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Nationwide Mutual Insurance Co. v. Fleming


January 29, 2010


Appeal from the Order of Superior Court entered May 21, 2007 at No. 207 WDA 2005, affirming the Order of the Butler County Court of Common Pleas entered January 25, 2005 at No. EQ 99-50018. 924 A.2d 1259 (Pa. Super. 2007).

The opinion of the court was delivered by: Mr. Justice Eakin


ARGUED: March 6, 2008


Appellants, Nationwide Mutual Insurance Company, et al., sued several former agents and their respective insurance agencies, collectively appellees, for breach of contract and intentional interference with contractual relations. Appellants asserted appellees accessed confidential policyholder information on appellants' computer network and provided the information to competitors upon leaving appellants' employ. Appellees argued they were merely participating in permissible post-termination competition, and appellants did not have any proprietary interest in the information. On this basis, appellees counterclaimed, contending appellants brought suit in bad faith. A bench trial ensued.

During trial, appellees' counsel questioned appellants' former president regarding several documents appellants produced during discovery, including Document 529, which they sought to introduce to support their counterclaim. Appellants contended the attorney-client privilege protected Document 529, and only disclosed its recipient list, date, and subject line; they redacted the substantive content. The privileged nature of Document 529 is the issue underlying this appeal; it was filed under seal and remains sealed.

An attorney from appellants' general counsel authored Document 529 and sent it to 15 of appellants' employees, including officers, managers, and three other attorneys. Generally, Document 529 contains this counsel's assessment of the agent defections and appellants' strategy underlying the lawsuits against its former agents. It further states appellants cannot reasonably expect the lawsuits to succeed, and states the "primary purpose" of the litigation is to send a message to current employees contemplating defection.

The trial court held an in camera hearing to determine whether the attorney-client privilege applied to Document 529. Appellees argued appellants waived any privilege when they disclosed Documents 314 and 395, also regarding agent defections. Like Document 529, Document 314 was authored by an attorney from appellants' general counsel office; it outlined why appellants severed their relationship with certain agents and noted the necessity of obtaining information from defecting agents in order to consider appellants' legal options against them and their new employers. It was addressed to seven of appellants' employees, including two other attorneys in appellants' general counsel office. Document 395 was authored by appellants' agency administration director. It set forth additions and changes to the "Reflex Action Plan," appellants' policy for dealing with agent defections, and was sent to 35 of appellants' employees and officers.

The trial court held the voluntary disclosure of Documents 314 and 395 waived the attorney-client privilege with respect to Document 529. It determined appellants used the privilege to their advantage by producing communications in support of their position, but withheld Document 529 as privileged because it did not support their position; the court stated "the attorney-client privilege cannot be used as both a shield and a sword." Trial Court Opinion, 2/16/05, at 4.

Appellants appealed and requested a stay, which the trial court granted. The Superior Court granted appellees' motion to quash the appeal for lack of jurisdiction. By per curiam order, this Court granted review, vacated the Superior Court's order, and remanded to the Superior Court for further proceedings. Nationwide Mutual Insurance Company v. Fleming, 896 A.2d 565 (Pa. 2006) (Nationwide I).

The Superior Court affirmed the trial court's decision regarding Document 529 on alternative grounds. Nationwide Mutual Insurance Company v. Fleming, 924 A.2d 1259, 1269 (Pa. Super. 2007) (Nationwide II).*fn1 Citing codification of the attorney-client privilege, 42 Pa.C.S. § 5928, the court determined it protects only confidential communications from a client to an attorney "made in connection with the providing of legal services or advice." Nationwide II, at 1264 (citations omitted). Communications from attorney to client are privileged only to the extent they contain and would reveal confidential communications from the client. Id.

The court initially set forth Pennsylvania's two-part inquiry for determining whether the attorney-client privilege applies to preclude disclosure: whether the privilege applies to a communication, and if it does, whether client waiver or an exception applies to overcome the privilege and allow disclosure. Id., at 1265-66. The Superior Court also held the client can waive the privilege by disclosing the communication at issue to a third party. Id., at 1265. Additionally, federal decisions have held that when a communication protected by the privilege is voluntarily disclosed, the privilege is waived "for all communications pertaining to the same subject matter." Id. (emphasis in original).

