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Audi of America, Inc. v. Bronsberg & Hughes Pontiac, Inc.

United States District Court, M.D. Pennsylvania

June 8, 2017

AUDI OF AMERICA, INC., Plaintiff
v.
BRONSBERG & HUGHES PONTIAC, INC., d/b/a WYOMING VALLEY AUDI, Defendant

          Jones Judge

          MEMORANDUM OPINION

          Martin C. Carlson United States Magistrate Judge

         I. INTRODUCTION

         The purpose of this Order is to address and resolve a discovery dispute over the defendant's assertion that 54 documents that have been withheld from production in this case are privilege communications, either subject to the attorney-client privilege or the common-interest privilege, which is an extension of the attorney-client privilege to instances involving two or more parties who share a substantially identical legal interest, permitting counsel to share communications without waiving the privilege. The plaintiff has moved the Court to compel production, arguing that no privilege applies. Upon consideration, and for the reasons explained below, the Court agrees that the limited set of documents identified on the defendant's privilege log are subject to the common-interest and attorney-client privileges, and therefore need not be disclosed. The plaintiff's motion to compel will therefore be denied.

         II. BACKGROUND

         On December 13, 2016, Audi of America, Inc., (“Audi”) brought this breach of contract action, alleging that Bronsberg & Hughes Pontiac, Inc., d/b/a Wyoming Valley Audi (“Wyoming Valley”) breached certain terms of an Audi Dealer Agreement into which the parties entered on January 1, 1997, when it entered into an Asset and Real Estate Purchase Agreement (the “Purchase Agreement”) with the Napleton Group (“Napleton”). Audi alleged that the Purchase Agreement, which was signed on July 11, 2016, included the sale of Wyoming Valley's Audi assets in violation of Audi's own right of first refusal and its right to refuse to consent to the transaction on reasonable grounds. (Doc. 1.) In January of 2017, Audi sought, and obtained, a preliminary injunction from the district court, temporarily enjoining Wyoming Valley from consummating the Purchase Agreement while this litigation was pending. (Doc. 30.) That order currently remains in effect, and the district court has scheduled a further hearing for June 28, 2017, to assess whether to maintain the injunction.

         While the parties prepare for that hearing, they have been engaged in discovery that has at times been contentious. This order addresses one such disagreement relating to Wyoming Valley's assertion that some 54 documents that would otherwise be responsive to Audi's discovery requests are shielded by the attorney-client privilege, the common-interest privilege or otherwise are confidential attorney work product.

         On February 21, 2017, the Court ordered Wyoming Valley to produce four categories of documents to Audi within 20 days, including “[c]ommunications between Wyoming Valley and [Napleton] relating to the [Purchase Agreement] or the First Addendum, ” and “Wyoming Valley's internal documents regarding the [Purchase Agreement] and First Addendum.” (Doc. 46.) Wyoming Valley took steps to gather, review, and produce the required responsive information, including by reviewing information not only in Wyoming Valley's custody but also with documents in the possession of Arangio & George, Wyoming Valley's outside legal counsel who helped to negotiate the underlying transaction between Wyoming Valley and Napleton. According to Wyoming Valley, this review was a substantial undertaking, and resulted in the production of more than 13, 000 responsive documents, including a substantial quantity of communications between Wyoming Valley and Napleton about the Purchase Agreement and the First Addendum over which Wyoming Valley made no claim of privilege.

         In the Court's order directing the production of responsive documents, the Court also ordered Wyoming Valley to “provide the plaintiff and the Court with a detailed privilege log identifying the document and privilege being invoked” with respect to any responsive document being withheld on the basis of privilege or work product protection. (Doc. 46.) On April 5, 2017, Wyoming Valley submitted a 315-entry privilege log to the Court and to counsel. It appears that after this time, the parties continued to meet and confer over Wyoming Valley's privilege claims, resulting in Wyoming Valley producing additional documents, along with another shorter privilege log.[1]

         Audi has challenged Wyoming Valley's argument that the 54 documents identified on the privilege log are privileged and non-discoverable, and the Court has reviewed the documents in camera. Audi disputes that any of the documents are subject to privilege or work-product protection, and therefore has requested that the Court compel Wyoming Valley to disclose all of them. Wyoming Valley maintains that nearly all of the documents exchanged between counsel for Wyoming Valley and Napleton which are identified on the privilege logs constitute work product and that all of them are subject to the common-interest privilege, arguing in turn that each of these documents was either prepared in anticipation of litigation, or constituted attorney work product that was permissibly exchanged between counsel for Wyoming Valley and Napleton because of these parties' alleged shared legal and commercial interest in defending against Audi's attacks on the Purchase Agreement and what they perceived as threatened litigation.

