The opinion of the court was delivered by: Leslie G. Foschio United States Magistrate Judge
This action was referred to the undersigned by Honorable William M. Skretny on December 5, 2007, for determination of non-dispositive motions. The matter is presently before the court on Defendants' motions for sanctions (Doc. No. 247), filed September 18, 2009, and for sanctions and to extend discovery (Doc. No. 275), filed February 24, 2010 ("Defendants' Motions").
Plaintiff Robins & Myers, Inc. ("R&M" or "Plaintiff"), commenced this fraud action on March 22, 2001, seeking to recover monetary damages allegedly incurred by R&M in connection with its 1997 purchase of Flow Control Equipment, Inc. ("FCE"), a manufacturer of, inter alia, "closures" used in certain tubes, such as boilers, pressure vessels, and oil and gas pipelines, to provide cleaning and maintenance access inside pipelines. The purchase was pursuant to a November 20, 1997 Stock Purchase Agreement ("the Stock Purchase Agreement"), and the sale was finalized on December 20, 1997. At the time of purchase, FCE was a wholly-owned subsidiary of Defendant J.M. Huber Corporation ("Huber"), and Defendant H. Milton Hoff ("Hoff"), was FCE's president. R&M's primary legal negotiator of the Stock Purchase Agreement was Joseph Rigot, Esq. ("Rigot"), a partner with the law firm Thompson Hine LLP ("Thompson Hine"), and who also serves as R&M's inside general counsel. While negotiating the Stock Purchase Agreement, Huber made various representations to R&M and Rigot regarding FCE's outstanding liabilities, including that FCE had used a lower quality steel forgings than specified in the manufacture of some closures ("the Off-Specification Closures"), which had been sold to R&M custumers, some of whom could not be traced. FCE's use of the wrong steel forgings was attributed to the forging supplier's error. The parties dispute whether the full extent of the Off-Specification Closures sold was disclosed to Plaintiff prior to its purchase of FCE. Following its purchase, R&M changed FCE's name to Robbins & Meyers Energy Systems, Inc. ("R&MES"). On October 26, 2001, Defendants commenced a third-party action against R&MES, R&M legal counsel Thompson Hine, and Berkely Forge and Tool, Inc. ("Berkeley Forge") (together, Third Party Defendants").*fn2
The instant motions concern a letter drafted on May 18, 2000 by one Gary R. Owens, Esq. ("Owens"), of the Philadelphia law firm Swartz Campbell LLC ("Swartz Campbell" or "outside counsel"), whose legal advice R&M sought in connection with its own investigation into whether Thompson Hine was negligent in its representation of R&M regarding the Off-Specification Closures issue. In a February 26, 2004 deposition of one Kevin Brown ("Brown"), R&M's controller at the time of R&M's acquisition of FCE, Brown testified regarding communications with Rigot regarding the Off-Specification Closures issue prior to the purchase.
Although fact discovery initially closed on March 5, 2004 (Doc. No. 64), Plaintiff filed an Amended Complaint on April 28, 2004 (Doc. No. 95) ("Amended Complaint"), containing new asserted allegations, claims and requests for relief which necessitated additional discovery, including further depostions. Defendants first learned of the so-called "Outside Counsel Letter" on May 1, 2008, during the deposition of Rigot, whom the R&M Parties designated as their corporate representative in this matter in accordance with Fed.R.Civ.P. 30(b)(6). Because the Outside Counsel Letter summarizes the legal advice Owens gave to R&M regarding Thompson Hine's potential negligence, Defendants maintain the Outside Counsel Letter create a conflict of interest as to Thompson Hines's representation of the R&M Parties in this action given that Defendants have asserted such alleged negligence as an affirmative defense.
The Outside Counsel Letter initially was the subject of motions filed on June 4, 2008 by R&M and R&MES (together, "R&M Parties"), for a protective order (Doc. No. 166) and by Defendants to compel its production (Doc. No. 167 ¶ 5) ("Defendants' first motion to compel). Following oral argument on the motion, the undersigned granted Defendants' first motion to compel, and ordered R&M Parties to disclose the Outside Counsel Letter. June 19, 2008 Minute and Order (Doc. No. 179). No appeal of this order was taken by the R&M Parties.
On July 14, 2008, the R&M Parties produced a letter from outside counsel regarding the potential negligence of Thompson Hine. Doc. No. 182-2 at 15. According to Defendants, the letter indicated the existence of additional correspondence and documentation ("collateral communications") pertaining to Thompson Hine's potential negligence, and, at a deposition of Rigot as the R&M Parties' representative, Rigot was unable to state whether he was sure the letter produced on July 14, 2008 was, in fact, the Outside Counsel Letter, and was instructed by the R&M Parties' legal counsel not to answer Defendants' question as to whether any other letters prepared by counsel regarding Thompson Hine's potential negligence had been prepared by counsel. Id. at 15-16.