The court noted Document 529 was a communication from counsel to a corporate client, addressing agent defections. Since the privilege only protects attorney-to-client communications containing and revealing confidential client-to-attorney communications, and Document 529 neither contained nor revealed such communications, the court concluded it did not satisfy the requirements for the privilege's protection. Id., at 1268.

We granted allowance of appeal on the following question:

Whether the Superior Court erred as a matter of law in holding that the attorney-client privilege did not apply to a confidential memorandum written by [appellants]' in-house senior counsel to its senior executives and attorneys which related to pending and future litigation and reflects confidential information previously shared by the client with the attorney, as well as the attorney's legal advice?

Nationwide Mutual Insurance Company v. Fleming, 935 A.2d 1270 (Pa. 2007). Since the privilege is codified at 42 Pa.C.S. § 5928, this is a question of statutory interpretation, and a pure question of law. Commonwealth v. Bortz, 909 A.2d 1221, 1223 (Pa. 2006). Questions of law are subject to a de novo standard of review, and our scope of review is plenary. Craley v. State Farm Fire and Casualty Company, 895 A.2d 530, 539 n.14 (Pa. 2006). "The object of all interpretation and construction of statutes is to ascertain and effectuate the intention of the General Assembly. Every statute shall be construed, if possible, to give effect to all its provisions." 1 Pa.C.S. § 1921(a). "When the words of a statute are clear and free from all ambiguity, they are presumed to be the best indication of legislative intent." Chanceford Aviation Properties, L.L.P. v. Chanceford Township Board of Supervisors, 923 A.2d 1099, 1104 (Pa. 2007) (citation omitted). We address only the privilege as applied to attorney-to-client communications and emphasize this case does not involve the work-product doctrine; appellants have claimed only the attorney-client privilege. Neither party has challenged the enactment of an attorney-client privilege statute on the grounds it is a procedural rule in violation of Article V, § 10(c) of the Pennsylvania Constitution.*fn2

Appellants argue the Superior Court's holding chills, if not negates, the attorney-client privilege's purpose - to foster confidence and dialogue between attorney and client to benefit the administration of justice, citing In re: Investigating Grand Jury of Philadelphia County No. 88-00-3503, 593 A.2d 402, 406 (Pa. 1991). Appellants also claim the court's decision is at odds with National Bank of West Grove v. Earle, 46 A. 268 (Pa. 1900), holding the privilege applies to all attorney-to-client communications. Id., at 269. The Superior Court did not mention Earle; appellants ask this Court to reaffirm Earle's vitality, though it has not been cited by this Court since it was decided. Appellants contend, pursuant to the Statutory Construction Act, 1 Pa.C.S. § 1922(4),*fn3 the reenactment of 28 P.S. § 321 at 42 Pa.C.S. § 5928, without substantive changes, evidenced an intent for the codification to be construed as in Earle.

Appellees argue the Superior Court's holding correctly applied § 5928 and Pennsylvania's case law. Appellees first assert Document 529 does not contain or reveal confidential client-to-attorney communications, but contains only legal advice. If this document is found to be privileged, they contend appellants waived the privilege by selectively disclosing similar subject matter in an attempt to gain a tactical advantage. Appellees cite Murray v. Gemplus International, 217 F.R.D. 362 (E.D. Pa. 2003) (where party attempts to utilize privilege as weapon, via selectively disclosing communications, party waives privilege), and Minatronics v. Buchanan Ingersoll, 23 Pa. D. & C.4th 1, 18-21 (Allegheny Co. 1995) (voluntary disclosure of confidential information to gain tactical advantage waives attorney-client privilege for all communications involving same subject matter). Appellees finally assert legal opinions are discoverable where they are directly relevant to a cause of action.

The purpose of the attorney-client privilege is "to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice." Upjohn Company v. United States, 449 U.S. 383, 389 (1981); see also In re: Investigating Grand Jury of Philadelphia County, at 406 (recognizing privilege's purpose is to create atmosphere encouraging confidence and dialogue between attorney and client, and intended beneficiary is not client so much as administration of justice). Upjohn further provided, "The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer's being fully informed by the client." Upjohn, at 389.

