAG further provided that KRS could not
withhold the documents as preliminary as that preliminary status had been forfeited
upon being adopted by KRS as a basis for a final action. The OAG deemed the
Joint Notice to be a final action and stated that “the withheld records were the basis
for KRS delegating its KRS 61.645(2)(a) authority to ‘sue or be sued’ to the
Plaintiffs.” 18-ORD-231.
KRS then appealed the OAG’s opinion to the Franklin Circuit Court,
where both KRS and the Appellants filed motions for summary judgment. See
KRS 61.880(5). In its motion, KRS asked the circuit court to determine whether
the Open Records Act requires an agency to release what it considers to be
confidential, privileged, and preliminary communications regarding ongoing
litigation. Per agreement between the parties, KRS tendered the documents in
question to the circuit court for an in camera review. On April 10, 2019, the court
conducted the review and found the documents to be protected by the attorney
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work product doctrine found in CR 26.02(3)(a), allowing KRS to withhold the
documents in question.
Five days later, the circuit court reversed the Attorney General and
granted KRS summary judgment in an April 15, 2019, opinion and order. The
circuit court premised its judgment upon the attorney work product privilege
provided in CR 26.02(3)(a) and incorporated into the Open Records Act through
KRS 61.878(1), which states in part, “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.” CR 26.02(3)(a). The
circuit court stated that it must “protect KRS’s interest in allowing the agency the
full ability for its attorneys to work on its behalf without being compelled to
consistently disclose what would otherwise be plainly protected by the attorney
work product doctrine if a state agency was not the party that the opposition was
seeking disclosure from.” R. at 1157. The circuit court further provided:
[T]he Court agrees with previous holdings of the OAG
that the attorney work product privilege applies to the
exceptions to the Open Records Act. . . .
To properly determine if the documents are attorney
work product, the Court must ascertain whether the
documents were “prepared in anticipation of litigation or
for trial by or for another party. Duffy v. Wilson, 289
S.W.3d 555, 559 (Ky. 2009) (quoting CR 26.02(3)(a)).
In Duffy, the Kentucky Supreme Court held that “[a]
document need not be created by a party’s attorney to be
work product[,]” and “[t]he policy of protecting
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counsel’s work product prior to litigation applies with
equal force to the work product of the party’s other
representatives, including private investigators.” Id.
(internal quotation marks and citation omitted).
However, the protection afforded by the attorney work
product doctrine can be overridden when the requesting
party “has a ‘substantial need’ of the document and is
unable to obtain the ‘substantial equivalent’ without
‘undue hardship.’” Id. (quoting Transit Authority of
River City v. Vinson, 703 S.W.2d 482, 486 (Ky. Ct. App.
1985)).
. . . [T]he Court disagrees with Defendants that through
the April 19, 2018, Joint Notice, KRS voluntarily
disclosed the documents. However, KRS has
demonstrated that the documents were prepared by or at
the direction of KRS’s attorneys in anticipation of
litigation. A plain viewing of the documents makes clear
that the documents are attorney work product as the
documents are trial strategy for the ongoing Mayberry
litigation. Additionally, the Mayberry litigation was
pending when the emails were exchanged, and the
Litigation Packet was clearly prepared in anticipation of
litigation at the direction of KRS’s attorneys.
R. at 1156-58. The court further found that the Defendants had failed to
demonstrate “substantial need” and “undue hardship” if unable to inspect the
documents. Id. Because the court found that the documents were not subject to
disclosure under the Open Records Act as attorney work product, it declined to
address the parties’ additional arguments regarding common interest privilege
under KRE 503, settlement communications privilege under KRE 408, and the
preliminary document exception under KRS 61.878(1)(i) and (j). This appeal
followed.
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Most recently, while this appeal was pending before us, the Kentucky
Supreme Court held that the Mayberry Plaintiffs lacked constitutional standing to
maintain suit against the eleven KRS trustees and officers and against the third
parties who did business with KRS, including the actuarial and investment
advisors, hedge-fund sellers, and their executives; as a result, the Supreme Court
remanded the case to the circuit court with directions to dismiss the Mayberry
Plaintiffs’ complaint in its entirety. See Overstreet v. Mayberry, 603 S.W.3d 244
(Ky. 2020). While the Overstreet opinion may have the practical effect of ending
the present dispute in the sense that Appellants may no longer have a need or
desire for the requested documents, it does not technically moot this appeal
because the Open Records Act action KRS filed in circuit court is a separate,
original action that exists apart from the Mayberry action.
