PRODUCT LIABILITY UPDATE- Footnote 6

Crowd_wild

JAPANESE DRUG MANUFACTURER, TAKEDA, HIT WITH A $6 BILLION PUNITIVE DAMAGE AWARD BASED ON ALLEGED SPOLIATION AND CONCEALMENT OF EVIDENCE (AND THE PASSION AND PREJUDICE OF THE JURY).

In reliance on recent Supreme Court decisions, manufacturers may have thought that punitive damage awards hundreds of times the compensatory damages in a case were not supposed to happen anymore. But a jury in Lafayette, Louisiana thought differently on April 7, 2014 when it awarded punitive damages of $6 billion (or 6,100 times the compensatory award) against Takeda, a manufacturer of the drug Actos®, and $3 billion against Eli Lilly. In Re Actos (Pioglitazone) Products Liability Litigation, MDL No. 6:11-md-2299, Rec. Doc. 4108 (W.D.La..A. April 7, 2014).

Takeda Pharmaceutical Company, Ltd. (and related companies) and Eli Lilly & Company are defendants in multi-district litigation (“MDL”) in federal court related to the drug Actos®. This drug is used by diabetics in hopes that they achieve better cardiovascular outcomes. Takeda allegedly learned and then concealed internal 2004 studies showing there was a very high rate of bladder cancer associated with use of Actos®. This information did not come to light until 2011 when a French scientist wrote about his findings concerning the relationship between bladder cancer and the use of Actos®.

Two individual “Actos®” plaintiffs, Mr. and Mrs. Allan, proceeded to trial in April 2014 in the federal MDL proceedings in Lafayette, Louisiana. One of the principal issues in the trial was quantification of punitive damages against Takeda. Plaintiff introduced evidence that:

  • Takeda hid its 2004 clinical trial data showing that Actos® causes bladder cancer;
  • Takeda concealed statistical data showing an almost 200% increase in the number of bladder cancer adverse event reports from the use of Actos® (for over six years and $10 billion in sales of Actos®);
  • Takeda failed to disclose epidemiological studies that showed an extremely high risk of bladder cancer from use of Actos®;
  • Takeda engaged in the spoliation of the e-mail files of nine top-level Japanese executives, five company officers in Europe, and thirty-two U.S. officers, sales representatives and other employees;
  • Takeda was involved in “ghost writing” of publications, including scientific documents, sent to the FDA to dispel the bladder cancer issue involving use of Actos®;
  • and Takeda fired a doctor who refused to downgrade serious adverse event reports about the risk of bladder cancer from use of Actos®.

See Rec. In Re Actos (Pioglitazone) Products Liability Litigation, MDL No. 6:11-md-2299, Rec. Doc. 4423, Opposition of Plaintiffs to Motion for New Trial by Defendants. Takeda’s evidence and its denials of these claims were unconvincing to the jury, which awarded $6 billion in punitive damages against Takeda.

In post-trial briefs, Takeda argued that the punitive damage award should be reduced to the amount of the compensatory damage award of $1.475 million because:

  • The punitive award was grossly excessive in violation of its constitutional rights to due process, as articulated in State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416 (2003) and BMW of N. America v. Gore, 517 U.S. 559, 574 (1996);
  • Takeda’s conduct was not reprehensible and therefore punitive damages are not permissible. In support of this argument, Takeda argued that Actos® is still on the market, the Actos® label contained FDA-approved warning information about bladder cancer, and the alleged spoliation of e-mails was “no harm, no foul” because Takeda had disclosed certain clinical trial data and epidemiological studies (and there was no evidence offered that the “spoliated” e-mails contained any relevant information.)

Note: Takeda apparently faced an “up-hill battle” with respect to spoliation of its employee e-mails based upon the district court’s allowing an adverse inference instruction for the jury to use in considering the alleged destruction of e-mail evidence and the alleged failure of Takeda to abide by its internal litigation holds.

