Pamida, Inc. v. E.S. Originals, Inc.

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 01-1827
___________
Pamida, Inc.; *
*
Plaintiff-Appellant, *
*
Alan M. Anderson; Renee L. Jackson; *
Nicholas A.J. Vlietstra; Cynthia M. *
Klaus; Christopher K. Larus; *
*
Movants-Appellants, * Appeal from the United States
* District Court for the District of
v. * Minnesota.
*
E.S. Originals, Inc.; *
*
Defendant, *
*
Dynasty Footwear, Ltd.; *
*
Defendant-Appellee, *
*
Jan Jahn; *
*
Movant. *
*
_____________
Submitted: December 14, 2001
Filed: February 25, 2002
_____________
Before MURPHY and HEANEY Circuit Judges, and PIERSOL1, District Judge.
_____________
PIERSOL, District Judge.
Pamida, Incorporated, Alan M. Anderson, Renee L. Jackson, Nicholas A.J.
Vlietstra, Cynthia M. Klaus, and Christopher K. Larus appeal the district court’s2
partial denial of their motion to quash subpoenas. We affirm.
I.
This appeal stems from an indemnification action brought by Pamida,
Incorporated (Pamida) against Dynasty Footwear, Ltd. (Dyansty), E.S. Originals,
Incorporated and others. Pamida brought suit in the United States District Court for
the District of Nebraska seeking indemnification for costs, including attorneys’ fees,
incurred in the defense and settlement of a patent infringement action brought against
Pamida by Susan Maxwell.
Maxwell brought suit against Pamida in July 1995 alleging that Pamida
infringed her patent for a shoe tying system. According to Dynasty, Pamida rejected
Maxwell’s early settlement overtures to settle the case for $100,000 and instead chose
to engage in protracted litigation. Pamida spent nearly five years and $750,000 in
attorneys’ fees litigating against Maxwell and ultimately settled the claims in
1
The Honorable Lawrence L. Piersol, Chief United States District Judge for the
District of South Dakota, sitting by designation.
2
The Honorable Richard H. Kyle, United States District Judge for the District
of Minnesota affirming an order of Magistrate Judge John M. Mason.
-2-
December 2000 for $475,000 and a license to utilize Maxwell’s patented shoe tying
system for a royalty of 45¢ for each pair of shoes.
In March 2000, before the settlement of the patent infringement case, Pamida
commenced the instant action against Dynasty and others seeking indemnification.
In the indemnification case, Pamida chose to employ the same attorneys that had been
and were representing it in the patent infringement case – i.e., the law firm of Larkin,
Hoffman, Daly & Lingren, Ltd. (LHDL) located in Minneapolis, Minnesota. On
February 9, 2001, two months after the patent infringement action had been settled,
Dynasty served five LHDL attorneys with subpoenas seeking both deposition
testimony and the production of documents relating to LHDL’s representation of
Pamida. The issues on which Dynasty seeks to depose the LHDL attorneys are
central to the instant litigation and include what actions Pamida took to give Dynasty
notice of the patent infringement action brought by Maxwell and its claim for
indemnity from Dynasty as well as whether the $750,000 in attorneys’ fees sought by
Pamida were reasonably incurred in defending the patent infringement action.
The five LHDL attorneys subpoenaed by Dynasty are those acting as counsel
for Pamida in the instant indemnification action: Alan M. Anderson, Renee L.
Jackson, Nicholas A.J. Vlietstra, Cynthia M. Klaus, and Christopher K. Larus. One
of those attorneys, Renee L. Jackson, was identified by Pamida in response to
Dynasty’s interrogatories as the person who notified Dynasty of the patent
infringement action. Dynasty also seeks unredacted billing statements detailing
LHDL’s representation of Pamida in both the underlying patent infringement action
and the instant indemnification action.