II. STANDARD OF REVIEW
The circuit court is not bound by the prior OAG opinion, nor is it
limited to the OAG’s evidentiary record. KRS 61.882(3). The burden of proof in
an Open Records Act circuit court action is on the agency seeking to withhold the
records being sought. Com., Cabinet for Health and Family Servs. v. Lexington H-
L Servs., Inc., 382 S.W.3d 875, 883 (Ky. App. 2012). On appeal, we review a
circuit court’s factual findings concerning a state agency’s withholding of
requested documents for clear error and matters concerning the construction of the
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Open Records Act de novo. Cmty. Fin. Servs. Bank v. Stamper, 586 S.W.3d 737,
741 (Ky. 2019); Commonwealth v. Chestnut, 250 S.W.3d 655, 660 (Ky. 2008).
III. ANALYSIS
The Open Records Act, KRS 61.871, states in pertinent part:
[T]hat the basic policy of [the Open Records Act] is that
free and open examination of public records is in the
public interest and the exceptions provided for by KRS
61.878 or otherwise provided by law shall be strictly
construed, even though such examination may cause
inconvenience or embarrassment to public officials or
others.
Under Kentucky’s Open Records Act, “records that are open are open
to ‘any person’ for any purpose.” Kentucky New Era, Inc. v. City of Hopkinsville,
415 S.W.3d 76, 85-86 (Ky. 2013) (quoting KRS 61.872(1)). While there are
exceptions to disclosure of some public information, they are strictly construed,
and the burden is upon the agency to identify “the specific exception authorizing
the withholding of the record and a brief explanation of how the exception applies
to the record withheld.” KRS 61.880(1); see KRS 61.871. Generally, “[t]he
statute demonstrates a general bias favoring disclosure.” Hardin Cty. Schools v.
Foster, 40 S.W.3d 865, 868 (Ky. 2001) (citing Kentucky Bd. of Exam’rs of
Psychologists and Div. of Occupations and Professions, Dep’t for Admin. v.
Courier-Journal, 826 S.W.2d 324 (Ky. 1992)).
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The Kentucky Supreme Court laid out the analysis for determining
whether requested documents ought to be disclosed:
In evaluating an open records request, the test is as
follows. If the requested materials are not specifically
excluded from disclosure (under KRS 61.878(l)(a)-(n), or
other applicable statutes), then the public agency must
provide the materials. If one of the fourteen exemptions
applies, then the public agency should deny the request.
However, a court of competent jurisdiction, upon request,
can nevertheless grant disclosure of any document the
agency refused to produce, with one qualification: if the
document “pertain[s] to civil litigation” the court cannot
order disclosure “beyond that which is provided by the
Rules of Civil Procedure governing pretrial discovery.”
Dep’t of Revenue, Fin. & Admin. Cabinet v. Wyrick, 323 S.W.3d 710, 714 (Ky.
2010) (footnote omitted). The Wyrick Court held that a circuit court must first
consider whether an open records exception applies before determining whether a
civil litigation limitation applies to exclude the material in question. Id. In the
present case, the circuit court erred in failing to apply the Wyrick test and instead
considered whether the work product doctrine applied before evaluating any Open
Records Act exemptions. However, because our review is de novo, we will
address both the preliminary documents exemption and the work product doctrine.
a) Open Records Exemptions
KRS asserts that the withheld records should also be exempted under
the “preliminary” exemptions of KRS 61.878(1)(i) and (j), which exempt “drafts,
notes, [and] correspondence with private individuals . . . .” Under the Open
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Records Act, documents of a “an internal, preliminary and investigatory” nature
are protected unless they are incorporated, either explicitly or implicitly, into a
final action. Univ. of Kentucky v. Lexington H-L Servs., Inc., 579 S.W.3d 858, 863
(Ky. App. 2018), review denied (Aug. 21, 2019). The preliminary documents
exemptions under the Open Records Act “are intended to protect the integrity of
the agency’s internal decision-making by encouraging the free exchange of
opinions and recommendations. They have thus ‘been interpreted to authorize
nondisclosure of preliminary reports and memoranda containing the opinions,
observations, and recommendations of personnel within an agency.’” 02-ORD-
199 (emphasis added).
Although Kentucky’s courts have not yet dealt with the issue of
whether preliminary documents must be produced internally by an agency, there
have been several opinions of the Attorney General that have addressed the issue.