Takeda filed a Motion for a New Trial under Fed. R. Civ. P. 59 for a new trial on all of the Plaintiffs’ claims, or for a reduction of the punitive damages award. The motion was granted in part and denied in part. The Court reduced the “runaway” jury verdict, though not to the “single-digit ratio” that would satisfy Due Process requirements, as recommended by the Supreme Court in State Farm v. Campbell. Instead, the Court imposed punitive damages of $27,656,250.00 against Takeda and $9,218,750.00 against Eli Lilly, amounting to a 25:1 ratio of punitive to compensatory damages.

Advertisements

PRODUCTS LIAIBLITY UPDATE-Footnote 7

Evidence_Spoil

SPOLIATION OF EVIDENCE- TEXAS SUPREME COURT TAKES THE SPOLIATION DECISION AWAY FROM THE JURY AND PROVIDES A WAY TO “GUT” THE SPOLIATION REMEDY IN OTHER COURTS AROUND THE COUNTRY

The loss or destruction of evidence―from physical evidence to e-mails and surveillance videos―often results in claims of spoliation of evidence against defendants. Based simply upon an accusation of spoliation, courts routinely allow the jury to decide whether a defendant engaged in the spoliation of relevant evidence by instructing the jury it can draw an adverse or negative inference against the defendant because it may have lost or destroyed “missing” evidence in the case.

An adverse inference jury instruction can be fatal to a defendant’s defense on the merits of litigation against it. Juries presented with an allegation of spoliation by a defendant often focus on the defendant’s alleged wrongful conduct in failing to preserve evidence―not the merits of the defendant’s defense to the case. Smart plaintiff’s counsel with weak cases on liability “play the spoliation card” to distract, prejudice and inflame the jury against a defendant who allegedly spoliated evidence.

NOTE: In a multi-billion dollar jury award reported in the August 14, 2014 E-Update, “A Louisiana Federal Court Jury ‘Goes Wild’ With Multi-Billion Dollar Award,” a Louisiana jury was given the adverse inference instruction with respect to a manufacturer’s alleged spoliation of internal e-mails about the hazards of its pharmaceutical product. This jury awarded punitive damages that totaled 6,100 times the compensatory damages in the case, and spoliation is central to the jury’s verdict.

Recently, the Texas Supreme Court in Brookshire Bros. Ltd. v. Aldridge, et al., 438 S.W. 3d 9 (Tex. 2014), severely restricted the availability of the “adverse inference” instruction for spoliation of evidence by requiring the judge, not jury, to decide in a pre-trial hearing whether spoliation occurred and to impose the adverse jury instruction as a discovery sanction by the court. Under this procedure, the jury hears no evidence of whether spoliation, in fact, occurred, and that an adverse inference can be drawn against the party that spoliated evidence in the case. In doing so, the jury focuses on the merits case without being prejudiced by the alleged spoliation of evidence, and the party who spoliated the evidence is severely punished by by application of the adverse inference instruction.

The Brookshire case involved a slip-and-fall injury in the defendant’s grocery store. Plaintiff’s fall was recorded on video surveillance. The store manager preserved video of one minute before and seven minutes after plaintiff’s fall, but plaintiff claimed two hours of video before and after the fall was relevant and should have been preserved. Plaintiff argued that the defendant grocery store, therefore, spoliated this “missing” evidence, and asked the jury to draw an adverse inference against defendant for spoliation of the “missing” surveillance tape.

The trial court gave the “adverse inference” instruction on spoliation of evidence, and the jury verdict was in favor of plaintiff. Affirmed on appeal, the Texas Supreme Court reversed and remanded.

