United States District Court, E.D. Pennsylvania
MEMORANDUM AND ORDER ON ATTORNEY-CLIENT PRIVILEGE ISSUES
MICHAEL M. BAYLSON, District Judge.
In this contentious "whistleblower" action arising under the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1514A, and the Dodd-Frank Wall Street Reform and Consumer Protection Act, 15 U.S.C. § 78u-6, Plaintiff has moved (ECF No. 154) to compel Defendants to produce certain documents identified in privilege logs dated July 7, 2014, and September 26, 2014, which Defendants contend are protected by the attorney-client privilege. The Court concludes the attorney-client privilege applies to these documents and will deny the motion.
Plaintiff, a former employee of Defendant Unilife Corporation, alleges discriminatory and retaliatory termination by Defendants because of Plaintiff's opposition to, and protected disclosures relating to, alleged shareholder fraud and Unilife's failure to comply with certain Food and Drug Administration requirements.
The background of this case has been set forth in prior opinions regarding Plaintiff's amendment of his complaint, Smith v. Unilife Corp., No. 13-5103, 2014 WL 443114 (E.D. Pa. Feb. 4, 2014) (ECF No. 18); Plaintiff's motion for contempt and to amend the Protective Order entered in this case, Smith v. Unilife Corp., No. 13-5101, 2014 WL 6070697 (E.D. Pa. Nov. 13, 2014) (ECF No. 115); Defendants' motion to quash a third party subpoena, Smith v. Unilife Corp., No. 13-5101, 2014 WL 6676738 (E.D. Pa. Nov. 24, 2014) (ECF No. 123); Plaintiff's motion to dismiss Defendants' counterclaims, Smith v. Unilife Corp., No. 13-5101, 2014 WL 6987893 (E.D. Pa. Dec. 11, 2014) (ECF No. 132); and Defendants' motion for reconsideration of the Court's November 13, 2014, Order regarding Plaintiff's motion for contempt, Smith v. Unilife Corp., No. 13-5101, 2015 WL 115581 (E.D. Pa. Jan. 7, 2015) (ECF No. 143).
There has been extensive discovery in this case with document productions and numerous depositions. In correspondence with the Court and Defendants' counsel, Plaintiff's counsel raised a number of issues concerning Defendants' claim that certain documents listed on Defendants' privilege logs dated July 7, 2014, and September 26, 2014, were subject to the attorney-client privilege and protected from discovery. Defendants agreed to submit copies of the contested documents for in camera review by the Court. After reviewing the documents in camera, the Court issued an Order on January 16, 2015, requesting additional briefing from the parties (ECF No. 151). On January 26, 2015, Plaintiff filed a motion to compel production of the contested documents (ECF No. 154) and a brief setting forth Plaintiff's arguments that the documents were not privileged and should be produced (ECF No. 155). On February 6, 2015, Defendants filed a brief arguing that the attorney-client privilege attached to the documents and shielded them from production (ECF No. 163).
On February 11, 2015, the Court held a hearing. At the hearing, the Court reviewed the contested documents with counsel and determined that the documents were subject to the attorney-client privilege. Although the hearing transcript will provide a full account of the arguments and Court's rulings, this Memorandum will summarize the issues and holdings and the Court's reasons for denying Plaintiff's motion to compel.
II. Issues Presented
Defendants submitted two privilege logs, one dated July 7, 2014, and the second dated September 26, 2014, as well as the contested documents for in camera review. At the hearing, the Court discussed with counsel items on both privilege logs as to which Plaintiff asserted that the privilege claim was improper.
Most of the documents on the July 7, 2014, privilege log relate to a different litigation pending in a New Jersey court. The parties disagree about the relevance of the New Jersey matter to this case. However, a review of the documents listed on the July 7, 2014, privilege log shows that most of the documents relate to the New Jersey case and are not within the scope of discovery in this case. Many of the documents include correspondence with Defendants' counsel in the New Jersey case and/or counsel's investigators. Plaintiff's name was mentioned in several documents. At the hearing, the Court indicated the context and noted that Plaintiff was entitled to pursue, and in fact had pursued, discovery of certain matters in the New Jersey case, and no rulings were necessary as to Plaintiff's endeavors in this regard.
The items listed on the September 26, 2014, privilege log, relate to communications involving two non-lawyer consultants, Ed Fine and his son Stuart Fine, regarding drafts of Unilife's Fiscal Year 2011 SEC Form 10-K filing. One of the principal issues in this case concerns alleged misrepresentations or omissions in various corporate documents, including Unilife's 2011 SEC Form 10-K, which was ultimately filed with the SEC in September 2011. Plaintiff alleges that Unilife made certain false or misleading claims in its 2011 SEC Form 10-K concerning the shipment of validated and/or commercial product and the extent to which Unilife's production line was installed. The disputed documents include a number of communications sent by both Messrs. Fine to Unilife CEO Alan Shortall and Unilife in-house counsel Chris Naftzger, generally concerning the contents, style and "wordsmithing" of drafts of the 2011 SEC Form 10-K report.
A. Functional Equivalent Doctrine
Defendants rely on the "functional equivalent" doctrine, which holds that an independent consultant may be viewed as an employee for purposes of the attorney-client privilege if the consultant is the "functional equivalent" of an employee. See, e.g., In re Flonase Antitrust Litig., 879 F.Supp.2d 454, 457-58 (E.D. Pa. 2012). Although the Third Circuit has yet to adopt the "functional equivalent" doctrine,  Judge Brody's opinion in Flonase concluded in favor of a broad practical approach to determining whether a consultant is the functional equivalent of an employee. Id. at 460. Judge Brody traced this approach to Upjohn Co. v. United States, 449 U.S. 383 (1981), in which the Supreme Court rejected the narrow control group test and endorsed a functional approach to the attorney-client privilege within corporations, taking into account the purpose of the privilege and the realities of large-scale modern corporations. Id. at 457-58 (citing Upjohn, 449 U.S. at 391-92).
Plaintiff relies on In re Bristol-Myers Squibb Securities Litigation, No. 00-1990, 2003 WL 25962198, at *3 (D.N.J. June 25, 2003), which also purports to apply the "functional equivalent" doctrine. In Bristol-Myers, the court applied a four-factor test to uphold the finding of a special master that there was no privilege. In re Bristol-Myers Squibb Securities Litigation, No. 00-1990, 2003 WL 25962198, at *4 (D.N.J. June 25, 2003). The court considered whether the consultants: (1) were incorporated in the staff to perform a corporate function, which is necessary in the context of actual or anticipated litigation; (2) possessed information needed by attorneys in rendering legal advice; (3) possessed authority to make decisions on behalf of the company; and (4) were hired because the company lacked sufficient internal resources and/or adequate prior experience with the consultant's field. Id . (citations omitted) (italics in original). The court noted that "[t]he key to deciding if a consultant should be protected under the functional equivalent' exception is if the consultant acts for the corporation and possesses the information needed by attorneys in rendering legal advice." Id . However, in ...