Pittsburgh History and Landmarks Foundation, a Pennsylvania Non-Profit Corporation v. A.P. Ziegler, Jr. M.S. Bibro and J.R. Norris

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Pittsburgh History and Landmarks :
Foundation, a Pennsylvania Non-Profit :
Corporation; Landmarks Financial :
Corporation, a Pennsylvania Non-Profit :
Corporation; Henry P. Hoffstot, Jr.; :
David E. Barensfeld; Peter H. Stephaich; :
Patrick R. Wallace; Alexander Speyer; :
and Henry P. Hoffstot, III :
: No. 113 C.D. 2016
Arthur P. Ziegler, Jr.; Mark S. Bibro; : Argued: November 16, 2016
and Jack R. Norris :
:
Pittsburgh History and Landmarks :
Foundation, a Pennsylvania Non-Profit :
Corporation; Landmarks Financial :
Corporation, a Pennsylvania Non-Profit :
Corporation :
:
Appeal of: Arthur P. Ziegler Jr., Mark S. :
Bibro, Jack R. Norris, Pittsburgh History :
and Landmarks and Foundation :
Landmarks Financial Corporation :
BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge
HONORABLE RENÉE COHN JUBELIRER, Judge
HONORABLE ROBERT SIMPSON, Judge
HONORABLE P. KEVIN BROBSON, Judge
HONORABLE PATRICIA A. McCULLOUGH, Judge
HONORABLE MICHAEL H. WOJCIK, Judge
HONORABLE JOSEPH M. COSGROVE, Judge
OPINION
BY JUDGE SIMPSON FILED: April 21, 2017
I. Introduction
This appeal of a discovery order is treated as an appealable collateral
order to the extent it may require disclosure of legal opinions and advice otherwise
privileged under the attorney-client privilege and the attorney work product
doctrine. Commonwealth v. Blystone, 119 A.3d 306 (Pa. 2015); Red Vision Sys.,
Inc. v. Nat’l Real Estate Info. Servs., L.P., 108 A.3d 54 (Pa. Super. 2015) (court
treated order compelling discovery as to issues relating to attorney-client privilege
as collateral, but refused to treat order as to other issues as collateral).
The underlying suit is a derivative action involving two related
nonprofit corporations.1 The suit pits a group of potentially former members of the
Boards of Trustees (whose removal is contested) against a group of current officers
and members of the Boards of Trustees, amid allegations of corporate
mismanagement and breach of fiduciary duty. The nonprofit corporations are
named as plaintiffs and defendants. In order to evaluate whether proceeding
further was in the best interests of the nonprofit corporations, they formed what
they called a joint Independent Investigating Committee (Investigating
Committee). After an investigation, the Investigating Committee recommended
that the derivative action not continue. Accordingly, the defendants filed a motion
to dismiss, which is currently pending before the Court of Common Pleas of
Allegheny County (trial court). 2
Following the guidelines set forth in Sections 7.02 to 7.10, and 7.13 of
the American Law Institute Principles of Corporate Governance: Analysis and
Recommendations (1994) (ALI Principles), specifically adopted by our Supreme
1
Our appellate jurisdiction is premised on the involvement of the nonprofit corporations.
42 Pa. C.S. §762(a)(5)(ii). The nonprofit corporations are Pittsburgh History and Landmarks
Foundation and Landmarks Financial Corporation.
2
A Motion for Leave to File the Report of the Investigating Committee Under Seal was
filed at the same time. Reproduced Record (R.R.) at 411a-16a.
2
Court in Cuker v. Mikalauskas, 692 A.2d 1042 (Pa. 1997),3 to be applied in
derivative actions, the trial court entered the discovery order in question.
For the reasons discussed more fully below, we vacate the discovery
order and remand the matter to the trial court for further proceedings.
II. Background
A. Derivative Action
Because we will not address the merits of the underlying lawsuit, we
mention the details of the action in summary fashion. Plaintiffs/Appellees4 were
members of the Boards of Trustees of the Pittsburgh History and Landmarks
Foundation, and the related Landmarks Financial Corporation, their current status
being contested. Defendants/Appellants5 are the long-time President and
Chairpersons of the Boards of Trustees of the same nonprofit corporations.
Questions arose regarding appropriate management and efforts to reconstitute the
Boards of the nonprofit corporations between 2009 and early 2013. In October
2013, Plaintiffs/Appellees formally demanded that the nonprofit corporations
secure enforcement of their claims on behalf of the nonprofit corporations.
3
See also Lemenestrel v. Warden, 964 A.2d 902 (Pa. Super. 2008).
4
The individual Plaintiffs/Appellees were David E. Hoffstot, Jr., Peter H. Stephaich,
Patrick R. Wallace, Alexander Speyer, and Henry P. Hoffstot, III. They brought suit in the name
of Pittsburgh History and Landmarks Foundation and Landmarks Financial Corporation.
5
In addition to the nonprofit corporations named as Nominal Defendants, individual
Defendants/Appellants are Arthur P. Ziegler, Jr., Mark S. Bibro, and Jack R. Norris.
3
In response, each Board of Trustees adopted a resolution to appoint a
joint Investigating Committee, comprised of sitting members of the Boards of
Trustees, advised by independent counsel, with the charge of investigating the
allegations made in Plaintiffs’/Appellees’ demand.
During this process, in December 2013, Plaintiffs/Appellees brought
suit in the name of the nonprofit corporations. Discovery ensued.
Meanwhile, the Investigating Committee completed its investigation
and recommended against the prosecution of the derivative action. The Boards of
each nonprofit corporation considered the Report of the Investigating Committee
and adopted its recommendations. Accordingly, Defendants/Appellants filed the
motion to dismiss based on the Report of the Investigating Committee.
Reproduced Record (R.R.) at 376a-410a. The motion to dismiss is pending before
the trial court.
B. Discovery Order
During the discovery phase of the lawsuit, disputes arose. In
particular, Plaintiffs/Appellees sought disclosure of all information provided to the
Investigating Committee as part of its investigation, including material which may
be privileged. Defendants/Appellants resisted such disclosure. Plaintiffs/Appellees
filed a motion to compel, which, together with the pending motion to dismiss,
prompted the trial court order under review.
In response to the motion to compel, the trial court entered the
discovery order, which provided in pertinent part as follows:
4
a. Defendants[/Appellants] will provide
Plaintiffs[/Appellees] with all materials provided
to or generated by the [Investigating Committee],
including all related legal opinions and
communications. Privilege in such opinions and
communications is retained by Nominal
Defendants as to all persons and entities not a
party to this action.
b. Decision on further release of purportedly
privileged material is reserved, as such production
is disproportionate to the nature and scope of this
litigation at this time. See Pa. R.C.P. [No.] 4009.1
(Explanatory Comment) (2012). After production
and analysis of materials provided to the
[Investigating Committee], further action on these
materials may be requested by motion, upon
showing that such production would be
proportional to the issues at stake at that time.
c. Plaintiffs[/Appellees] may discuss with Anne
Nelson the legal advice that she provided to the
[Investigating Committee] and communications
with the [Investigating Committee], as well as any
non-privileged subjects.