In its decision, the Court explained that the purpose of the adverse inference instruction is “. . . to compensate for the absence of the evidence that a party had a duty to preserve, [and] its very purpose is to ‘nudge’ or ‘tilt’ the jury toward a finding adverse to the alleged spoliator . . . . Thus, an unfortunate consequence of submitting a spoliation instruction is that it ‘often ends litigation’ because ‘it is too difficult a hurdle for the spoliator to overcome.’” The Texas Supreme Court then fashioned a remedy to “neutralize” or “gut” the harm caused a litigant who allegedly spoliated evidence, and held:

  • Spoliation of evidence is a pre-trial discovery abuse that deprives a party of relevant evidence at trial;
  • The trial court, not jury, must make a pre-trial fact determination in an evidentiary hearing if a party spoliated evidence, and treat spoliation as a discovery sanction;
  • The party claiming spoliation has the burden of proving that the spoliating party had a duty to preserve certain evidence and breached the duty to preserve that evidence;
  • To prove intentional spoliation, there must be proof that the spoliating party was in bad faith (similar to the burden of proof in a federal “death penalty” discovery sanction) and had a subjective intent to conceal or destroy the evidence; and
  • In rare circumstances, a court may allow an adverse inference instruction for negligent spoliation by a party if the non-spoliating party is irreparably deprived of any meaningful ability to present a claim or defense by the absence of the “missing”

With this ruling, the Texas Supreme Court has helped level the playing field in spoliation disputes by eliminating the potential jury prejudice from the jury deciding whether spoliation occurred and distracting them from the merits of a case. Other states should follow the lead of the Texas Supreme Court in the Brookshire decision based upon the road map laid out by the court using general principles of discovery and evidence currently available in federal and state courts throughout the country.

DEFENDANTS NO LONGER HAVE TO PAY FOR ATTORNEY- NEGOTIATED “WRITE-OFFS” OR DISCOUNTS FOR PLAINTIFF’S MEDICAL BILLS

Write-off, medical bill, plaintiff, defense firm, louisiana, litigation Over the years, plaintiff’s lawyers have been able to pocket a lot of money by recovering medical expenses for their clients at the full “retail” amount of billed charges and then only reimbursing their favorite doctors the “wholesale” discounted charges for client medical care. The difference between the “retail” and “wholesale” charges paid was a windfall to plaintiffs and their counsel until the recent Louisiana Supreme Court decision of Hoffman v. 21st Century North America Insurance Company and Carolyn Elzey, No. 2014-C-2279 (La. S.C. 10/2/2015).

The Hoffman case involved an auto collision in which the plaintiff suffered minor personal injuries. In a bench trial, plaintiff presented evidence that she had $4,528.00 in “retail” billed charges for her medical treatment related to the accident. Her attorney negotiated a “wholesale” discount of those charges (using his “frequent-plaintiff” discount) to $2,478.00. The trial court only awarded plaintiff the “wholesale” medical charges plaintiff actually paid, and she appealed the ruling (in a dispute of less than $2,000) to the Louisiana Supreme Court.

The Hoffman court ruled that:

1.)  The collateral source rule is not applicable to an attorney-negotiated discount or write-off of billed charges in a personal injury case;

2.)  Any recovery of damages for medical bills beyond the amount the plaintiff paid would be a windfall to the plaintiff if her attorney had negotiated the discount for her; and

3.) A plaintiff’s attorney who fails to disclose an attorney-negotiated discount for billed charges with a health care provider may have exposure for making a fraudulent statement.

The Hoffman decision is a victory for defendants who would be wise to include specific written discovery to plaintiffs in all pending and future cases requiring the plaintiff to disclose if there has been or will be any attorney-negotiated discounts or “write-offs” in their cases. And, a subpoena duces tecum to the plaintiff’s health care providers should disclose all discounts and “special deals” between a plaintiff’s counsel and physicians in personal injury litigation.

Note: The Hoffman case is a “small” victory because, under Louisiana law, defendants are liable to a plaintiff for the full “retail” amount of billed medical charges, except when Medicaid – not Medicare – pays the medical charges, Bozeman v. State, 879 So.2d 692, 698 (La. 2004) or insurers pay a plaintiff pursuant to med-pay provision in a liability insurance policy. Hoffman v. Travelers Indemnity Co., 144 So.3d 993 (La. 2014).

NEW YORK TIMES SAYS “THE TRUCKS ARE KILLING US” – WHAT DO YOU SAY?