While opinions of the Attorney General are not binding, we consider them “highly
persuasive.” Palmer v. Driggers, 60 S.W.3d 591, 596 (Ky. App. 2001) (quoting
York v. Com., 815 S.W.2d 415, 417 (Ky. App. 1991)). In a 2017 decision, the
OAG opined upon the legality of the City of Taylorsville withholding responses to
ethics complaints as preliminary. The City argued that the records in question
were “preliminary drafts of responses in regard to an ethics complaint
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investigation, [sic] and are exempt under KRS 61.878(1)(j).” 17-ORD-092.
However, the OAG disagreed, stating:
KRS 61.878(1)(j) exempts “preliminary
recommendations, and preliminary memoranda in which
opinions are expressed or policies formulated or
recommended.” The responses to the ethics complaint
sent by city commissioners are not preliminary
recommendations or memoranda of the City; they are the
final responses of the targets of the complaints. As such,
they are not preliminary.
Id. (emphasis added).
KRS has continued to rely on the sentiment that allowing Prisma to
inspect the withheld records would set a dangerous precedent jeopardizing the
integrity of agencies’ internal decision-making processes. Indeed, it premised a
large portion of its argument on this front on the idea that the withheld documents
reflect KRS’s internal decision-making process. We fail to see how the records at
issue – emails between opposing parties to the Mayberry action and an overview
document drafted by the Mayberry Plaintiffs’ counsel – are internal to KRS. KRS
acknowledges that the records were not created by KRS but rather the Mayberry
Plaintiffs’ counsel. KRS admits that the Mayberry Plaintiffs’ counsel is not its
own counsel. Additionally, the documents were not created at KRS’s direction. A
review of the documents makes clear that they were created by counsel for the
Mayberry Plaintiffs’ benefit. Accordingly, the withheld documents cannot be
deemed internal to KRS, and we need not address any issues regarding final action.
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We conclude that the withheld documents do not qualify as preliminary documents
and therefore proceed to the second step of the Wyrick test.
b) Work Product
According to the attorney work product doctrine, “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.’”
Hiatt v. Clark, 194 S.W.3d 324, 329 (Ky. 2006) (quoting CR 26.02(3)(a)). The
work product doctrine was first established in Hickman v. Taylor, 329 U.S. 495, 67
S. Ct. 385, 91 L. Ed. 451 (1947), as a tool to grant attorneys some “free[dom] from
unnecessary intrusion by opposing parties and counsel.” Vinson, 703 S.W.2d at
486. Our Court has previously recognized that this doctrine has been incorporated
into the exemptions of the Open Records Act so that “the explicit provisions of
KRS 61.878 protect the documents containing these privileged communications
from compulsory disclosure.” Hahn v. Univ. of Louisville, 80 S.W.3d 771, 776
(Ky. App. 2001).
Under CR 26.02, a two-step analysis is necessary to determine if
particular documents are discoverable: (1) the court must determine whether the
document was prepared in anticipation of litigation by a party or its representative
and is therefore subject to privilege; and (2) if the court deems the document to be
work product, it must determine whether the requesting party has a “substantial
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need” of the document and cannot obtain the substantial equivalent without undue
hardship. Duffy, 289 S.W.3d at 558. Significantly, “[t]he policy of protecting
counsel’s work product prior to litigation applies with equal force to the work
product of the party’s other representatives, including private investigators.” Id. at
559. Therefore, a document must not necessarily be created by the withholding
party’s attorney to be work product, although it must be created by a related
representative.
Here, litigation was clearly not just impending, but ongoing. The
March emails were sent and received, and the litigation packet was prepared and
presented during the course of the Mayberry litigation. Because the documents
pertain to the Mayberry action, they were unquestionably created “in anticipation
of litigation.” See CR 26.02(3)(a).
However, we cannot say that these documents were created by KRS’s
counsel or by its representative. It would be incredible to construe this rule in
favor of withholding documents exchanged between adversarial parties amidst
litigation. Indeed, the work product doctrine was meant to protect parties from
being forced to “hand over the result of his work to an opponent.” Vinson, 703
S.W.2d at 486. The Mayberry Plaintiffs named KRS as a nominal defendant, and
KRS declined to align with them and pursue the claims created by the Mayberry
case. KRS openly admitted that the Mayberry Plaintiffs’ contingency-fee counsel
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are not counsel for KRS, providing in its Joint Notice that the Mayberry Plaintiffs
performed “legal and investigatory work” in connection with the Mayberry action
“without any compensation or assistance from KRS . . . .” R. at 752. Moreover,
there is nothing in the record to suggest that the Mayberry Plaintiffs’ counsel was
acting as KRS’s representative. No precedent exists to support the position that
work product created by one party and turned over to its opponent can be the work
product of the adverse party.