Tr. Ct. Order, 9/21/15; R.R. at 683a-84a (emphasis added).
Defendants/Appellants appealed the discovery order to the extent it
may require disclosure of legal opinions and advice otherwise protected by the
attorney-client privilege or work product doctrine.
C. Trial Court Opinion
In response to Defendants’/Appellants’ concise statement of the errors
complained of on appeal, the trial court filed an opinion. Initially, the trial court
clarified “that the attorney-client and work product privileges do not apply to pre-
5
existing materials provided to the [Investigating Committee] for the purpose of
producing the [Investigating Committee Report] or, obviously, to the report itself.”
Tr. Ct., Slip Op., 2/8/16, at 9; R.R. at 730a. The trial court indicated that the
privileges are applicable to communications between the Investigating Committee
and its own counsel. Id.Next, and most relevant to our analysis, the trial court addressed the
application of the ALI Principles and the Supreme Court’s Cuker decision. In
relevant part, the trial court stated the following:
ALI Principle of Corporate Governance § 7.13(e),
which the Supreme Court of Pennsylvania adopted in
[Cuker, 692 A.2d at 1049], states in relevant part,
‘Plaintiff’s counsel should be furnished a copy of related
opinions received by the board or committee if any
opinion is tendered to the court under § 7.13(a).’
Comment e to § 7.13 explains the logic behind this
rule:
‘The established law of the attorney-client
privilege has long provided that invocation
of the reliance-on-counsel defense waives
the privilege… Thus, it would be unfair if
the board or committee could rely on legal
advice from its counsel that the actions was
[sic] not meritorious as a ground for
dismissing the action and then deny plaintiff
access to the substance of that advice.’
****
The applicable case law also illustrates the long-
held principle that derivative litigation should not be
dismissed based on privileged documents. In Cuker, the
Supreme Court held that the factors that courts should
6
take into account when determining the sufficiency of a
special litigation committee’s investigation in a
derivative suit include: ‘whether the board or its special
litigation committee was disinterested, whether it was
assisted by counsel, whether it prepared a written report,
whether it was independent, whether it conducted an
investigation, and whether it rationally believed its
decision was in the best interests of the corporation.’
Cuker, 692 A.2d at 1048. See also Joy v. North, 692
F.2d 880, 893 (2d Cir. 1982) (‘We simply do not
understand the argument that derivative actions may be
routinely dismissed on the basis of secret documents’).
It follows from these cases that in order to
determine the independence and investigative adequacy
of a special litigation committee such as the
[Investigating Committee], [Plaintiffs’/Appellees’]
counsel must be allowed to access documents to which
the committee itself had access.
Here, denying Plaintiffs’[/Appellees’] counsel
access to pre-existing materials provided to the
[Investigating Committee] for the purpose of producing
the [Investigating Committee] report or to the report
itself would create the exact problem that the Cuker and
Joy courts sought to avoid: potentially dismissing a
derivative action on the basis of secret documents.
Defendants[/Appellants] argue that § 7.13(e) only
requires that Plaintiffs[/Appellees] receive the
[Investigating Committee] materials submitted to the
Court as well as related formal legal opinions given to
the [Investigating Committee]. Defendants’ Brief in
Opposition to Plaintiffs’ Motion to Compel at 14.
Defendants[/Appellants] also assert that ‘the
[Investigating Committee] process does not create an
across-the-board waiver of the attorney-client or work
product doctrines.’ Id. at 16.
Defendants[/Appellants] are correct that § 7.13(e)
does not create an across-the-board waiver of privilege.
See Comment (e) (‘This understandable concern [that
derivative actions may be dismissed on the basis of secret
7
documents] does not, however, justify a complete waiver
of the privilege.’).
But we find that Plaintiffs[/Appellees] have the
stronger argument because there is no attorney-client or
work product privilege recognized in § 7.13(e) regarding
documents that existed before the creation of the
[Investigating Committee] and were not generated by
counsel to the [Investigating Committee]. Furthermore,
attorney-client privilege, as discussed in § 7.13(e) relates
to communications with the [Investigating Committee’s]
counsel, not with Defendants’[/Appellants’] counsel. See
Comment (e) (‘Section 7.13(e) provides that the special
counsel’s communications with the board or committee
with respect to a pending litigation shall be privileged
and not subject to plaintiff’s inspection, except as
provided in § 7.13(a), which only requires disclosure to
the plaintiff of the report or other written submission to
the court and any supporting documentation.’).
Thus, Plaintiffs[/Appellees] are correct that pre-
existing documents submitted to the [Investigating
Committee] must be produced once the [Investigating
Committee] report was submitted to the court.
Additionally, Defendants[/Appellants] would be
unable to challenge the adequacy of the [Investigating
Committee’s] investigation if they were denied access to
the materials reviewed during the investigation.
Tr. Ct., Slip Op., at 9-12; R.R. at 730a-33a (emphasis added).
The trial court also discussed the fiduciary duty exception and the
common interest exception to the attorney-client privilege and work product
protection. The trial court concluded that these exceptions rendered the privileges
inapplicable under these circumstances of this case.
8
Finally, the trial court authorized Plaintiffs/Appellees to speak with
Anne Nelson, the former General Counsel of one of the nonprofit corporations,
about her potential testimony, over the objections of Defendants/Appellants. The
trial court reasoned that before she stopped working in 2012, the individual
Plaintiffs/Appellees were sitting members of the Boards of Trustees; therefore, at
the time they shared a common interest with Ms. Nelson. In those circumstances
the common interest exception negated the privileges, and Ms. Nelson could
discuss her legal advice to and communications with the Investigating Committee.
III. Issues
Defendants/Appellants state several issues for our consideration,
which we reorganize for discussion purposes. First, they question whether the
attorney-client or work product privileges may be asserted as to communications
during the time period when the individual Plaintiffs/Appellees were still members
of the Boards of the nonprofit corporations. Second, they question whether the
privileges may be asserted as to communications between Defendants/Appellants
and counsel for the Investigating Committee. Third, they question whether the
common interest exception and the fiduciary duty exception apply to this case.
Fourth, they question whether the privileges may be asserted in derivative
litigation brought by former Board members. Fifth, they question whether
Plaintiffs/Appellees have a right to interview Anne Nelson regarding her
communications with the Investigating Committee.
9
IV. General Arguments
A. Defendants/Appellants
In addition to brief argument about the scope of an appeal from a
collateral order, Defendants/Appellants emphasize the importance of the attorney-
client privilege and work product protection to assure that attorneys and their
clients can freely communicate. They assert the trial court’s order has the effect of
stripping the privilege from such communications based solely upon the status of
the Plaintiffs/Appellees as derivative plaintiffs.
Defendants/Appellants assert the trial court’s discovery order failed to
comply with long-established legal principles governing application of the
attorney-client privilege. In particular, the privilege is a broad one. Also, it is held
by the client, in this case the nonprofit corporations, not by its board members or
other constituents. The status of Plaintiffs/Appellees as former board members
does not give them standing to assert the common client and fiduciary exceptions
to the privilege.