The Trucks Are Killing Us New York Times

The Trucks Are Killing Us
New York Times

In a recent article on its Op-Ed page, the New York Times showed a tractor-trailer cab as a human skull and declared “The trucks are killing us.”

SEE ATTACHED ARTICLE.

The article seizes upon the notoriety of the terrible traffic accident involving comedian Tracy Morgan, and then argues that such accidents will continue to happen until Congress stops “coddling” the trucking industry. The author of the article claims that Congress is pushing to roll back safety improvements by increasing the maximum driving hours allowed per week, lowering the minimum age for drivers to 18 years old, and allowing longer and heavier trucks on the road. While there may be little, if any, merit to this New York Times article, it seeks to sway public opinion against legislative changes sought by the trucking industry that may be included in the Highway Bill now pending before Congress. Please contact the ATA, your industry representatives and Congressmen to let them know your thoughts about these important issues.
Member of TIDA

SPOLIATION OF EVIDENCE

TEXAS SUPREME COURT TAKES THE SPOLIATION DECISION AWAY FROM THE JURY AND Evidence_SpoilPROVIDES A WAY TO “GUT” THE SPOLIATION REMEDY IN OTHER COURTS AROUND THE COUNTRY

The loss or destruction of evidence―from physical evidence to e-mails and surveillance videos―often results in claims of spoliation of evidence against defendants. Based upon an allegation of spoliation, courts routinely allow the jury to decide whether a defendant engaged in the spoliation of relevant evidence by instructing the jury it can draw an adverse or negative inference against the defendant because it may have lost or destroyed “missing” evidence in the case.

An adverse inference jury instruction can be fatal to a defendant’s case on the merits of litigation against it. Juries presented with an allegation of spoliation by a defendant often focus on the defendant’s alleged wrongful conduct in failing to preserve evidence―not the merits of the defendant’s case. Smart plaintiff’s counsel with weak cases on liability “play the spoliation card” to distract, prejudice and inflame the jury against a defendant who allegedly spoliated evidence.

The Texas Supreme Court in Brookshire Bros. Ltd. v. Aldridge, et al., 438 S.W. 3d 9 (Tex. 2014), restricted the availability of the “adverse inference” instruction for spoliation of evidence by requiring the judge, not jury, to decide in a pre-trial hearing whether spoliation occurred and to impose the adverse jury instruction as a discovery sanction by the court. Under this procedure, the jury hears no evidence of whether spoliation, in fact, occurred, and focuses on the merits case without being prejudiced by conduct involving the alleged spoliation of evidence.

The Brookshire case involved a slip-and-fall injury in the defendant’s grocery store. Plaintiff’s fall was recorded on video surveillance. The store manager preserved video of one minute before and seven minutes after plaintiff’s fall, but plaintiff claimed two hours of video before and after the fall was relevant and should have been preserved. Plaintiff argued that the defendant grocery store, therefore, spoliated this “missing” evidence, and asked the jury to draw an adverse inference against defendant for spoliation of the “missing” surveillance tape.

The trial court gave the “adverse inference” instruction on spoliation of evidence, and let the jury decide if spoliation had, in fact, occurred. The jury verdict was in favor of plaintiff, and affirmed on appeal. The Texas Supreme Court reversed and remanded.

In its decision, the Court explained that the purpose of the adverse inference instruction is “. . . to compensate for the absence of the evidence that a party had a duty to preserve, [and] its very purpose is to ‘nudge’ or ‘tilt’ the jury toward a finding adverse to the alleged spoliator . . . . Thus, an unfortunate consequence of submitting a spoliation instruction is that it ‘often ends litigation’ because ‘it is too difficult a hurdle for the spoliator to overcome.”