         This discovery dispute presents a close question, and one that is made somewhat more difficult to resolve because although Pennsylvania law recognizes the common-interest privilege that Wyoming Valley has asserted, Pennsylvania courts have provided very limited guidance in terms of the privilege's application. The Court's review of the way the privilege has been interpreted and applied by other courts within the Third Circuit teaches that one of the most salient factors to be considered is the kind of interest that the parties claim to share. It is clear that purely commercial interests are insufficient to support the common-interest privilege, but it is also true that the privilege is not vitiated simply because parties share commercial interests, so long as they also share substantial legal interests.

         This consideration has particular relevance in this case, where the interests shared by Wyoming Valley and Napleton were unquestionably commercial in that both entities were motivated to complete their transaction, but they were also increasingly of a legal nature, particularly after Audi and other manufacturers notified them about concerns that they had regarding the Purchase Agreement and its alleged impact on the manufacturers' rights under their own contracts with Wyoming Valley.

         Audi and other manufacturers formally notified Wyoming Valley in late September 2016 of specific concerns that they had with the transaction, and counsel for Wyoming Valley and Napleton promptly began working in tandem to address Audi's stated concerns, which strongly suggested that Audi's concerns were legal in nature and that Audi was seeking to enforce its claimed rights under contract and state law. It is telling that Wyoming Valley does not claim a common-interest privilege over any document that existed or was exchanged before Audi and the other manufacturers sent letters outlining their concerns and specific demands, as this presents a clear moment where the parties recognized that they shared a legal interest in addressing Audi's challenge.

         Although it is a close issue, we find that Wyoming Valley and Napleton had sufficiently shared legal and commercial interests in coordinating the responses to Audi to shield the documents on Logs 1 and 3 from disclosure pursuant to the common-interest privilege. The Court's conclusion might have been different if Wyoming Valley and Napleton were seeking to shroud in secrecy documents relating to their negotiations or contractual back-and-forth relating to the Purchase Agreement itself. The fact that they restricted their assertion of the privilege to specific communications occurring after late September 2016, when the manufacturers put them on notice regarding potential legal challenges to the transaction, supports a finding that the common-interest privilege was appropriately invoked for this narrow set of documents.

         Moreover, review of those documents themselves supports the Court's finding that they should be withheld from production since these documents are, in large part, transmittal correspondence between counsel for Wyoming and Napleton that makes clear the parties' joint effort to address the legal issues that Audi had raised with them. Very often, these documents are simply cover letters or emails that accompanied draft documents that the parties were sharing for comment, and which would subsequently be provided to Audi in substantially the same form. In other cases, the correspondence is some brief acknowledgment of communication received from Audi's counsel, and scheduling further discussions between the dealerships in order to prepare a concerted response that addresses the issues Audi was pressing.[2] Although the Court recognizes that Audi may mine these limited pieces of correspondence for significance that might not be immediately apparent, the Court finds that the probative value of the correspondence itself is in large measure especially limited and thus this entire discovery dispute ultimately winds up being about withheld communications which often have very little apparent substance to them.

         Accordingly, following review of the parties' briefs and the documents submitted in camera, the Court agrees with Wyoming Valley's assertion that the common-interest privilege applies to each of the documents identified on Logs 1 and 3 because Wyoming Valley has effectively demonstrated that it shared with Napleton the kind of substantial parallel legal interests are necessary for the common-interest privilege to be applicable to this narrow set of documents, much of it correspondence between counsel. That the parties may have shared a commercial interest both in seeing this transaction through to closing, and in overcoming Audi's opposition to the deal, does not ...


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