Further, Defendants/Appellants assail the trial court’s application of
the common interest/common client exceptions to the attorney-client privilege.
They highlight that the elements of those exceptions are not met. In some respects,
they assert, the trial court’s application would effectively eliminate the attorney-
client privilege in derivative actions and would dramatically change the role of
counsel to any corporation in Pennsylvania.
Defendants/Appellants also challenge the trial court’s application of
the fiduciary exception to the attorney-client privilege. They underscore that the
10
exception should be a narrow one, the trial court applied the exception in a novel
way, no trust is involved, and the Plaintiffs/Appellees are not beneficiaries of a
trust.
Finally, Defendants/Appellants complain that the effect of the trial
court’s discovery order is to strip the privilege from any materials provided to or
generated by the Investigating Committee. They argue that the ALI Principles
cited by the trial court were misinterpreted by it. They claim that the ALI
Principles are nothing more than an express recognition of the “reliance on
counsel” exception to the attorney-client privilege, and the Principles merely
clarify the common sense rule that the plaintiffs in a derivative lawsuit are entitled
to receive copies of materials submitted to the court and copies “of legal opinions
related to any opinion if such an opinion is provided to the court.” Appellants’ Br.
at 52 (emphasis in original). Additionally, they assert that the ALI Principles and
the Cuker decision adopting them did not intend to change Pennsylvania law with
regard to attorney-client privilege. Defendants/Appellants emphasize the context
of the ALI Principles and the Cuker decision is to afford a limited process by
which the business judgment rule is applied to circumscribe a court’s review.
B. Plaintiffs/Appellees
After some argument related to the merits of the underlying action,
Plaintiffs/Appellees contend that because the members of the Investigating
Committee had an interest in perpetuating their continued service on the Boards of
the nonprofit corporations, their recommendations should be challenged by a
review of all the materials “that were supposedly considered by that [C]ommittee.”
Appellees’ Br. at 15.
11
Further, Plaintiffs/Appellees contend the fiduciary exception and joint
interest/common interest exceptions to the privileges apply here.
In addition, they claim “good cause” warrants production of the
ordered information, and the withholding of the information would frustrate the
interests of justice, which is contrary to Pennsylvania law. Citing the ALI
Principles, Plaintiffs/Appellees assert the privileges are waived as to “certain
portions of the communications with the counsel of the [Investigating Committee]
when a legal opinion or advice is relied upon and submitted to the court” as is the
case here. Id. Further, the ALI Principles recognize that it would be unfair to urge
the dismissal of an action on the basis of a special investigation committee report
without providing materials considered by the committee to the plaintiff.
C. Defendants’/Appellants’ Reply
In their Reply Brief, Defendants/Appellants expend considerable
effort to explain the facts underlying the litigation. They also explain the large
amount of material potentially subject to discovery.
In addition, Defendants/Appellants point out fundamental flaws they
perceive in Plaintiffs’/Appellees’ arguments: there is no legal distinction between
the rights of a board member of a for-profit corporation and the rights of a board
member of a nonprofit corporation; derivative lawsuit plaintiffs are not
transformed into the corporation or its authorized representative simply because
they assert a derivative claim; Plaintiffs/Appellees were not the clients of corporate
counsel and therefore cannot demand to see communications between corporate
counsel and the authorized representatives of the nonprofit corporations; and, the
12
role of Plaintiffs/Appellees as former board members is not the basis for the
fiduciary exception to the attorney-client privilege and work product protection.
Finally, Defendants/Appellants assert that the ALI Principles do not
require either nonprofit corporation to surrender the protections in derivative
litigation. Quoting portions of Section 7.13(e) and the comment to subsection e,
they repeat that the ALI Principles do not change the law applicable to the
attorney-client privilege, and they were not intended to work a blanket waiver of
protected communications. They contend that a blanket waiver of protection is
inconsistent with the entire process set forth in the ALI Principles, which provide
for limited discovery to determine whether the business judgment rule should be
applied. The only discovery of legal opinions which is contemplated by Section
7.13(e) is “the disclosure of any formal opinion … given by counsel to the …
committee with regard to the action if any legal opinion is tendered to the court.”
AM. LAW INST. PRINCIPLES OF CORPORATE GOVERNANCE: ANALYSIS AND
RECOMMENDATIONS §7.13 cmt. e (1994). Defendants/Appellants complain that the
trial court’s order for disclosure of everything submitted to the Investigating
Committee is too broad.
V. Discussion
A. Cuker and ALI Principles, Generally
Although generally discovery orders are reviewed under an abuse of
discretion standard, application of the attorney-client privilege and work product
doctrine raises questions of law, for which our standard of review is de novo and
our scope of review is plenary. In re Thirty-Third Statewide Investigating Grand
13
Jury, 86 A.3d 204 (Pa. 2014); Levy v. Senate of Pennsylvania, 65 A.3d 361 (Pa.
2013) (Levy II).
The starting point for our review is our Supreme Court’s decision in
Cuker, a derivative action. Sensing confusion over application of the business
judgment rule in Pennsylvania, and a lack of clear authority about how the rule
should be applied in derivative litigation, the Court added clarity. First, the Court
explained that the business judgment rule applied in derivative litigation, and
“should insulate officers and directors from judicial intervention in the absence of
fraud or self-dealing, if challenged decisions were within the scope of the
directors’ authority, if they exercised reasonable diligence, and if they honestly and
rationally believed their decisions were in the best interests of the company.”
Cuker, 692 A.2d at 1048 (emphasis added).
The Court authorized a trial court to act as a sort of gate-keeper,
making a preliminary examination of the circumstances “to determine if the
conditions warrant application of the business judgment rule.” Id. If
circumstances support application of the rule, the trial court would not proceed to
an examination of the merits of the challenged decisions. Id. “In order to make
the business judgment rule meaningful, the preliminary examination should be
limited and precise so as to minimize judicial involvement when application of the
business judgment rule is warranted.” Id. Our Supreme Court further explained
the limited, precise preliminary examination it anticipated:
To achieve these goals, a court might stay the
derivative action while it determines the propriety of the
board’s decision. The court might order limited
14
discovery or an evidentiary hearing to resolve issues
respecting the board’s decision. Factors bearing on the
board’s decision will include whether the board or its
special litigation committee was disinterested, whether it
was assisted by counsel, whether it prepared a written
report, whether it was independent, whether it conducted
an adequate investigation, and whether it rationally
believed its decision was in the best interests of the
corporation (i.e., acted in good faith). If all of these
criteria are satisfied, the business judgment rule applies
and the court should dismiss the action.
Id. (emphasis added).
This is the procedural posture of the current derivative litigation.
Pending before the trial court is Defendants’/Appellants’ motion to dismiss based
on the recommendation of the Investigating Committee. The trial court is
preparing to perform its preliminary examination of the judgment of the
Investigating Committee. As part of the preparation for the preliminary
examination, the trial court entered the discovery order in question.
