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Lefta Associates, Ulysses G. Auger Trust, and Lulu H. Auger Trust v. Jack F. Hurley

June 16, 2011


The opinion of the court was delivered by: Magistrate Judge Carlson

Judge Jones



Now pending in this action are two motions that relate to documents that Plaintiffs produced to Defendants during the course of discovery. Plaintiffs claim that the documents in question were produced inadvertently, are subject to the attorney-client privilege, and are, therefore, confidential. Plaintiffs further contend that, pursuant to a confidentiality agreement entered into in this case, Defendants were obligated either to return the documents or to destroy them, and to make no unauthorized use of the materials. Because Plaintiffs believe Defendants failed to adhere to the terms of the confidentiality agreement with respect to at least some of the documents that were produced, Plaintiffs have moved for enforcement of the confidentiality agreement, and the imposition of sanctions against Defendants and their attorneys. (Doc. 62.)

In response, and in marked contrast, Defendants have filed a motion seeking a judicial determination that the documents that Plaintiffs produced were not privileged or confidential, and, therefore, that Defendants could not have been in violation of the confidentiality agreement or subject to sanctions. (Doc. 71.) Furthermore, Defendants argue that even if the documents in question were privileged or otherwise confidential, Defendants and their counsel have not violated the terms of the confidentiality agreement in this case because the documents were never used for any prohibited purpose. Defendants also argue that there is no factual or legal basis for the imposition of sanctions as a result of Defendants' conduct.

The motions are fully briefed, and have been supported by a number of affidavits and declarations from counsel in this case. Upon careful consideration of the documents in question, the briefs filed in support of and opposition to the parties' competing motions, and the evidentiary materials offered by the parties, we conclude that the documents at issue are not protected by the attorney-client privilege, and Defendants were not, and are not, obligated to return the documents or to refrain from using them in this litigation.*fn1 Moreover, assuming that Defendants were obligated to adhere to the terms of the confidentiality agreement in place in this litigation, we find insufficient evidence to show that Defendants violated the terms of this agreement by misusing the produced material. Instead, the evidence submitted suggests that Defendants adhered to the terms and conditions of the confidentiality agreement in handling the documents produced, and in seeking a judicial declaration that the materials were not protected, whereas Plaintiffs rely on nothing more than speculation that Defendants must have used the materials improperly and used them as a basis for filing additional affirmative defenses to the claims in this case. We find this bare speculation to be insufficient to support Plaintiffs' quite serious charges of attorney misconduct, and conclude that the evidence of record indicates that Defendants' counsel did not behave improperly.

Moreover, we reject Plaintiffs' argument that Defendants should be prohibited from arguing that the documents in question are not privileged on the basis that Defendants were dilatory in responding to Plaintiffs' claims of privilege, when Plaintiffs did not assert those claims of privilege for four months after the documents in question were produced. Not only do Plaintiffs provide no persuasive authority that such a sanction would be warranted, but we conclude that the sanction is particularly inappropriate in this case, where Plaintiffs seek the enforcement of a confidentiality agreement that itself provided that the privilege was to be maintained as to inadvertently produced documents only when the producing party "promptly requests [their] return . . . ." (Doc. 20.) As Plaintiffs waited for four months before claiming that the documents in question were produced inadvertently, it would appear equally if not more reasonable to conclude that it was Plaintiffs who had failed to comply with the terms of the Confidentiality Order by asserting a claim of privilege and inadvertent production four months after making the documents available to Defendants. In any event, for these reasons and as more fully explained below, upon consideration of the parties' substantive arguments and evidentiary showings, Plaintiffs' motion will be denied and Defendants' motion will be granted.


Plaintiffs are the owners of certain partnerships with interests in the Gateway Gettysburg development, one or more real estate projects in Adams County, Pennsylvania. Plaintiffs initiated this lawsuit against the Harrisburg law firm Rhoads & Sinon, one of its partners, and the law firm's title company, for legal malpractice and related claims arising out of the Gateway Gettysburg project. In the complaint, Plaintiffs allege that Defendants mishandled certain loan documents, and otherwise performed negligently, and that as a result of Defendants' negligence, certain guaranty documents that were executed in connection with the Gateway Gettysburg project imposed a 50% guaranty obligation on the Plaintiffs, as opposed to a 25% obligation that Plaintiffs had agreed to. Defendants vigorously dispute Plaintiffs' allegations.