Pamida and the LHDL attorneys subpoenaed filed a motion seeking a
protective order, pursuant to Fed. R. Civ. P. 26(c), directing that the depositions not
be taken, that the documents need not be produced, and that the subpoenas duces
tecum be quashed. The magistrate judge denied the motion to quash with respect to
-3-
testimony and documents concerning the patent infringement suit, but granted it with
respect to testimony and documents concerning the indemnification action. The
district court3 affirmed the magistrate judge’s order. For reversal, Pamida and the
LHDL attorneys argue that the district court abused its discretion in refusing to grant
the motions to quash in their entirety and further that the district court abused its
discretion in exceeding the scope of their motions to quash by ruling on the
documents to be produced in connection with the subpoenas.
II.
We review the district court’s decision regarding the motion to quash for an
abuse of discretion. See Miscellaneous Docket #1 v. Miscellaneous Docket #2, 197
F.3d 922, 925 (8th Cir. 1999). “This deferential standard means ‘that the court has
a range of choice, and its decision will not be disturbed as long as it stays within that
range[,] is not influenced by any mistake of law’ or fact, or makes a clear error of
judgment in balancing relevant factors.” Id. (quoting McKnight v. Johnson Controls,
Inc., 36 F.3d 1396, 1403 (8th Cir. 1994)). In this case, we find no abuse of discretion
in the district court’s decision.
In their arguments for reversal, the appellants rely heavily upon Shelton v.
American Motors Corp., 805 F.2d 1323 (8th Cir. 1986). In Shelton, we cautioned
against the potential problems caused by deposing opposing counsel and developed
a three-prong test that a party must satisfy in order to depose the opposition’s
attorney. See id. at 1327. A party must show that “(1) no other means exist to obtain
the information than to depose opposing counsel, (2) the information sought is
3
Although the indemnification action is pending before the Nebraska District
Court, the deposition subpoenas served on the LHDL attorneys were issued out of the
Minnesota District Court because those attorneys reside in Minnesota. Thus, the
motion to quash was properly before the Minnesota District Court. See Fed. R. Civ.
P. 45.
-4-
relevant and nonprivileged, and (3) the information is crucial to the preparation of the
case.” Id. This difficult burden imposed by Shelton was intended to guard against
the “harassing practice of deposing opposing counsel ... that does nothing for the
administration of justice but rather prolongs and increases the costs of litigation,
demeans the profession, and constitutes an abuse of the discovery process.” Id. at
1330.
In Shelton, the plaintiffs brought suit against an automobile manufacturer
seeking to recover on theories of strict liability, negligence, and failure to warn when
their child was killed in a rollover accident. Id. at 1324. The plaintiffs’ attorney
deposed the defendant’s attorney to determine whether the defendant possessed
documents concerning testing done on the vehicle in question. Id. at 1327. Defense
counsel refused to answer many of the questions posed to her concerning the open
and on-going litigation, citing both the attorney-client privilege and the work product
doctrine. Id. at1325. The defense did offer to produce other, non-lawyer witnesses
to answer the plaintiff’s questions. Id. at 1327. Plaintiffs’ counsel admitted that he
asked these questions to determine whether the defendant had in fact truthfully
complied with his document requests and interrogatories. Id. at 1327. Plaintiffs’
counsel was not seeking to discover information uniquely possessed by opposing
counsel and central to the litigation, but rather was attempting to confirm the
information he had already received.
We held in Shelton that requiring the attorney to answer the questions posed
to her regarding the existence of certain documents would require her to reveal her
mental selective process. See id. at 1329. From this information, her opponent could
infer that since she remembered the existence of a particular document, the document
may be sufficiently important that she may be relying on it in preparing her client’s
case. See id. In document intensive cases, “the selection and compilation of
documents is often more crucial than legal research.” Id.(citation omitted).
Therefore, because the answers to the questions could have in essence revealed the
-5-
attorney’s litigation strategy, we held that the information sought was protected by
the work product privilege. See id.