The Texas Supreme Court then fashioned a remedy to “neutralize” or “gut” the harm to the alleged spoliator with the jury deciding if spoliation occurred. The Court held:

  • Spoliation of evidence is a pre-trial discovery abuse that deprives a party of relevant evidence at trial;
  • The trial court, not jury, must make a pre-trial fact determination in an evidentiary hearing if a party spoliated evidence, and treat spoliation as a discovery sanction;
  • The party claiming spoliation has the burden of proving that the spoliating party had a duty to preserve certain evidence and breached the duty to preserve that evidence;
  • To prove intentional spoliation, there must be proof that the spoliating party was in bad faith (similar to the burden of proof in a federal “death penalty” discovery sanction) and had a subjective intent to conceal or destroy the evidence; and
  • In rare circumstances, a court may allow an adverse inference instruction for negligent spoliation by a party if the non-spoliating party is irreparably deprived of any meaningful ability to present a claim or defense by the absence of the “missing”

With this ruling, the Texas Supreme Court has helped level the playing field in spoliation disputes by eliminating the potential jury prejudice from the jury deciding at trial whether spoliation occurred and distracting them from the merits of a case. Other states should follow the lead of the Texas Supreme Court in the Brookshire decision based upon the road map laid out by the court using general principles of discovery and evidence currently available in federal and state courts throughout the country.

IMMUNITY FROM LIABILITY BASED ON INDEPENDENT CONTRACTOR STATUS

DO YOU THINK YOU HAVE NO LIABILITY FOR SOMEONE WHO IS YOUR “INDEPENDENT IndependentContractorStatusCONTRACTOR”? THINK AGAIN

A U.S. Ninth Circuit decision, along with administrative positions taken by the United States Department of Labor and the National Labor Relations Board, may change the way you look at whether a person is your “employee” or “independent contractor.” Determination of whether a person is a company’s employee can have a dramatic impact on the company’s liability in employment disputes, franchisor-franchisee relations, and vicarious liability in tort.

In Alexander v. FedEx Ground Package System, Inc., 765 F.3d 981 (9th Cir. 2014), the U.S. Ninth Circuit Court of Appeals reversed a summary judgment in favor of defendant FedEx Ground Package System, Inc. (“FedEx”) in a class action by FedEx delivery drivers. The Court held thousands of FedEx delivery drivers were, as a matter of law, employees of FedEx―not its independent contractors. These drivers owned their own trucks, were paid per delivery, had to buy their own fuel and maintain their trucks, and had contracts with FedEx that defined their relationship as an independent contractor to FedEx, using standard contract language that provided:

          No officer, agent, or employee of FedEx . . . shall have the authority to direct the [plaintiff-          driver] as to the manner and means employed [by driver]. . . . The manner and means
of [driver] reaching [his] results are within the discretion of the [driver].

Based upon the provisions of the contract, and policy and procedures of FedEx, the district court ruled that FedEx drivers were independent contractors based primarily upon the “entrepreneurial opportunities” FedEx afforded to the FedEx drivers, and the “. . . drivers’ class-wide ability to own and operate distinct businesses, own multiple routes and profit accordingly.”

The Ninth Circuit reached the opposite conclusion based on the same undisputed facts and held that FedEx was the employer of all of its delivery drivers in the litigation.

In its ruling, the FedEx court applied the California test for independent contractor status, a test similar to that in most states. The test looks to the right of the principal, FedEx, to control the manner and means of persons in accomplishing the result desired, along with several other factors. FedEx, 765 F.3d at 988. FedEx and the class of delivery drivers agreed that the standard contract between them and FedEx’s policies and procedures were undisputed facts governing the details of the delivery drivers’ performance of their jobs. The Ninth Circuit placed little weight on the standard contract provision about FedEx lacking the right to control the drivers and found FedEx had a “great deal of control over the manner in which the drivers do their job . . . ,” based on the following policies and procedures:

  • FedEx controlled the details of the appearance of the delivery drivers and that of each delivery truck;
  • FedEx controlled the time its drivers could work, and how and when the packages were delivered; and
  • FedEx had absolute discretion whether to grant or withhold its consent for the FedEx delivery drivers to do any work other than for FedEx.