Pennsylvania codified the privilege in 1887. See Act of May 23, 1887, P.L. 158, § 5d (formerly 28 P.S. § 321). This privilege statute was reenacted in 1976 without substantive changes and states, "In a civil matter counsel shall not be competent or permitted to testify to confidential communications made to him by his client, nor shall the client be compelled to disclose the same, unless in either case this privilege is waived upon the trial by the client." 42 Pa.C.S. § 5928.

"[O]nce the attorney-client communications have been disclosed to a third party, the privilege is deemed waived." Joe v. Prison Health Services, Inc., 782 A.2d 24, 31 (Pa. Cmwlth. 2001). Like the trial court, I would find this matter turns on waiver. The trial court relied on Minatronics, an Allegheny County Court of Common Pleas decision, for the proposition voluntarily disclosing confidential communications "waive[s] the privilege as to every confidential communication . involving the same subject matter." Minatronics, at 18; see Trial Court Opinion, 2/16/05, at 3. The issue in Minatronics was whether the inadvertent disclosure of confidential communications waived the privilege as to other confidential communications containing the same subject matter. The Minatronics court also noted significant support for the position that such disclosure does not waive the privilege "where there is no apparent prejudice to the party seeking further disclosure[,]" because "where it is clear that the limited disclosure is not being used [as a sword and a shield], there is no justification for applying a subject matter waiver." Minatronics, at 19-20. The court held the inadvertent disclosures at issue did not waive the attorney-client privilege, and further opined, "the law should not discourage parties from voluntarily disclosing confidential communications (unless made for the purpose of achieving a tactical advantage) by adopting a rule of law that causes voluntary disclosures to operate as a waiver of other confidential communications involving the same subject matter." Id., at 20-21.

The trial court also relied on Murray, a United States District Court decision from the Eastern District of Pennsylvania, holding the defendant waived its attorney-client privilege as to intentionally disclosed documents and their subject matter. Murray, at 367. The Murray court noted the defendant "seems to have produced only the documents that are most beneficial to its defense .." Id., at 366. Murray found "the argument that when one party intentionally discloses privileged material with the aim, in whole or in part, of furthering that party's case, the party waives its attorney-client privilege with respect to the subject-matter of the disclosed communications" persuasive. Id., at 367.

The reasoning in Murray and Minatronics is instructive. Appellants never alleged Documents 314 and 395 are privileged or were unintentionally disclosed. Rather, appellants claim Documents 314 and 395 are business communications which do not contain confidential communications made in connection with providing legal services or advice. Read together, however, Documents 314, 395, and 529 contain the same subject matter - appellants' response to agent defections. Document 529 contains counsel's opinion-based outline regarding the ongoing activities for dealing with the defections, specifically, litigation efforts in Pennsylvania and New York. In Document 529, counsel states the litigation's primary purpose - to send a message to current employees contemplating defection - and concedes the likelihood of receiving a damages award is remote. Counsel notes his office's participation in modifying the Reflex Action Plan, and suggests edits for appellants' no-compete contract.

Like Document 529, Document 314 was authored by an attorney in appellants' general counsel office and the words "privileged and confidential" appear in its heading.

Documents 314 and 529 contain counsel's understanding of the agent defections. Like Document 529, Document 395 discusses the Reflex Action Plan. Document 395 explains modifications to the Reflex Action Plan in order to efficiently deal with a large agent defection, a product of counsel's advice and input, as noted by counsel in Document 529.

Thus, the disclosure of Documents 314 and 395 form the basis of subject matter waiver of the attorney-client privilege regarding Document 529, the scope of which extends to Document 529 because it contains the same subject matter. What distinguishes Document 529 from Documents 314 and 395 is counsel's unflattering concessions regarding the litigation's purpose and prospect of succeeding. As in Murray, appellants seem to have produced only the documents beneficial to their case by disclosing Documents 314 and 395, and withholding Document 529 based on its privileged nature. I believe appellants waived the attorney-client privilege with respect to the subject of agent defections upon disclosing Documents 314 and 395, and cannot claim the privilege applies to a document containing the same subject matter, as well as potentially damaging admissions. Because I conclude this matter turns on waiver, I would decline to address the merits.

Mr. Justice Baer joins this Opinion in Support of Affirmance.

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