UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NEW YORK
August 1, 2006
FREDERICK SCHOLTISEK, ON BEHALF OF HIMSELF AND ALL OTHER EMPLOYEES SIMILARLY SITUATED, ET AL., PLAINTIFFS,
ELDRE CORPORATION, DEFENDANT.
The opinion of the court was delivered by: David G. Larimer United States District Judge
DECISION AND ORDER
Plaintiff, Fredrick Scholtisek, commenced this action against his former employer, Eldre Corporation ("Eldre"), alleging that Eldre has violated the Fair Labor Standards Act, 29 U.S.C. § 201 et seq., and the New York Labor Law by willfully making impermissible deductions from the pay of employees who are paid on a salary basis. Plaintiff seeks declaratory relief and money damages, on behalf of himself and all other similarly situated employees. The Court has previously certified this action as a class action under Rule 23(b)(3) of the Federal Rules of Civil Procedure, and directed that notice of plaintiff's claims be sent to all class members. 229 F.R.D. 381 (W.D.N.Y. 2005).
In anticipation of trial, Eldre has filed a motion in limine seeking an order precluding the use of any testimony concerning certain conversations between Kathleen Davis, Eldre's former Human Resources Manager, and Arthur Abelson, who prior to his death was Executive Vice President of Eldre. Abelson made the subject statements in response to Davis' inquiry concerning certain wage matters, on behalf of a particular employee. Because the comments reference Eldre's attorneys, Eldre contends that the conversations are protected by the attorney-client privilege. For the reasons that follow, Eldre's motion is denied.
Davis testified at her deposition that her duties as Human Resources Manager included screening and interviewing job applicants, conducting exit interviews, helping employees obtain benefits, explaining their benefits to them, and generally acting as a liaison between employees and management. Dkt. #154 Ex. G at 20. She was not primarily responsible for handing Eldre's payroll, though she served as a backup for the person who did handle the payroll. Id. at 20, 78.
Davis helped type Eldre's 1999 revised handbook for exempt employees (which contained various information about Eldre's wage and hour policies and practices), but she did not make decisions with respect to the policies set forth in the handbook. Id. at 25, 41.
At one point, Davis testified that on a certain occasion in about the second or third year of her employment at Eldre, she "had an employee get angry because their pay was docked." Id. at 39. She stated that she "went to Mr. Abelson at the time with the employee's complaint, and [she] was told that this handbook had been gone over by the company's attorneys and everything in it was legal." Id.*fn1 It is this conversation to which Eldre objects.
Davis testified that she told Abelson that she "d[id]n't recall seeing a policy like that before for a salaried employee." Dkt. #161 Ex. A at 44. The policy she was referring to was Eldre's policy of docking salaried employees' pay for partial-day absences. Id. at 43, 46. Davis stated that she "wanted to get an answer [from Abelson] to have something to say to this employee to hopefully make them understand that this was company policy and, you know, that was it." Id. at 45.
After plaintiffs' attorney had asked her a few more questions about this topic, Eldre's attorney stated, "I think I just want to put an objection on the record to preserve an argument that any conversations with Mr. Abelson regarding attorneys is [sic] protected by the attorney/client privilege by virtue of Miss Davis' position." Id. at 47. Plaintiffs' attorney responded, "Obviously we'll be litigating that at a later point ... ." Id.
I. Privileged Communications
Defendant contends that Abelson's alleged statements to Davis that Eldre's attorneys had reviewed the company handbook and that "everything in it was legal" are protected by the attorney-client privilege. Plaintiffs contend that Eldre has waive the privilege with respect to those statements, in a number of ways.
Before reaching the issue of waiver, though, there is a threshold question whether any privileged information was transmitted by Abelson to Davis in the first place. I am not convinced that it was.
To invoke the attorney-client privilege, a party must demonstrate that there was (1) a communication between client and counsel, which (2) was intended to be and was in fact kept confidential, and (3) made for the purpose of obtaining or providing legal advice. United States v. Construction Products Research, Inc., 73 F.3d 464, 473 (2d Cir.), cert. denied, 519 U.S. 927 (1996). "It is ... well established that the party invoking a privilege bears the burden of establishing its applicability to the case at hand." In re Grand Jury Subpoenas Dated March 19, 2002 and August 2, 2002, 318 F.3d 379, 384 (2d Cir. 2003); see also United States v. International Bhd. of Teamsters, 119 F.3d 210, 214 (2d Cir. 1997) (holding that party invoking attorney-client privilege bears the burden of establishing "all of its elements"); United States v. Construction Prods. Research, Inc., 73 F.3d 464, 473-74 (2d Cir. 1996) (rejecting attorney-client and work product privilege claims where party failed to establish the essential elements). "The burden is a heavy one, because privileges are neither 'lightly created nor expansively construed.'" In re Grand Jury Subpoenas, 318 F.3d at 384 (quoting United States v. Nixon, 418 U.S. 683, 710 (1974)).