In Cuker, the Supreme Court went further to “provide a
comprehensive mechanism to address shareholder derivative actions.” Id. at 1048-
49. Particularly relevant here, the Supreme Court specifically adopted several
sections of the ALI Principles, including Section 7.13, titled “Judicial Procedures
on Motion to Dismiss a Derivative Action Under §7.08 or §7.11.” That Section
provides in pertinent part as follows:
(a) Filing of Report or Other Written Submission. Upon
a motion to dismiss an action under § 7.08 (Dismissal of
a Derivative Action Against Directors, Senior
Executives, Controlling Persons, or Associates Based on
a Motion Requesting Dismissal by the Board or a
15
Committee) or § 7.11 (Dismissal of a Derivative Action
Based Upon Action by the Shareholders), the corporation
shall file with the court a report or other written
submission setting forth the procedures and
determinations of the board or committee, or the
resolution of the shareholders. A copy of the report or
other written submission, including any supporting
documentation filed by the corporation, shall be given to
the plaintiff’s counsel.
(b) Protective Order. The court may issue a protective
order concerning such materials, where appropriate.
(c) Discovery. Subject to § 7.06 (Authority of Court to
Stay a Derivative Action), if the plaintiff has
demonstrated that a substantial issue exists whether the
applicable standards of § 7.08, § 7.09, § 7.10, § 7.11, or §
7.12 have been satisfied and if the plaintiff is unable
without undue hardships to obtain the information by
other means, the court may order such limited discovery
or limited evidentiary hearing, as to issues specified by
the court, as the court finds to be (i) necessary to enable it
to render a decision on the motion under the applicable
standards of § 7.08, § 7.09, § 7.10, § 7.11, or § 7.12, and
(ii) consistent with an expedited resolution of the motion.
In the absence of special circumstances, the court should
limit on a similar basis any discovery that is sought by
the plaintiff in response to a motion for summary
judgment by the corporation or any defendant to those
facts likely to be in dispute. The results of any such
discovery may be made subject to a protective order on
the same basis as under § 7.13(b).
****
(e) Privilege. The plaintiff’s counsel should be
furnished a copy of related legal opinions received by the
board or committee if any opinion is tendered to the court
under § 7.13(a). Subject to that requirement,
communications, both oral and written, between the
board or committee and its counsel with respect to the
subject matter of the action do not forfeit their privileged
16
character, and documents, memoranda, or other material
qualifying as attorney’s work product do not become
subject to discovery, on the grounds that the action is
derivative or that the privilege was waived by the
production to the plaintiff or the filing with the court of a
report, other written submission, or supporting
documents pursuant to § 7.13.
AM. LAW INST. PRINCIPLES OF CORPORATE GOVERNANCE: ANALYSIS AND
RECOMMENDATIONS §7.13 (a)-(c), (e) (1994) (emphasis added).
In adopting the ALI Principles, the Court weighed many
considerations. Among other things, the Court noted the need for specific
guidance on how derivation actions should be managed. Cuker, 692 A.2d at 1049.
The Court declared that it often found ALI guidance helpful in the past, and the
scholarship reflected in the work of the American Law Institute has been
consistently reliable and useful, “most frequently when adopting or citing sections
of various Restatements.” Id. Also, having undertaken a broad examination of the
law in Pennsylvania and numerous other jurisdictions, the Court declared that “the
principles set forth by the ALI are generally consistent with Pennsylvania
precedent.” Id. (emphasis added). We will revisit these observations below.
B. ALI Principles: Attorney-Client Privilege and Work Product
Much like Restatements of the Law, the ALI Principles are reinforced
with additional scholarship in the form of Comments and Reporter’s Notes.
Comment e to Section 7.13 is titled “Disclosure and the attorney-client privilege.”
Initially, comment e describes a potential exception to the attorney-client privilege
when an action is derivative, founded primarily upon the leading decision in
Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970), cert. denied, 401 U.S. 97417
(1971). This potential exception is based on the ground that the plaintiff in a
derivative action is seeking to represent the client corporation, and the privilege
may not be asserted by the attorney against the client. AM. LAW INST. PRINCIPLES
OF CORPORATE GOVERNANCE: ANALYSIS AND RECOMMENDATIONS §7.13 cmt. e
(1994). As to this potential exception to the attorney-client privilege, Comment e
provides in pertinent part:
The cases have recognized a potential exception to the
attorney-client privilege when an action is derivative, on
the ground that the plaintiff is seeking to represent the
client and the privilege may not be asserted by the
attorney against the client. See [Garner]; Valente v.
Pepsico, Inc., 68 F.R.D. 361 (D.Del. 1975). This
doctrine does not deem the privilege to be unavailable; it
simply permits the plaintiff to show ‘good cause’ why the
privilege should not be applied against him or her.
Garner specified nine criteria that the court should
balance in making this good cause determination, and
virtually all subsequent cases have adopted these factors.
Two of these factors are: ‘whether the communication is
of advice concerning the litigation itself’ and ‘whether
the communication related to past or prospective
actions.’ 430 F.2d at 1104. Those decisions that have
found ‘good cause’ to pierce the veil of the attorney-
client privilege have involved communications that were
roughly contemporaneous with the events giving rise to
the litigation. Courts appear uniformly to have refused to
subject post-event attorney-client communications to
disclosure, particularly those communications advising
with respect to a pending litigation. See Reporter’s Note
3. In this light, there is no conflict between the position
taken in § 7.13(e) and the Garner line of cases. Section
7.13(e) provides that the special counsel’s
communications with the board or committee with
respect to a pending litigation shall be privileged and not
subject to plaintiff’s inspection except as provided in
§7.13(a), which only requires disclosure to the plaintiff
of the report or other written submission to the court and
any supporting documentation.
18
Id. (emphasis added).
In Garner, the Fifth Circuit determined that the attorney-client
privilege must be placed in perspective. 430 F.2d at 1100. Citing Professor
Wigmore’s treatise on Evidence, the Court stated the fundamental principle that
the public has the right to every man’s evidence, and exceptions from the general
duty to give testimony that one is capable of giving are distinctly exceptional. Id.
An exception is justified if--and only if--policy requires it be recognized when
measured against the fundamental responsibility of every person to give testimony.
Id.
The Garner Court went on to explain conceptual problems inherent in
shareholder derivative actions. In commenting on two English cases that treated
the relationship between the shareholder and company as analogous to that
between beneficiaries and trustees, the Court stated, “these English cases are
persuasive recognition that there are obligations, however characterized, that run
from corporation to shareholder and must be given recognition in determining the
applicability of the privilege.” Id. at 1102. The Court also found instructive the
common interest exception to the privilege. Id.
The Garner Court concluded that a corporation is not barred from
asserting the privilege, “[b]ut where the corporation is in suit against its
stockholders on charges of acting inimically to stockholder interests, protection of
those interests as well as those of the corporation and of the public require that the
availability of the privilege be subject to the right of the stockholders to show
19
cause why it should not be invoked in the particular instance.” Id. at 1103-04.
Finally, the Court set forth indicia of good cause that could be considered. Id. at
1104.
