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AAIpharma Inc. v. Kremers Urban Development Co.

October 31, 2006


The opinion of the court was delivered by: Ronald L. Ellis, United States Magistrate Judge



Plaintiff, AAIpharma, Inc., (hereinafter "AAIpharma"), brought suit against defendants, Kremers Urban Development Company, Kremers Urban, Inc., Schwarz Pharma, Inc., Schwarz Pharma USA Holdings, Inc., Schwarz Pharm Manufacturing, Inc., and Schwarz Pharma, AG, (collectively, "Schwarz Pharma"), for patent infringement. District Judge Barbara S. Jones has referred the case to the undersigned for general pretrial matters. Before the Court is Schwarz Pharma's motion for sanctions against AAIpharma in connection with a lengthy discovery dispute in which AAIpharma claimed 1500 documents were covered either by the attorney/client privilege or the attorney work product doctrine. AAIpharma produced nine versions of its privilege log during the dispute. Schwarz Pharma asks the Court to impose sanctions on AAIpharma for making numerous changes to 1) the descriptions of withheld documents; and 2) the bases for withholding documents. Schwarz Pharma also asks the Court to sanction AAIpharma for improperly withholding documents which the Court later determined were not privileged after two in camera reviews. Schwarz Pharma seeks total sanctions of $395,750.

For the following reasons, Schwarz Pharma's motion is GRANTED, IN PART, and DENIED, IN PART. As outlined below, AAIpharma is ordered to pay $44,500 as a monetary sanction for improperly withholding documents even after significant court intervention and for repeatedly shifting the bases upon which it claimed to be withholding documents.


AAIpharma produced its first privilege log in this litigation in February 2004 for 292 documents it was withholding in discovery. Defendants' Memorandum in Support of Their Motion to Assess Sanctions Under Rule 37 ("Schwarz Pharma Mem.") at 4, 5 n.5. AAIpharma opposed production for an additional set of documents, not listed in the log, on the basis of a confidentiality agreement with AstraZeneca. AAIpharma Inc.'s Opposition to Defendants' Motion to Assess Sanctions Under Rule 37 ("AAIpharma Mem.") at 6. After the Court ordered AAIpharma to produce some of those documents, and AstraZeneca released AAIpharma from the confidentiality provision, AAIpharma produced almost 100,000 pages. Id. at 6-7. AAIpharma continued to withhold some AstraZeneca documents on the basis of the attorney/client privilege and/or the work product doctrine and, therefore, added those documents to the existing privilege log. Id. at 7.

Throughout 2004, in various conferences with the Court, Schwarz Pharma argued that AAIpharma had made improper claims of privilege on its privilege logs. Initially, each time the issue was raised, AAIpharma indicated that it was producing a revised privilege log which would moot Schwarz Pharma's grievances. Subsequently, in response to the parties' discussions with the Court, AAIpharma produced documents in two batches and removed them from the logs. Id. at 8. In accordance with directives from the Court, AAIpharma also further revised descriptions of the documents in the logs in an attempt to clarify the claims of privilege. Id. at 8-9. Schwarz Pharma thereafter continued to challenge the designation of a large number of documents that AAIpharma had listed in the logs, and asked the Court to conduct an in camera review. See id. at 9.

On September 15, 2004, the Court ordered an in camera review of a subset of the documents. Those documents were discussed at a status conference on October 27, 2004. See Transcript, Declaration of Christopher Ryan (Counsel for AAIpharma) ("Ryan Decl."), Exh. K. After reviewing this sample, the Court determined that the attorney/client privilege and the work product doctrine had been invoked more broadly than appropriate. Id. at 4-5, 8. The Court then discussed the parameters of the attorney/client privilege; in particular, why documents withheld failed to satisfy all elements necessary to invoke the privilege. Id. at 2-5. Operating on the assumption that the subset reviewed was representative of all the documents listed in the privilege log, the Court directed AAIpharma to review its documents and claims again based on the Court's ruling, with the expectation that most of the documents would be produced. Id. at 9-10. AAIpharma would be allowed to assert any appropriate privilege for the unreviewed documents. Id. at 10.

AAIpharma indicated that it believed the Court's ruling was overbroad, but produced 503 documents, continuing to withhold 337 documents it deemed "unquestionably privileged." AAIpharma Mem. at 9-10. Schwarz Pharma continued to assert its objections to AAIpharma's claims of privilege. In a conference on January 27, 2005, the Court ordered another in camera review, this time of all 337 documents then in dispute. Transcript, Declaration of Eric Stops (Counsel for Schwarz Pharma) ("Stops Decl."), Exh. E, at 24-25.

At that time, Schwarz Pharma asked for sanctions against AAIpharma for requiring judicial intervention before producing documents. Id. at 9. Schwarz Pharma claimed that AAIpharma's privilege log had been a "moving target" since the beginning because it had changed the basis for withholding numerous documents. Id. at 22. It argued that if AAIpharma had asserted one basis of privilege initially, it could not later change the basis for withholding the document, and therefore had waived its right to claim any other basis of privilege for that document. Id. at 8-9.

AAIpharma argued that while it had changed the descriptions of documents in numerous instances, those changes were not substantive or "material to the basis for the claim of the privilege, but made in an effort to clarify." Id. at 3. AAIpharma also explained that for a small number of documents, it had changed the basis of the privilege, from attorney/client to work product, or vice-versa. Id. at 4. In those instances, AAIpharma was now asserting "the better claim of privilege." Id. In other cases, AAIpharma had added a basis of privilege, so that a particular document, for example, was now claimed to be covered by both attorney/client privilege and the work product doctrine, where only one basis had been asserted before. Id. The Court found that changing the privilege claim was inconsistent with the reasons for a privilege log. Id. at 5.

In a conference on May 4, 2005, the Court ruled that AAIpharma had not acted willfully, and therefore had not waived the right to assert privilege. Id., Exh. A, at 3-5. However, the Court did find that assertion of the wrong privilege required unnecessary judicial intervention and was sanctionable. Id. at 5-6. Rather than entertain protracted additional litigation about the time and expense AAIpharma had caused, the Court indicated that AAIpharma would be assessed a discrete monetary penalty for each inappropriate designation. Id. at 6.

After the second in camera review, the Court found that 277 of the 337 documents were privileged, while 60 were not, and had to be produced. Docket Entry Nos. 112 and 117, Stops Decl., Exhs. O-P. AAIpharma produced 14 of those 60 documents, and appealed the ...

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