There are several problems with Eldre's assertion of the privilege here. First, it has not been established that there was a "communication between client and counsel" concerning Eldre's paydocking policies. See In re Subpeona of Curran, No. 3:04-MC-039, 2004 WL 2099870, at *5 (N.D.Tex. Sept. 20, 2004) ("The first element of the attorney-client privilege test looks to see if any confidential communications took place"). Eldre has expressly disclaimed any reliance on an advice-of-counsel defense, and several of its officers have testified that Eldre did not obtain any legal advice or opinions about those policies or the employee handbook. See Declaration of Robert
C. Weissflach (Dkt. #154) ¶¶ 26, 27, and deposition excerpts cited therein.
In addition, even taking Abelson at his (alleged) word that Eldre's attorneys had gone over the employee handbook, he never said that the attorneys had stated that everything in the handbook was legal. According to Davis, Abelson told her only that (1) the attorneys had reviewed the handbook and (2) everything in it was legal.
Taken together, those two statements might reasonably be interpreted as implying that the attorneys had told Eldre that everything in the handbook was legal, but that conclusion is not inescapable. It could also reasonably be inferred to mean only that the attorneys had not, to Abelson's knowledge, stated that anything in the handbook was illegal, and that it was simply Abelson's own opinion that everything in it was legal.
As stated, the burden of establishing the applicability of the privilege is on Eldre, and because of that, any ambiguities are to be construed against Eldre. See, e.g., Matter of Grand Jury Empanelled February 14, 1978, 603 F.2d 469, 474 (3d Cir. 1979) ("To the extent that the record is ambiguous as to the elements which are necessary to establish the claim of privilege, 'The burden of proving that the (attorney-client) privilege applies is placed upon the party asserting the privilege'") (quoting United States v. Landof, 591 F.2d 36, 38 (9th Cir. 1978)); Bell v. Pfizer, Inc., No. 03 Civ. 9945, 2005 WL 1560488, at *7 n. 6 (S.D.N.Y. July 5, 2005) ("Since defendants bear the burden of demonstrating the existence of the attorney-client privilege, the ambiguity [concerning the date on which a certain document was created] must be construed against them"); Heublein, Inc. v. E & J Gallo Winery, Inc., No. 94 Civ. 8155, 1995 WL 645438, at *2 (S.D.N.Y. Nov. 1, 1995) ("The burden of sustaining the claim of privilege is on Heublein. Because the record is ambiguous, Heublein has not sustained its burden") (citing Von Bulow by Auersperg v. Von Bulow, 811 F.2d 136, 144 (2d Cir.), cert. denied, 481 U.S. 1015 (1987)). To the extent that Abelson's alleged statements were ambiguous with respect to what, if anything, Eldre's attorneys said about the policies set forth in the employee handbook, that ambiguity is construed against Eldre, and I do not find that defendant has established that any privileged communications occurred in that regard.
Even if Abelson's alleged statements were taken to mean that Eldre's attorneys had given the employee handbook their imprimatur, I find that any privilege that had attached to such communications was waived when Abelson related them to Davis.*fn2
There is case law to the effect that disclosure of an attorney's advice by one corporate employee to another does not necessarily waive the privilege if there is a genuine need for such disclosure, such as where the recipient has some responsibility for the area to which the advice relates. See, e.g., Strougo v. BEA Associates, 199 F.R.D. 515, 519-20 (S.D.N.Y. 2001) ("although dissemination of privileged information to third parties generally waives attorney-client privilege, the distribution within a corporation of legal advice received from its counsel does not, by itself, vitiate the privilege"); SCM Corp. v. Xerox Corp., 70 F.R.D. 508, 518 (D.Conn.) (privileged communications will not lose "protection if an executive relays legal advice to another who shares responsibility for the subject matter underlying the consultation"), appeal dismissed, 534 F.2d 1031, 1032 (2d Cir. 1976)). This principle "follows from the recognition that since the decision-making power of the corporate client may be diffused among several employees, the dissemination of confidential communications to such persons does not defeat the privilege." Bank Brussels Lambert v. Credit Lyonnais (Suisse) S.A., 160 F.R.D. 437, 442 (S.D.N.Y. 1995).
In general, whether the dissemination of privileged communications to corporate employees vitiates the privilege is decided by applying a "need to know" standard: did the recipient need to know the content of the communication in order to perform her job effectively or to make informed decisions concerning, or affected by, the subject matter of the communication? See, e.g., Deel v. Bank of America, N.A., 227 F.R.D. 456, 460 (W.D.Va. 2005) ("A corporation does not waive its privilege when non-lawyer employees send or receive communications because corporate communications which are shared with those having need to know of the communications are confidential for purposes of the attorney-client privilege"); Wrench LLC v. Taco Bell Corp., 212 F.R.D. 514, 517 (W.D.Mich. 2002) ("while corporate executives may share legal advice with lower-level corporate employees without waiving the privilege, the privilege extends only to those employees with a 'need to know,' including those employees with general policymaking authority and those with specific authority for the subject matter of the legal advice"); Andritz Sprout-Bauer, Inc. v. Beazer East, Inc., 174 F.R.D. 609, 633 (M.D.Pa. 1997) ("Communications between corporate counsel and company personnel ... retain their privileged status if the information is relayed to other employees of officers of the corporation on a need to know basis. Only when the communications are relayed to those who do not need the information to carry out their work or make effective decisions on the part of the company is the privilege lost").