Returning to the ALI Principles, Comment e to Section 7.13
contemplates a potential exception to the attorney-client privilege. Consistent with
the Garner line of cases, a trial court may evaluate certain criteria to determine
whether “good cause” exists to not apply the attorney-client privilege to a plaintiff
in a derivative action. Even if “good cause” exists, however, disclosure is usually
limited to communications that were roughly contemporaneous with the events
giving rise to the litigation. Id. Post-event attorney-client communications,
particularly those communications advising with respect to pending litigation, are
not disclosed under this potential exception. Id.
In Comment e to Section 7.13, the potential Garner exception to the
privilege is treated separately from the consequences of the submission of a special
litigation committee report in support of a motion to dismiss. Comment e also
contains a lengthy discussion of limited waiver of the attorney-client privilege
based on the submission of a special litigation committee’s report to the court, as
discussed in Section 7.13(e) of the ALI Principles quoted above.
The trial court here did not specifically discuss the potential exception
to the privilege based on Garner; rather, only the limited waiver exception of
Section 7.13(e) was expressly discussed by the trial court.
20
Relatedly, Reporter’s Note 3 to Section 7.13 is devoted to the status of
the attorney-client privilege and work product in derivative litigation. This Note
initially acknowledges that the status of the attorney-client privilege and work
product protection in derivative litigation continues to be disputed. Nevertheless,
the Note extensively discusses the Garner line of cases. The Note also restates a
non-exclusive list of the considerations for a trial court before applying the Garner
potential exception to the privilege in a derivative action. Further, the Note states:
“Garner’s good faith exception to the privilege in a derivative action ‘has become
accepted doctrine.’” Id. (citations omitted).
C. Restatement (Third) of the Law Governing Lawyers
In the past, this Court and our Supreme Court consulted the
Restatement (Third) of the Law Governing Lawyers (2000) when dealing with the
contours of the attorney-client privilege. See Gillard v. AIG Ins. Co., 15 A.3d 44(Pa. 2011); Levy v. Senate, 34 A.3d 243 (Pa. Cmwlth. 2011) (Levy I), aff’d in part,
rev’d in part by Levy II (affirming application of attorney-client privilege,
reversing per se waiver of alternate reasons for redaction).
Section 85 of the Restatement (Third), titled “Communications
Involving a Fiduciary Within an Organization,” essentially adopts the Garner
potential exception to the attorney-client privilege in suits where there is a
fiduciary relationship. Section 85 provides:
In a proceeding involving a dispute between an
organizational client and shareholders, members, or other
constituents of the organization toward whom the
directors, officers, or similar persons managing the
organization bear fiduciary responsibilities, the attorney-
21
client privilege of the organization may be withheld from
a communication otherwise within § 68 if the tribunal
finds that:
(a) those managing the organization are charged
with breach of their obligations toward the
shareholders, members, or other constituents or
toward the organization itself;
(b) the communication occurred prior to the
assertion of the charges and relates directly to
those charges; and
(c) the need of the requesting party to discover or
introduce the communication is sufficiently
compelling and the threat to confidentiality
sufficiently confined to justify setting the privilege
aside.
RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS §85 (2000) (emphasis
added).
It is noteworthy that the withholding of the attorney-client privilege in
these circumstances is limited to communications which occurred prior to the
assertion of the charges and which related directly to those charges. See
RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS §85(b) (2000). This is
the same limitation described in ALI Principles, Section 7.13, comment e: “Those
decisions which have found ‘good cause’ to pierce the veil of the attorney-client
privilege have involved communications that were roughly contemporaneous with
the events giving rise to the litigation.”6 AM. LAW INST. PRINCIPLES OF CORPORATE
GOVERNANCE: ANALYSIS AND RECOMMENDATIONS §7.13 cmt. e (1994).
6
In this case, the Complaint identifies actions in the 2009 to early 2013 time period. See
R.R. at 1a-37a. Plaintiffs’/Appellees’ demand was made in October 2013.
22
Comment b to Section 85 of the Restatement, titled “Rationale,”
makes clear that Section 85 adopts the Garner line of cases: “Proceeding by
analogy from the trustee exception of §84, the leading decision of [Garner] held
that a court could, in appropriate circumstances, refuse to enforce a corporation’s
otherwise valid attorney-client privilege when shareholders attempt to discover a
communication between the corporation’s officers and its lawyers.” RESTATEMENT
(THIRD) OF THE LAW GOVERNING LAWYERS §85 cmt. b (2000). Two policy
considerations support this position. Directors and managers of an organization
acting in that capacity in principle should not keep corporate information secret
from their own principal constituents, the members of the organization. Id.
Second, in litigation against their constituents, the question of waiver of the
attorney-client privilege may not be decided objectively. Id.
The Reporter’s Note to Comment b (“Rationale”), states in part,
“Essential to the doctrine is the existence of a fiduciary relationship between the
party seeking to set aside the attorney-client privilege and the managers of the
organization that asserts the privilege.” RESTATEMENT (THIRD) OF THE LAW
GOVERNING LAWYERS §85 Reporter’s Note, cmt. b (2000) (citation omitted).
Here, Defendants/Appellants do not assert that a fiduciary relationship is lacking.
To the contrary, they apparently concede the existence of a fiduciary relationship.
Appellants’ Reply Br. at 25 (“[T]he conclusion that the fiduciary exception does
not apply does not mean that Appellees or the individual Defendants were not
fiduciaries.”).
23
D. Cuker and ALI Principles, Summary
1. Garner-Based Potential Exception to Privilege
Based on our review, we conclude that both Section 7.13 of the ALI
Principles and Section 85 of the Restatement (Third) of the Law Governing
Lawyers adopt the reasoning and procedure of the Garner line of cases. We view
these provisions for withholding the attorney-client privilege for a communication
that occurred prior to the assertion of charges and relating directly to those charges,
based on certain predicate findings, as functionally equivalent. This is in addition
to the limited waiver of the attorney-client privilege to legal opinions based on the
submission to the trial court of an investigating committee’s report in support of a
motion to dismiss. AM. LAW INST. PRINCIPLES OF CORPORATE GOVERNANCE:
ANALYSIS AND RECOMMENDATIONS §7.13(e) (1994).
We further hold that this is the law of Pennsylvania through the
Supreme Court’s express adoption of the comprehensive mechanism for handling
shareholder derivative actions embodied in the ALI Principles in general and
Section 7.13 in particular. In making this holding, we reject several arguments
raised by Defendants/Appellants. Primarily, we reject the argument that adoption
of the ALI Principles, particularly Section 7.13, was not intended to expand the
law of Pennsylvania, but merely to set forth the common sense principle that
plaintiffs should be provided copies of what is submitted to the court. The Cuker
Court made clear that the lower courts needed broad, specific guidance from the
Supreme Court on how derivative litigation should be managed, and the ALI
Principles provided that guidance. Adoption of the ALI Principles was a deliberate
effort by the Court to fill perceived gaps. Adoption was based on past experience
with ALI work and respect for the scholarship involved, “most frequently in
24
adopting or citing sections of various Restatements .…” Cuker, 692 A.2d at 1049.