The circuit court stated that, contrary to the Appellants’ argument,
“the Mayberry litigation was pending when the emails were exchanged, and the
Litigation Packet was clearly prepared in anticipation of litigation at the direction
of KRS’s attorneys.” R. at 1157-58. Upon thorough examination of the record,
however, we conclude that the record is entirely devoid of any evidence that such
materials were prepared at the direction of KRS’s attorneys or necessarily for its
benefit. A review of the documents contradicts this notion. The documents were
clearly created by the Mayberry Plaintiffs’ counsel for their benefit and not at
KRS’s direction. Therefore, we find that the withheld documents fail to qualify as
KRS’s work product upon the first step of analysis under CR 26.02.
c) Common Interest and Settlement Privileges
In the alternative, KRS contends that the withheld records are
protected by both the common interest privilege of KRE 503(b)(3) and the
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settlement privilege of KRE 408. The common interest privilege extends attorney-
client privilege to situations involving “representatives of the client,
representatives of the attorney, and between lawyers on matters of common
interest.” TRIAL HANDBOOK FOR KY. LAW. § 28:2 (2019 ed.). Under KRE
503(b)(3):
A client has a privilege to refuse to disclose and to
prevent any other person from disclosing a confidential
communication made for the purpose of facilitating the
rendition of professional legal services to the client:
...
By the client or a representative of the client or the
client’s lawyer or a representative of the lawyer to a
lawyer or a representative of a lawyer representing
another party in a pending action and concerning a matter
of common interest therein[.]
The Kentucky Supreme Court expounded upon KRE 503(b), providing that “[f]or
the privilege to attach, the statement must be a confidential communication made
to facilitate the client in his/her legal dilemma and made between two of the four
parties listed in the rule: the client, the client’s representatives, the lawyer, or the
lawyer’s representatives.” Haney v. Yates, 40 S.W.3d 352, 354 (Ky. 2000).
Because of the scarcity of Kentucky case law on the common interest
privilege, KRS cites to a number of other jurisdictions in presenting its argument
for asserting the privilege. However, in our review of federal case law, we note
that the common interest doctrine does in fact take into consideration the
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adversarial nature of the parties communicating and the timing of their
communications.
There are three situations in which the common interest exception is
deemed to apply: (1) “a single attorney representing multiple clients in the same
matter”; (2) multiple parties, although represented by separate counsel, share the
same defense; and (3) two or more clients share a common legal interest and share
legal advice regarding that interest regardless of whether a lawsuit is actually
pending or will ever be pending. Broessel v. Triad Guar. Ins. Corp., 238 F.R.D.
215, 219-20 (W.D. Ky. 2006). There must be more than a “commercial, rooting
interest” between parties to amount to a common legal interest. In re Simplexity,
LLC, 584 B.R. 495, 499 (Bankr. D. Del. 2018). “So long as transferor and
transferee [of information] anticipate litigation against a common adversary on the
same issue or issues, they have strong common interests in sharing the fruit of the
trial preparation efforts.” United States v. American Tel. & Tel. Co., 642 F.2d
1285, 1299 (D.C. Cir. 1980) (emphasis added). “[T]he common interest rule is
concerned with the relationship between the transferor and the transferee at the
time that the confidential information is disclosed.” In re United Mine Workers of
Am. Employee Ben. Plans Litig., 159 F.R.D. 307, 314 (D.D.C. 1994) (emphasis
added).
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It is unquestionable that the withheld communications did not occur
within any of these confines. Neither the Mayberry Plaintiffs nor their
contingency-fee legal counsel can “facilitat[e] the rendition of professional legal
services to” KRS, ruling out the first option.7 Instead, KRS contends that it falls
under the third category, claiming a common legal and financial interest with the
Mayberry Plaintiffs in what effectually amounts to the Plaintiffs’ hypothetical
financial recovery. However, at the time the withheld communications occurred,
KRS and the Mayberry Plaintiffs could not have had the same legal interest. KRS
has maintained its position that it was adverse to the Mayberry Plaintiffs prior to
the April 19, 2018, Joint Notice, thereby confirming that they were in fact adverse
parties at the time the withheld records were created and shared with KRS in
March 2018. It was only on April 19, 2018, that KRS stated in the Joint Notice
that it “believes that it is in the best interests of [KRS] for [the Mayberry] Plaintiffs
to continue their pursuit of these claims on a derivative basis on [KRS’s] behalf.”