Discovery in the case began in March 2010. Due to the large volume of documents that the parties were exchanging, and in order to control discovery-related costs in this case, the parties entered into a stipulated order regarding confidential material (the "Confidentiality Order"), which the Court entered on June 8, 2010. (Doc. 20.) The Confidentiality Order authorized the parties to identify documents produced as "confidential," which would provide that the documents could only be used in connection with this litigation, and could not be disclosed to anyone other than parties, counsel, and consultants. (Id., ¶ 1(e).) In addition to authorizing the parties to designate discovery as confidential, the Confidentiality Order also served as a mechanism to avoid waiver of privilege or any other applicable protective evidentiary doctrine as a result of the inadvertent disclosure of documents containing privileged communications. (Id., at 1.)

In this regard, the Confidentiality Order provides three rules that govern the inadvertent production of privileged documents.

First, the Confidentiality Order provides that the inadvertent production of privileged documents "shall NOT waive any privilege . . . if the producing party. . . promptly requests its return" after taking reasonable care to avoid the inadvertent production. (Id., ¶ 1(a).)

Second, the Confidentiality Order provides that if the producing party gives notice that it produced privileged documents by mistake, the other side is either to return the documents immediately or destroy them, and certify compliance within 30 days. (Id., ¶ 1(b).)

Third, if the requesting party disputes the privilege claim, "a single set" of the documents "may be sequestered and retained by and under the control of the requesting party for the sole purpose of seeking court determination of the [privilege] issue." (Id., ¶ 1(c).)

The Confidentiality Agreement is thus structured to achieve two goals: First, it allows the parties to prevent the requesting party from improperly using or benefitting from the unintentional disclosure of privileged documents during the course of a discovery process involving the exchange of a substantial amount of documents by both sides in this action. In addition, it permits parties receiving documents that are later claimed to be cloaked in privilege to challenge that assertion of privilege in court.

On September 30, 2010, several months after producing documents in the case, Plaintiffs notified Defendants that they had inadvertently produced a number of documents that they claimed were subject to the attorney-client privilege, or which otherwise constituted attorney work product. (Doc. 80, Ex. A, Letter Dated September 30, 2010.) Defendants responded to this letter several months later, on January 3, 2011, conceding that certain of the documents were privileged and indicating that the documents would be destroyed, but disputing Plaintiffs' remaining claims of privilege. (Doc. 80, Ex. B, Letter Dated January 3, 2011 (misdated 2010).) Plaintiffs, in turn, replied on January 10, 2011, further agreeing that some documents were, in fact, not privileged, but maintaining their claims of privilege with respect to the remaining documents. (Doc. 80, Ex. C, Letter Dated January 10, 2011.) Defendants wrote to Plaintiffs on February 3, 2011, agreeing that one additional disputed document was privileged and would be destroyed, but indicating that the remaining documents remained in dispute, and that Defendants would seek court intervention to resolve the impasse. (Doc. 80, Ex. D, Letter Dated February 3, 2011.)

On February 7, 2011, Plaintiffs filed a motion to compel compliance with the Confidentiality Order, and requested that the Court impose sanctions as a result of what Plaintiffs contended were Defendants' violations of the Confidentiality Order with respect to the disputed documents. (Doc. 62.) Plaintiffs filed a brief in support of the motion on the same day, with a number of exhibits and supporting materials (Doc. 63), and Defendants responded with a brief in opposition and their own supporting materials on March 2, 2011 (Doc. 70). Plaintiffs filed a reply brief on March 16, 2011 (Doc. 79), and Defendants, after obtaining leave of court (Doc. 97), filed a sur-reply on April 7, 2011 (Doc. 98), to provide further support for their assertion that their counsel had made no improper use of the disputed discovery documents.

On March 2, 2011, after Plaintiffs' filed their motion seeking enforcement of the Confidentiality Order, Defendants took a different tack, moving for entry of an order declaring that the documents Plaintiffs' inadvertently produced were not privileged. (Doc. 71.) Defendants filed a brief in support of this motion on March 16, 2011, and attached a number of exhibits and supporting materials.*fn2 (Doc. 80.) Plaintiffs filed a brief in opposition to this motion on April 7, 2011 (Doc. 96), to which Defendants ...

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