Id. at 989-90. After comparing the FedEx drivers to “sharecroppers,” the Court rejected the argument by FedEx that its delivery drivers were independent contractors because they had “entrepreneurial opportunities” to operate their own delivery services (as the D.C. Circuit had ruled in favor of FedEx, in FedEx Home Delivery v. National Labor Relations Board, 563 F.3d 492 (D.C. Cir. 2009)).

One can write-off the recent FedEx decision to the liberal tendencies of the U.S. Ninth Circuit. But, the reality is that the majority of federal court judges on nine of thirteen U.S. Courts of Appeal have been appointed by Democratic administrations. See “Building Legacy, Obama Reshapes Appellate Bench,” New York Times, September 13, 2014. These more liberal federal court judges may follow the analysis in the FedEx decision to treat “independent contractors” as employees under the law of your state.

To compound matters, the Obama Administration and the National Labor Relations Board have challenged franchisors, like McDonalds, on “independent contractor” status, and argued that a franchisor has “joint responsibility” with the franchisee for the franchisor’s employees if the “industrial realities” are that the franchisor and franchisee are essentially the same company. See “Who’s the Boss,” The Economist, September 6, 2014, p. 33.

Companies relying on “independent contractor” status in labor, franchisor-franchisee, and litigation matters would be wise to re-examine their contracts and policies and procedures involved in these relationships in light of the FedEx decision and the “new wave” of administrative decisions on who is an “employee.” Changes in contracts and policies and procedures may be needed to avoid your “independent contractors” becoming “employees” for whom you are liable.

CLIENT BEWARE: NOT ALL COMMUNICATIONS WITH IN-HOUSE COUNSEL ARE PRIVILEGED

AttorneyClientPrivilegeCOURTS REFINE THE LIMITS OF ATTORNEY-CLIENT PRIVILEGE FOR COMMUNICATIONS WITH IN-HOUSE COUNSEL

Many clients believe that if an attorney is part of an internal communication that communication becomes privileged. Recent court decisions dispel this notion and remind us that for the attorney-client privilege to apply to communications with an in-house attorney, she must do more than receive and review a communication―the attorney must perform legal services with respect to the communication for the privilege to apply. In Re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014); ExxonMobil Corp. v. Hill, 751 F.3d 379 (5th Cir. 2014); but see Hamdan v. Indiana Univ. Health North, LLC, No. 1:13-cv-00195-WTL-MJD, 2014 WL 2881551 (S.D. Ind. June 24, 2014).

The District of Columbia Circuit decision in Brown & Root involved an internal investigation conducted by in-house counsel for Kellogg, Brown & Root (“Brown & Root”) to determine if his client had violated the federal False Claims Act. Plaintiff, a whistleblower, filed a False Claims Act complaint against Brown & Root, asserting that Brown & Root had defrauded the U.S. Government by inflating costs and accepting kickbacks while administering military contracts in war-time Iraq. The whistleblower sought documents related to Brown & Root’s internal investigation of alleged misconduct that was the subject of his lawsuit.

Brown & Root argued that the internal investigation had been conducted for the purpose of obtaining legal advice and that communications incidental to its internal investigation were protected by the attorney-client privilege. The whistleblower argued that the documents were simple business records of an internal investigation required by law and unprivileged.

After reviewing the disputed documents in camera, the district court ruled that the internal investigation of Brown & Root was not protected by the attorney-client privilege. In arriving at this conclusion, the district court gave a very narrow interpretation to the “primary purpose” doctrine used to protect attorney-client communications of in-house counsel from disclosure. The district court said that for the attorney-client privilege to apply to a communication involving in-house counsel, the “primary purpose” of the communication must be solely to obtain or provide legal advice. If there was any other purpose behind the communication, the attorney-client privilege did not apply. Because the “primary purpose” of Brown & Root’s internal investigation was to comply with its obligations to report improper conduct to the Department of Defense, the district court held that the “primary purpose” of the internal investigation was to comply with federal contractor regulations, not to secure legal advice.