R. at 80-81. KRS and the Mayberry Plaintiffs did not have a common interest at
the time of their communications, as they were adversarial parties and shared
nothing more than a “rooting interest” in the Mayberry Plaintiffs’ potential award.
7
The Commonwealth of Kentucky has adopted the Model Procurement Code as codified by
KRS 45A, which “appl[ies] to every expenditure of public funds by this Commonwealth and
every payment by contingency fee under any contract or like business agreement[.]” KRS
45A.020(1). The Mayberry Plaintiffs’ legal counsel is contingency-fee-based representation and
therefore cannot possibly represent KRS on the same terms as well without violating KRS 45A.
We will not construe such a representation arrangement on behalf of KRS.
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Moreover, KRS confirms that adversarial posture, relying on it to
additionally invoke a settlement privilege over the withheld records under KRE
408.
There are three types of evidence excluded by KRE 408:
(1) offers to compromise disputes; (2) settlements of
disputes; and (3) statements of fact made or conduct
occurring during the course of settlement negotiations.
There are also two basic requirements prerequisite to any
invocation of the KRE 408 rule of exclusion. First, the
rule requires the existence of a dispute as to the validity
or amount of a specific claim. Second, the rule requires
an effort to settle the dispute by agreement to avoid
extending the rule of exclusion to casual conversation or
statements made for some other purpose than settlement.
Norton Healthcare, Inc. v. Deng, 487 S.W.3d 846, 854 (Ky. 2016) (footnotes
omitted). Aside from alleging that the withheld documents amount to
communications between “significantly disagreeing parties,” KRS has offered no
further argument as to why these documents are settlement communications. We
have carefully reviewed the documents. There is not even a hint of settlement
within those documents. We therefore hold that neither the settlement privilege
nor the common interest privilege protects the withheld documents from
disclosure.
d) Attorneys’ Fees
Finally, the Appellants claim that they are entitled to attorneys’ fees
under KRS 61.882. Under KRS 61.882,
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[a]ny person who prevails against any agency in any
action in the courts regarding a violation of KRS 61.870
to 61.884 may, upon a finding that the records were
willfully withheld in violation of KRS 61.870 to 61.884,
be awarded costs, including reasonable attorney’s fees,
incurred in connection with the legal action.
KRS 61.882(5) (emphasis added).
While KRS’s failure to comply with the Open Records Act must
surely have been frustrating for the Appellants, its withholding of the documents
was not willful. In order to award the Appellants attorneys’ fees, proof must be
offered “showing that the agency’s actions were [willful] or that the failure
damaged [the Appellants] in any way.” Lang v. Sapp, 71 S.W.3d 133, 135 (Ky.
App. 2002).
Here, there is no evidence that KRS acted in anything but good faith.
In its first response to the Appellants’ open records request, KRS explained that it
withheld documents due to their “preliminary” nature under KRS 61.878(1)(i) and
(j). In response to the Appellants’ second request, KRS produced some nonexempt
records and provided an additional explanation for withholding the remainder.
Although the parties disagree as to the exemption status of the documents, it
cannot be said that KRS willfully withheld the documents. See Bowling v.
Lexington-Fayette Urban Cty. Gov’t, 172 S.W.3d 333, 343 (Ky. 2005) (“A public
agency’s mere refusal to furnish records based on a good faith claim of a statutory
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exemption, which is later determined to be incorrect, is insufficient to establish a
willful violation of the Act.”).
IV. CONCLUSION
In light of the foregoing, we reverse the circuit court’s judgment and
remand this matter for further proceedings including production of the documents.
ALL CONCUR.
BRIEFS FOR APPELLANTS: BRIEF FOR APPELLEE:
Barbara B. Edelman Paul C. Harnice
Grahmn N. Morgan Louisville, Kentucky
John M. Spires
Lexington, Kentucky Christopher E. Schaefer
Louisville, Kentucky
AMICUS CURIAE BRIEF FOR
KENTUCKY OPEN GOVERNMENT Sarah J. Bishop
COALITION, INC.: Louisville, Kentucky
Amye Bensenhaver Andrew T. Hagerman
Frankfort, Kentucky Louisville, Kentucky
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