The instant case involves two separate actions, one of which is completely
concluded, i.e., the patent infringement case, and the second of which is currently
pending and gave rise to this appeal, i.e., the indemnification case. The District Court
properly applied Shelton to the pending indemnification case and denied Dynasty
access to records involving the LHDL attorneys’ representation of Pamida in the on-
going indemnification case. Shelton, however, does not apply to the concluded patent
infringement action.
The Shelton test was intend to protect against the ills of deposing opposing
counsel in a pending case which could potentially lead to the disclosure of the
attorney’s litigation strategy. See id. at 1329. Because this abuse of the discovery
process had become an ever increasing practice, this Court erected the Shelton test
as a barrier to protect trial attorneys from these depositions. See id, at 1327. But
Shelton was not intended to provide heightened protection to attorneys who
represented a client in a completed case and then also happened to represent that same
client in a pending case where the information known only by the attorneys regarding
the prior concluded case was crucial. In such circumstances, the protection Shelton
provides to opposing counsel only applies because opposing counsel is counsel in the
instant case and not because opposing counsel had represented the client in the
concluded case. Therefore, the Shelton test applies only to the instant case, not to the
concluded case. Dynasty need not satisfy Shelton to depose the LHDL attorneys
regarding information involving the concluded patent infringement case.
Dynasty is primarily seeking information regarding the concluded patent
infringement case, not the pending indemnification action. Furthermore, Dynasty is
seeking to depose opposing counsel to discover information peculiarly within
counsel’s knowledge and centrally relevant to the issues in the indemnification
-6-
action, i.e., whether the $750,000 in attorneys’ fees incurred in defending the patent
infringement action was reasonable and what action was taken to notify Dynasty of
the patent infringement action and Pamida’s claim for indemnification. In such
circumstances, deposing opposing counsel may not only be the most expedient
approach, but the only realistically available approach. The concerns raised in
Shelton regarding abuse of the discovery process and adding time and expense to
litigation are not implicated in this case where Dynasty seeks relevant information
uniquely known by Pamida’s attorneys about prior terminated litigation, the substance
of which is central to the pending case. Expediency, however, is not our only
concern. Although Shelton does not control in this case, Dynasty still must
demonstrate that there has a been a waiver of the attorney-client privilege and that the
work product privilege has either been waived or that the standard of the Federal Rule
of Civil Procedure 26(b)(3) has been satisfied.
Rule 501 of the Federal Rules of Evidence provides that state law supplies the
rule of decision on privilege in diversity cases. Both parties agree that Nebraska law
controls the issue of waiver of attorney-client privilege in this case.4 Under Nebraska
law, an implied waiver of the attorney-client privilege occurs when “(1) assertion of
the privilege was a result of some affirmative act, such as filing suit, by the asserting
party; (2) through this affirmative act, the asserting party put the protected
information at issue by making it relevant to the case; and (3) application of the
privilege would have denied the opposing party access to information vital to his
4
The magistrate judge applied the common law doctrine of implied waiver
from Ideal Electronic Security Co., Inc v. International Fidelity Insurance Co., 129
F.3d 143, 151 (D.C. Cir. 1997) to find waiver of the attorney-client privilege.
Although the magistrate judge applied the incorrect standard, the decision reached
was the correct decision had the proper standard been applied. Therefore, the
magistrate judge’s decision will be upheld. See Zirinsky v. Sheehan, 413 F.2d 481,
484 n.5 (8th Cir. 1969)(“if the decision below is correct, it must be affirmed, although
the lower court relied upon a wrong ground or gave a wrong reason.”)(quoting
Helvering v. Gowran, 302 U.S. 238 (1937)).
-7-
defense.” League v. Vanice, 374 N.W.2d 849, 856 (N.E. 1985)(citations omitted).