"The 'need to know' must be analyzed from two perspectives: (1) the role in the corporation of the employee or agent who receives the communication; and (2) the nature of the communication, that is, whether it necessarily incorporates legal advice. To the extent that the recipient of the information is a policymaker generally or is responsible for the specific subject matter at issue in a way that depends upon legal advice, then the communication is more likely privileged." Verschoth v. Time Warner Inc., No. 00CIV1339, 2001 WL 286763, at *2 (S.D.N.Y. Mar. 22, 2001) (observing that if an automobile manufacturer is attempting to remedy a design defect that has created legal liability, then the vice president for design and the engineer who will actually redesign the defective part will be among those to whom confidential legal communications can be made, but that "the autoworker on the assembly line has no need to be advised of the legal basis for a charge in production even though it affects the worker's routine and thus is within his or her general area of responsibility").
In this area, too, the burden rests upon the party claiming the privilege. "The burden is on the corporation asserting the privilege to show that it preserved the confidentiality of the communication by limiting dissemination only to employees with a need to know." Bank of New York v. Meridien BIAO Bank Tanzania Ltd., No. 95 Civ. 4856, 1996 WL 474177, at *2 (S.D.N.Y. Aug. 21, 1996) (citing 2 Jack B. Weinstein & Margaret A. Berger, Weinstein's Evidence, ¶ 503(b) at 503-49 to 503-50 (1988)). See also In re Philip Services Corp. Securities Litigation, No. 98CIV0835, 2005 WL 2482494, at *1 (S.D.N.Y. Oct. 7, 2005) (parties asserting privilege "bear the burden of demonstrating that the opinion letters are privileged and that the privilege has not been waived"); Denney v. Jenkens & Gilchrist, 362 F.Supp.2d 407, 412 (S.D.N.Y. 2004) ("The party claiming the privilege has the burden of showing 'that the communications between client and attorney were made in confidence and have been maintained in confidence'") (quoting In re Horowitz, 482 F.2d 72, 81-84 (2d Cir. 1973)) (alteration in original); Resolution Trust Corp. v. Massachusetts Mutual Life Ins. Co., 200 F.R.D. 183, 191 (W.D.N.Y. 2001) ("Just as the party seeking to assert a claim of privilege bears the burden of establishing the existence of the privilege, that same party has the burden of establishing non-waiver") (quoting Granite Partners v. Bear, Stearns & Co., Inc., 184 F.R.D. 49, 54 (S.D.N.Y. 1999)).
Here, I do not believe that Eldre has demonstrated that Davis needed to know that Eldre's attorneys had gone over the employee handbook and opined that the policies it contained were all in compliance with the law. Davis had no policymaking authority in this area, nor did she make decisions affecting employees' pay. Abelson could therefore simply have assured her that the policy in question was lawful and left it at that.
More to the point, though, even if Abelson thought that it was important for Davis to understand the basis for his assertion that Eldre's practices were lawful, he implicitly authorized Davis to tell the complaining employee what Abelson had said.*fn3 Davis--whose duties included "explain[ing] benefits and company rules [and] policies" to employees and acting as "a liaison between the employees and upper management if employees had questions or problems," Dkt. #154 Ex. G at 20--testified that she had gone "to Mr. Abelson ... with the employee's complaint" about his pay being docked. Id. at 39. She testified that she "sa[id] to Mr. Abelson that [Davis] d[id]n't recall seeing a policy like that before for a salaried employee," and that is when Abelson responded that "the handbook had been gone over by the company attorneys and that everything in it was legal." Dkt. #161 Ex. A at 44, 45.
When asked why she had made that statement about not having seen such a policy before, Davis replied, "Well, I did have an angry employee on my hands." She added that she "wanted to get an answer to have something to say to this employee to hopefully make them understand that this was company policy and, you know, that was it." Id. at 45.
In short, then, Davis was faced with an employee who was angry about a particular pay policy, and she went to Abelson "to get an answer" so that she would "have something to say to [the] employee" in response to his complaint. Under those circumstances, what Davis "needed to know" was what to tell the employee. By telling Davis that Eldre's attorneys had vetted the employee handbook, Abelson in effect authorized her to pass that information on to the employee. If Abelson had intended that she not repeat his statements to the employee, or that she give the employee a different answer than the one that Abelson had given Davis, one would certainly have expected him to tell her so. I therefore conclude that to the extent that Abelson's alleged statement to Davis contained privileged information, that privilege has been waived.*fn4
Defendant's motion in limine (Dkt. #152) is denied.
IT IS SO ORDERED.