Our conclusion is reinforced by past experience with and respect for scholarship in
the work of the Restatement (Third) of the Law Governing Lawyers, which in
Section 85 reached a functionally identical conclusion with regard to the potential
exception to the privilege.
Further, the Supreme Court found the ALI Principles “generally
consistent” with Pennsylvania precedent. Cuker, 692 A.2d at 1049. In our view,
the qualifier “generally” is significant. It communicates that there could be some
inconsistency, but it would be tolerated. We further observe that there are no
decisions of the Pennsylvania Supreme Court or other Pennsylvania appellate
courts which decline to adopt a potential Garner-based exception to the attorney-
client privilege. The Defendants/Appellants cite to Pennsylvania cases
establishing general, uncontested propositions about the importance and breadth of
the attorney-client privilege; however, they do not establish a clear inconsistency
between Pennsylvania law and a Garner-based exception to the privilege, as
recognized in both the ALI Principles and the Restatement (Third) of the Law
Governing Lawyers for the discrete area of derivative litigation.
Moreover, the Garner Court’s approach to competing interests, those
of the corporation in seeking legal advice, those of stockholders of the corporations
to whom some “good management” duty is owed, and the public’s right to every
man’s evidence, is generally consistent with our Supreme Court’s efforts to define
the scope of the privilege. In its 2011 Gillard decision dealing with the privilege,
the Court noted the “ongoing tension between the two strong, competing interests-
25
of-justice factors in play—namely—the encouragement of trust and candid
conversations between lawyers and their clients, … and the accessibility of
material evidence to further the truth-determining process.” Gillard, 15 A.3d at 57.
We acknowledge that in two non-binding decisions trial courts located
in Pennsylvania declined to adopt the reasoning in Garner. See R.J. Lefkowitz v.
Duquesne Light Co., CIV. A. Nos. 86-1046, 86-2085, 1988 WL 169273 (W.D. Pa.
June 14, 1988) (memorandum opinion) (disposing of discovery motion); Agster v.
Barmada, 43 Pa. D.& C.4th 353 (C.P. Allegheny 1999), 1999 WL 1577979(disposing of discovery motion in suit involving closely-held corporation). Neither
case, however, referenced our Supreme Court’s opinion in Cuker, the ALI
Principles, or the Restatement (Third) of the Law Governing Lawyers. Indeed, the
Lefkowitz decision pre-dated Cuker, the ALI Principles, and the Restatement
(Third). The Agster decision post-dated Cuker and the ALI Principles, but did not
mention them. Nevertheless, the trial court in Agster conceded that a majority of
courts that considered the issue have followed Garner. Agster, 43 Pa. D. & C.4th
at 362. Also, the decision in Agster pre-dated Section 85 of the Restatement
(Third) of the Law Governing Lawyers. Under all these circumstances, we discern
little persuasive value in those trial court cases for current purposes.
Moreover, we specifically reject Defendants’/Appellants’ arguments
that an exception to the privilege does not apply because Plaintiffs/Appellees are
no longer members of the Boards of the nonprofit corporations. If
Plaintiffs/Appellees are no longer members of the Boards (an as-yet undecided fact
that goes to the underlying merits) it was not because of any voluntary action on
26
their part. Further, as discussed below, some of the legal advice they wish to
discover was allegedly given while they were unquestionably members of the
Boards. See In re Int’l Sys. & Controls Corp. Sec. Litig., 693 F.2d 1235, 1239 n.3
(5th Cir. 1982) (allowing former shareholders to seek application of potential
Garner exception).
2. Process
We understand the judicial process to be as follows. Tasked with
undertaking a preliminary examination to determine application of the business
judgment rule, a trial court may order limited discovery. The discovery should be
tailored to the preliminary inquiry faced by the trial court, as explained in Cuker.
The trial court did so here. See Tr. Ct., Slip Op., at 11; R.R. at 732a (trial court
defining its preliminary task as determining the independence and investigative
adequacy of the special litigation committee). In addition, the trial court should
make the discovery determinations set forth in Section 7.13(c) of the ALI
Principles, quoted above.7
7
These include demonstrations that a substantial issue exists whether the applicable
standards have been satisfied and that the plaintiff is unable without undue hardship to obtain
information by other means, and trial court findings that discovery is necessary to enable it to
render a decision on the motion to dismiss under the applicable standards and that discovery is
consistent with an expedited resolution of the motion to dismiss. AM. LAW INST. PRINCIPLES OF
CORPORATE GOVERNANCE: ANALYSIS AND RECOMMENDATIONS §7.13(c) (1994).
It is unclear the extent to which the trial court made all these determinations when it
entered its discovery order. Nevertheless, our review under the collateral order appealed here is
limited to issues involving application of the attorney-client privilege and work product
protection only. Red Vision Sys., Inc. v. Nat’l Real Estate Info. Servs. L.P., 108 A.3d 54 (Pa.
Super. 2015).
27
Next, when faced with a question involving assertion of the attorney-
client privilege and work product protection, a trial court should undertake a
Garner “good cause” inquiry, which would include consideration of the non-
exclusive factors discussed in Garner and cases following it. As discussed in
Comment e to Section 7.13 of the ALI Principles, this inquiry will largely focus on
communications that were roughly contemporaneous with the events giving rise to
the litigation. AM. LAW INST. PRINCIPLES OF CORPORATE GOVERNANCE: ANALYSIS
AND RECOMMENDATIONS §7.13(e) cmt. e (1994). The trial court here did not
undertake this inquiry. Therefore, we are constrained to vacate the trial court’s
discovery order and remand to the trial court for it to do so.
Plaintiffs/Appellees explain the type of information that might be
within the ambit of a potential Garner-based withholding of the attorney-client
privilege: legal advice about efforts to pack the nonprofit corporation boards; legal
advice about whether investments questioned by members of a Board were proper;
and, legal advice about whether a Board could vote out all existing Trustees and
elect successors based on a state statute, where a Board by-law only provided for
termination of directors for cause. Appellees’ Br. at 56. Such legal advice
rendered at about the time of those alleged events and before the current suit was
pending could be reached by a discovery order, consistent with both Section 7.13
of the ALI Principles and Section 85 of the Restatement (Third) of the Law
Governing Lawyers, after consideration of pertinent factors.
28
3. Limitations
We caution that the breadth of legal advice and opinions potentially
discoverable under a Garner approach may be more confined than that envisioned
by the trial court. In particular, post-event attorney-client communications,
particularly those communications advising with respect to pending litigation, are
probably not discoverable. AM. LAW INST. PRINCIPLES OF CORPORATE
GOVERNANCE: ANALYSIS AND RECOMMENDATIONS §7.13, cmt. e (1994). Here,
most of the actions described in the Complaint occurred between 2009 and early
2013. R.R. at 1a-37a. Plaintiffs’/Appellees’ demand was made in October 2013,
and suit was filed in December 2013.
We also caution that the breadth of legal opinions discoverable as a
result of the submission to the trial court of the Investigating Committee’s Report
may be more restricted than that envisioned by the trial court. Communications to
the Investigating Committee from its counsel may not be disclosed, unless the
Committee’s Report is submitted to the trial court to support the motion to dismiss.