Here, Pamida instituted this action by filing a lawsuit for indemnification seeking
recovery for legal expenses thereby putting the work of its attorneys directly at issue
in the case. Application of the privilege under these circumstances would deny
Dynasty access to vital information peculiarly possessed by the attorneys necessary
to defend against Pamida’s claims. In such circumstances, Pamida has waived the
protection of the attorney-client privilege.
The work product privilege extends beyond the termination of litigation. See
In re Murphy, 560 F.2d 326, 334 (8th Cir. 1977). Thus, unless the privilege has been
waived or the requirements of Federal Rule of Civil Procedure 26(b)(3) satisfied, the
work product privilege would protect much of the information Dynasty seeks to gain
from Pamida’s counsel. Because we find that Pamida has waived the work product
privilege in this case, we need not address whether the Rule 26(b)(3) standard of
substantial need an undue hardship has been shown by Dynasty.
The work product privilege is not absolute and may be waived. See United
States v. Nobles, 422 U.S. 225, 239 (1975); see also In re Chrysler Motors Corp.
Overnight Evaluation, 860 F.2d 844 (8th Cir. 1988). This court has recognized that
the privilege should be “applied in a commonsense manner in light of reason and
experience as determined on a case-by-case basis.” Pittman v. Frazer, 129 F.3d 983,
988 (8th Cir. 1997). The privilege is designed to balance the needs of the adversary
system to promote an attorney’s preparation in representing a client against society’s
interest in revealing all true and material facts relevant to the resolution of a dispute.
See Hickman v. Taylor, 329 U.S. 495, 510-11 (1947). In the instant case, that balance
weighs on the side of disclosure, and this Court holds that Pamida impliedly waived
the work product privilege by bringing the indemnification action in which the
information allegedly protected is crucial and unavailable by other means.
-8-
With respect to the issue of implied waiver, the Court must not only look at
whether Pamida intended to waive the privilege, but also whether the interests
fairness and consistency mandate a finding of waiver. See Wigmore, Evidence in
Trial at Common Law, § 2327 at 636. (J. McNaughton rev. 1961). “When a party
seeks a greater advantage from its control over work product than the law must
provide to maintain a healthy adversary system, the privilege should give way.” In
re Sealed Case, 676 F.2d 793, 818 (D.C. Cir. 1982).
Here, the privilege must give way. The information sought from Pamida’s
counsel involves the crucial issues in the indemnification action, i.e., the nature of the
work the attorneys performed in the patent infringement action, what actions were
taken by Pamida to notify Dynasty of the patent infringement action and of Pamida’s
claim for indemnification, and whether the $750,000 incurred in attorneys’ fees was
reasonable. Fairness requires that the work product privilege must give way to
Dynasty’s right to investigate the facts underlying Pamida’s claim and to mount a
defense against that claim. Absent implied waiver, Dynasty would be denied access
to critical information, known only to the LHDL attorneys. When Pamida instituted
this indemnification action seeking to recover in excess of $1.2 million, of which
$750,000 constitutes attorneys’ fees, it clearly placed the work of its attorneys
squarely at issue and thereby waived the work product privilege.
The final issue before this Court involves the scope of the lower court’s ruling.
Pamida and the LHDL attorneys argue that the district court abused its discretion in
ruling on the LHDL attorneys’ obligation to produce certain documents subpoenaed
by Dynasty. They argue that this issue was not properly before the district court
because they had served written objections to the document requests. But it was
Pamida and the LHDL attorneys that moved to quash the subpoenas in their entirety.
Furthermore, Rule 45(c)(2)(B) of the Federal Rules of Civil Procedure provides that
“[i]f objection is made, the party serving the subpoena shall not be entitled to inspect
and copy the materials ... except pursuant to an order of the court by which the
-9-
subpoena was issued.” Here, the subpoenas were issued by the Minnesota District
Court so it was proper for that court to rule on the motion to quash with respect to
those subpoenas and the document requests attached thereto.
III
Based on the foregoing, we hereby affirm the district court’s ruling.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
-10-