In reversing the district court, the D.C. Circuit ruled that so long as obtaining or providing legal advice was one of the significant purposes of the internal investigation, the attorney-client privilege applies to communications with in-house counsel, even if there were other purposes for the communication and even if the investigation was mandated by government regulation rather than simply an exercise of company discretion. The court rejected the district court’s application of the ‘primary purpose” test that required the sole purpose of a communication be to obtain or provide legal advice. The appellate court explained the proper application of the “primary purpose” test to protect in-house counsel’s attorney-client communications:

It is thus not correct for a court to presume that a communication can have only one primary purpose. It is likewise not correct for a court to try to find the one primary purpose in cases where a given communication plainly has multiple purposes. Rather, it is clear, more precise and more predictable to articulate the test as follows: was obtaining or providing legal advice (a) the primary purpose of the communication, meaning one of the significant purposes of the communication?

Applying its “primary purpose” test, the D.C. Circuit concluded that there was no serious dispute that the internal investigation of Brown & Root by its in-house counsel was protected by the attorney-client privilege.

The U.S. Fifth Circuit recently ruled that a memorandum prepared by Exxon Mobil’s in-house counsel in contract negotiations was subject to the attorney-client privilege and vacated a contrary ruling by the district court. Exxon Mobil Corp v. Hill, 751 F.3d 379 (5th Cir. 2014). The memo was prepared during negotiations between Exxon Mobil and a contractor that cleaned oilfield tubulars for it. These tubulars contained “naturally occurring radioactive material” or NORM, and the cleaning contractor claimed it had a new device that would clean NORM from the tubulars.

During contract negotiations, Exxon Mobil had an industrial hygienist conduct tests to see if the cleaning device worked to clean NORM as the contractor represented and wrote a confidential report of the test results for the NORM-cleaning device. Exxon Mobil’s in-house counsel reviewed the test results during the contract negotiations and recommended a partial disclosure of the test results done by Exxon Mobil, a disclaimer of any warranty as to the data’s accuracy, and a statement that the data was created solely for Exxon Mobil’s internal use.

In-house counsel’s advice to his client was recorded in a memorandum that became known as the “Stine Memo.” It was inadvertently produced in litigation involving NORM exposures in which Exxon Mobil was sued. Exxon Mobil sought an appellate ruling that the Stine Memo was a privileged attorney-client communication.

Instead of applying the “primary purpose” test, the Fifth Circuit looked to the context in which the Stine Memo was prepared and held it was privileged:

The document was prepared during contract negotiations in which both sides were assisted by legal counsel. The negotiations, according to the record, involved a number of legal issues, including indemnity for down-stream tort claims, storage and handling of nuclear residue, licensure, trade secrets and other issues. . . . All of this is to say that the context in which the Stine memo was produced―even before we say anything of the memorandum itself―strongly suggests that ExxonMobil was approaching its in-house counsel for just the sort of lawyerly thing one would expect of an in-house lawyer: advice on transactional matters.

Id. at 382.

The court concluded that the obvious reason Exxon Mobil sought its lawyer’s advice was to deal with any potential legal liability, disclosure of data, and to hedge against any liability from warranties, and, therefore, the attorney-client privilege applied.

NOTE: In Hamdan v. Indiana Univ. Health North, LLC, No. 1:13-cv-00195-WTL-MJD, 2014 WL 2881551 (S.D. Ind. June 24, 2014), a magistrate judge recently held that communications that were simply copied to an in-house counsel were not privileged because:

  • There was no request for legal advice in any of the e-mails;
  • The e-mails merely communicated facts about the business matter on which in-house counsel was copied; and
  • There was no indication the e-mails were created for the purpose of seeking advice from attorneys.

Based upon application of the seminal Supreme Court decision, Upjohn Co. v. U.S., 449 U.S. 383, 389 (1981), the court held simply communicating the underlying facts to an attorney by copying the attorney on an e-mail does not transform the e-mail into a privileged communication as no legal advice was sought by the e-mails nor were they related to the purpose of seeking legal advice.