AM. LAW INST. PRINCIPLES OF CORPORATE GOVERNANCE: ANALYSIS AND
RECOMMENDATIONS §7.13(e) (1994). In such a circumstance, the Report and
supporting documentation, including counsel’s written or oral opinion and “related
legal opinions” must be disclosed to Plaintiffs/Appellees. Id.
The phrase “related legal opinions” is further explained in Comment e
to Section 7.13. The phrase does not mean any legal opinion from any time
brought to the attention of a special litigation committee. Instead, the phrase
applies to all other formal legal opinions given to a special litigation committee
“and pertaining to the same general subject matter” as the committee’s counsel’s
29
formal opinion. AM. LAW INST. PRINCIPLES OF CORPORATE GOVERNANCE:
ANALYSIS AND RECOMMENDATIONS §7.13 cmt. e (1994). Thus, the legal opinions
disclosed as a result of the submission of the Committee’s Report to the trial court
to support the motion to dismiss must be “related” to the opinion of the
Committee’s counsel in the sense that they pertain to the same general subject
matter. Presumably, the subject matter of the Committee’s counsel’s opinion is
whether continuing the current litigation is in the best interests of the nonprofit
corporations. “This rule is intended to discourage opinion shopping, without
chilling the [special litigation committee’s] access to confidential legal advice.” Id.
Finally, we caution that the work product doctrine protects the work
product of the Investigating Committee’s counsel, regardless of the attorney-client
privilege and any Garner-based exception. AM. LAW INST. PRINCIPLES OF
CORPORATE GOVERNANCE: ANALYSIS AND RECOMMENDATIONS §7.13 cmt. f
(1994). “Thus, counsel’s notes, internal drafts, correspondence with witnesses, and
similar materials should normally be protected from disclosure under the work
product doctrine, regardless of the availability of the attorney-client privilege.” Id.
4. Anne Nelson, Former General Counsel
As discussed above, upon remand, the trial court will consider
whether a Garner-based withholding of the attorney-client privilege is appropriate.
If it is, Plaintiffs’/Appellees’ discussions with Ms. Nelson would most likely be
limited to communications that were roughly contemporaneous with the events
giving rise to the litigation. More particularly, under a Garner-based approach
discussions would most likely be limited to communications during the
approximate period from 2009 to Ms. Nelson’s departure as General Counsel in
30
2012. See AM. LAW INST. PRINCIPLES OF CORPORATE GOVERNANCE: ANALYSIS
AND RECOMMENDATIONS §7.13 cmt. e (1994); RESTATEMENT (THIRD) OF THE LAW
GOVERNING LAWYERS §85 (2000).
As to communications occurring between Ms. Nelson and the
Investigating Committee or its counsel after the Committee’s formation in 2013, a
period when Ms. Nelson was no longer General Counsel and therefore not
obviously involved in providing legal services to either corporation or the
Investigating Committee, it is hard to see how any new attorney-client privilege
arises. See Gillard (privilege operates in two-way fashion to protect confidential
client-to-attorney or attorney-to-client communications made for the purpose of
obtaining or providing professional legal advice). Just like any other witness, Ms.
Nelson would be required to keep prior confidences, subject to a potential Garner-
based exception.
E. Fiduciary-Lawyer Communications
The trial court made reference to what it called the fiduciary duty
exception to the attorney-client privilege. The trial court applied this exception
despite acknowledging that this case does not involve a trust or beneficiaries.
Instead, the trial court focused on a fiduciary duty.
Section 84 of the Restatement (Third) of the Law Governing Lawyers,
titled “Fiduciary-Lawyer Communications,” provides:
In a proceeding in which a trustee of an express
trust or similar fiduciary is charged with breach of
fiduciary duties by a beneficiary, a communication
31
otherwise within § 68 is nonetheless not privileged if the
communication:
(a) is relevant to the claimed breach; and
(b) was between the trustee and a lawyer (or other
privileged person within the meaning of § 70) who
was retained to advise the trustee concerning the
administration of the trust.
RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS §84 (2000). Comment
a to Section 84 (“Scope and cross-references”), provides that this exception is of
long standing and was the starting point for recognizing the Garner-based
exception discussed in Section 85. Restatement (Third) of the Law Governing
Lawyers §84 cmt. a. (2000). Comment b to Section 84 (“Rationale”), states that
this exception, unlike the Garner-based exception, does not require the beneficiary
to show good cause. Restatement (Third) of the Law Governing Lawyers §84 cmt.
b. (2000).
The Garner Court referenced the fiduciary duty exception to the
privilege. It struggled, however, to characterize corporate management’s duties as
being co-extensive with those of a common law trustee. Garner, 430 F.2d at 1101-
02. This was particularly true in describing the duty of corporate management to a
very minor stockholder. Id. Because we share these concerns, we doubt that a
broad fiduciary duty exception sufficiently captures the relationships in this
derivative action, and we hold that a nuanced Garner-based exception is more
appropriate here.
32
F. Common Interest Exception
The trial court also referenced what it called the common interest
exception to the privilege, especially with regard to communications involving
former General Counsel Anne Nelson. Defendants/Appellants argue that the trial
court conflated the common interest exception, involving two or more persons with
the same interests represented by different lawyers, with the co-client exception,
where two or more persons with common interests are represented by the same
lawyer. Appellants’ Br. at 29-30. Further, Defendants/Appellants assert that the
elements of the exceptions are not established here. Id.
Section 75 of the Restatement (Third) of the Law Governing Lawyers,
titled “The Privilege of Co-Clients,” provides:
(1) If two or more persons are jointly represented by the
same lawyer in a matter, a communication of either co-
client that otherwise qualifies as privileged under §§ 68-
72 and relates to matters of common interest is privileged
as against third persons, and any co-client may invoke
the privilege, unless it has been waived by the client who
made the communication.
(2) Unless the co-clients have agreed otherwise, a
communication described in Subsection (1) is not
privileged as between the co-clients in a subsequent
adverse proceeding between them.
RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS §75 (2000) (emphasis
added).8 Thus, the attorney-client privilege for information shared between co-
8
“The Privilege in Common-Interest Arrangements” (also called the Community-of-
Interest Privilege), is set forth in Section 76 of the Restatement (Third) of the Law Governing
Lawyers. This form of the attorney-client privilege, and its corresponding exception, is
distinguished from the co-client situation in that it involves representation “by separate lawyers.”
(Footnote continued on next page…)
33
clients arises under subsection (1) in favor of jointly represented persons with a
common interest, as against third persons. However, subsection (2), sometimes
referred to as the adverse litigation exception to the privilege, provides that the
privilege cannot be raised by one co-client against another in subsequent adverse
proceedings between them. Id.; see In re Teleglobe Commc’ns Corp., 493 F.3d
345 (3d Cir. 2007). Plaintiffs/Appellees here appear to rely on this exception to
the privilege.
