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, 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,
Argued: November 16, 2016
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.
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).
underlying suit is a derivative action involving two related
nonprofit corporations. 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).
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 Court in
Cuker v. Mikalauskas, 692 A.2d 1042 (Pa. 1997),
be applied in derivative actions, the trial court entered the
discovery order in question.
reasons discussed more fully below, we vacate the discovery
order and remand the matter to the trial court for further
we will not address the merits of the underlying lawsuit, we
mention the details of the action in summary fashion.
Plaintiffs/Appellees 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/Appellants 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.
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.
this process, in December 2013, Plaintiffs/Appellees brought
suit in the name of the nonprofit corporations. Discovery
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.
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.
response to the motion to compel, the trial court entered the
discovery order, which provided in pertinent part as follows:
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
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).
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.
Trial Court Opinion
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- 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.
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 §
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 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
[Plaintiffs'/Appellees'] counsel must be
allowed to access documents to which the committee itself had
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 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
Thus, Plaintiffs[/Appellees] are correct that preexisting
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
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.
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.
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
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.
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 ...