Although not discussed in the Comments to Section 75 of the
Restatement (Third), this form of the privilege and its corresponding exception do
not require that the co-client demonstrate “good cause.” Thus, the common
interest (or adverse litigation) exception appears to be broader than the Garner-
based exception for derivative litigation.
As stated in Teleglobe, a leading case on the privilege and the
exception, when former co-clients sue one another, the default rule is that all
communications made in the course of the joint representation are discoverable.
Teleglobe, 493 F.3d at 366 (citing, in part, RESTATEMENT (THIRD) OF THE LAW
GOVERNING LAWYERS §75(2) (2000)). The rule has two bases: (1) the presumed
intent of the parties; and, (2) the lawyer’s fiduciary obligation of candor to both
(continued…)
RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS §76(1) (2000); see In re Teleglobe
Commc’ns Corp., 493 F.3d 345 (3d Cir. 2007). Because “separate lawyers” have not been
identified here, this form of the privilege and exception appears inapplicable. See Teleglobe.
34
parties. Id. (citing RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS §75
cmt. d (2000)).
Two problems arise in applying the privilege and the exception under
the circumstances here. First, the concept of “common interest” could be
problematic under the facts. As discussed in Teleglobe, once begun, a co-client
representation generally continues until a client discharges the lawyer or the lawyer
withdraws. Id. at 362. In addition, numerous courts recognize that the relationship
may terminate by implication. Id. In particular, a joint representation terminates
when it becomes clear to all parties that the clients’ legal interests have diverged
too much to justify using common attorneys. Id.
Addressing what happens when joint representation goes awry, the
Teleglobe Court went further. The Court acknowledged the difficult problem
when a joint attorney fails to end the joint representation and instead continues
representing both clients when their interests become adverse. “In this situation,
the black-letter law is that when an attorney (improperly) represents two clients
whose interests are adverse, the communications are privileged against each other
notwithstanding the lawyer’s misconduct.” Id. at 368 (citing, in part, Eureka Inv.
Corp. v. Chicago Title Ins. Co., 743 F.2d 932 (D.C. Cir. 1984) (per curiam)). The
Teleglobe Court explained that “‘[t]he policy behind [the co-client privilege]—to
encourage openness and cooperation between joint clients—does not apply to
matters known at the time of communication not to be in the common interest of
the attorney’s two clients.’” Id. at 368-69 (quoting Eureka, 743 F.2d at 937). In
35
those circumstances, counsel’s failure to avoid a conflict of interest should not
deprive the client of the privilege. Id. at 369.
Given the averments in the Complaint, especially those in Paragraphs
20 to 70, R.R. at 9a to 20a, it is very possible, perhaps likely, that sometime
between 2009 and February 2013, any legal interests previously shared between
the individual Plaintiffs/Appellees and the individual Defendants/Appellants had
diverged too much to be viewed as “common.” Assuming for this point only that
Plaintiffs/Appellees and Defendants/Appellants were co-clients, between
themselves and with the corporations, a finding of de facto lack of common
interest would obscure the legal basis for compelling disclosure of communications
to and from a corporate attorney.
Second, the concept of “client” causes us to question the trial court’s
application of the common interest exception here. The parties and the trial court
agree that the nonprofit corporations are the “clients” entitled to assert any
attorney-client privilege. The United States Supreme Court, recognizing that
corporations must act through persons, held in Commodity Futures Trading
Commission v. Weintraub, 471 U.S. 343 (1985), that control of the privilege
passes with control of the corporation. See also Teleglobe; Maleski v. Corporate
Life Ins. Co., 641 A.2d 1 (Pa. Cmwlth. 1994). It appears from averments in the
Complaint that Defendants/Appellants have prima facie control of the nonprofit
corporations. Therefore, it is difficult to identify the co-clients of the corporations,
such as to support application of the common interest (or adverse litigation)
exception to the attorney-client privilege.
36
This is essentially the same approach taken by the Garner Court.
While drawing an analogy to common interest situations, the Court realized the
conceptual problems and crafted a more targeted exception to the attorney-client
privilege in cases of derivative litigation. Garner, 430 F.2d at 1103-04.
As a result of all these concerns, we do not believe the common
interest (or adverse litigation) exception adequately describes the relationship
between the parties here. Similar to our conclusion with the fiduciary duty
exception, we hold that a Garner-based exception is more in harmony with the
current litigation.
VI. Summary
Our collateral order review is limited to the extent the trial court’s
discovery order may require disclosure of legal opinions and advice otherwise
privileged under the attorney-client privilege and work product protection. We
hold that neither the fiduciary duty exception nor the common interest exception
apply to support the trial court’s broad discovery order. However, there is a
potential Garner-based exception to the attorney-client privilege which could
apply, but the trial court first needs to undertake a “good cause” evaluation. We
caution that the breadth of legal advice and opinions potentially discovered under a
Garner approach may be more confined than that envisioned by the trial court.
AM. LAW INST. PRINCIPLES OF CORPORATE GOVERNANCE: ANALYSIS AND
RECOMMENDATIONS §7.13 cmt. e (1994); RESTATEMENT (THIRD) OF THE LAW
GOVERNING LAWYERS §85 (2000). Similarly, we caution that the breadth of legal
opinions discoverable as a result of the submission to the trial court of the
37
Investigating Committee’s Report which includes a legal opinion may be more
restricted than that envisioned by the trial court. AM. LAW INST. PRINCIPLES OF
CORPORATE GOVERNANCE: ANALYSIS AND RECOMMENDATIONS §7.13 cmt. e
(1994). Finally, we caution that the work product doctrine protects the work
product of the Investigating Committee’s counsel regardless of the availability of
the attorney-client privilege and a potential Garner-based exception. AM. LAW
INST. PRINCIPLES OF CORPORATE GOVERNANCE: ANALYSIS AND
RECOMMENDATIONS §7.13 cmt. f.
For all these reasons, we vacate the trial court’s discovery order and
remand for further proceedings.
ROBERT SIMPSON, Judge
38
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Pittsburgh History and Landmarks :
Foundation, a Pennsylvania Non-Profit :
Corporation; Landmarks Financial :
Corporation, a Pennsylvania Non-Profit :
Corporation; Henry P. Hoffstot, Jr.; :
David E. Barensfeld; Peter H. Stephaich; :
Patrick R. Wallace; Alexander Speyer; :
and Henry P. Hoffstot, III :
: No. 113 C.D. 2016
Arthur P. Ziegler, Jr.; Mark S. Bibro; :
and Jack R. Norris :
:
Pittsburgh History and Landmarks :
Foundation, a Pennsylvania Non-Profit :
Corporation; Landmarks Financial :
Corporation, a Pennsylvania Non-Profit :
Corporation :
:
Appeal of: Arthur P. Ziegler Jr., Mark S. :
Bibro, Jack R. Norris, Pittsburgh History :
and Landmarks and Foundation :
Landmarks Financial Corporation :
ORDER
AND NOW, this 21st day of April, 2017, the Order dated September
18, 2015 and entered on September 21, 2015, is VACATED, and the matter is
REMANDED for further proceedings.
Jurisdiction is relinquished.
ROBERT SIMPSON, Judge