On July 16, 2008, Defendants moved to compel seeking the collateral communications, including additional communications between R&M and Swartz Campbell and discovery directed to locating the Outside Counsel Letter (Doc. No. 182) ("Defendants' second motion to compel"). The R&M Parties opposed the motion, maintaining Rigot had testified that he believed the letter produced on July 14, 2008 was the Outside Counsel Letter, and that Rigot was properly instructed not to respond to Defendants' query regarding the existence of other collateral communications between R&M and its outside counsel on other issues. Doc. No. 188 at 9-10. Defendants, however, argued that the R&M Parties' asserted privilege regarding the subject matter of the Outside Counsel Letter was waived when Rigot gave deposition testimony on May 1, 2008 regarding the advice R&M's outside counsel, Swartz Campbell, provided to the R&M Parties about Defendants' claims against Berkeley Forge and Thompson Hine. Doc. No. 189 at 7-8. Defendants also argued the R&M Parties waived any privilege that would apply to Rigot's communications with the R&M Parties on the issue of the Off-Specification Closures when former R&M controller Brown testified at a deposition in February 2004 as to Brown's conversations with Rigot regarding the Off-Specification Closures prior to R&M's purchase of FCE, yet the R&M Parties continued to refuse to produce the collateral communications including, for example, a November 18, 1997 memo from Rigot to Brown regarding the FCE acquisition. Id. at 3-4. Following oral argument on Defendants' second motion to compel conducted on August 20, 2008, the undersigned granted the motion with regard to Defendants' request for an extension of discovery to permit follow-up discovery, including supplemental deposition testimony of Rigot, or anyone with knowledge of the Outside Counsel Letter, but reserving decision as to whether the R&M Parties had waived subject matter privilege for the Outside Counsel Letter. August 20, 2008 Minute and Order (Doc. No. 192). The R&M Parties did not appeal this order.
On November 24, 2008, Defendants again moved to compel production of all collateral communications relating to the Outside Counsel Letter (Doc. No. 217) ("Defendants' third motion to compel"). In support of the motion, Defendants argued that because the collateral communications were prepared in the context in which R&M and Thompson Hine are adversaries, the attorney-client privilege did not shield such communications from disclosure, and that the R&M Parties, by giving deposition testimony about the collateral communications, had waived any privilege that could otherwise have been asserted with regard to the collateral communications. Doc. No. 217-2 at 4-5. The R&M Parties opposed Defendants' third motion to compel on the basis that the court's two previous orders regarding the Outside Counsel Letter pertained only to the Outside Counsel Letter itself, but not to R&M's collateral communications with outside counsel, the collateral communications are privileged as attorney work product, as not been waived, and such communications are irrelevant to this action, other than to a questionable affirmative defense asserted by Defendants that the negligence of R&M's legal counsel in negotiating the purchase of FCE bars the Complaint. Doc. No. 224 at 2-7.
At oral argument on Defendants' third motion to compel, held December 17, 2008, the undersigned specifically found either no attorney-client relationship existed when the collateral communications were created because of an adversarial relationship between R&M and Thompson Hine, or that the subject matter of the Outside Counsel Letter has, by Rigot's deposition testimony, been waived as to both the Outside Counsel Letter and the collateral communications. Revised Transcript of December 17, 2008 Proceedings (Doc. No. 229), at 72-76. Further, to the extent that any of the subject communications were in Thompson Hine's possession, because the communications were created at the request of R&M by Swartz Campbell, the court found such communications were shared with a third-party, thereby destroying their confidentiality. Id. at 76-77. Following oral argument on December 17, 2008, the undersigned granted Defendants' third motion to compel. December 17, 2008 Minute and Order (Doc. No. 226). As such, all collateral communications were ordered to be produced within ten days. Id.
On January 5, 2009, the R&M Parties filed objections to the December 17, 2008 Order, arguing the court's conclusion that the previously compelled production of the Outside Counsel Letter constituted a subject matter waiver extending to all collateral communications between R&M and outside counsel was clear legal error. Doc. No. 227 at 7-9.
In a Decision and Order filed March 31, 2009 (Doc. No. 233), the undersigned addressed the issue reserved with regard to Defendants' second motion to compel (Doc. No. 182), i.e., whether the R&M Parties, by testifying at depositions regarding the subject matter of the Outside Counsel Letter, had waived both attorney-client privilege and work product protection as to the Outside Counsel Letter and any collateral communications finding a subject matter waiver with regard to the Outside Counsel Letter and the collateral communications "occurred based on the deposition testimony of both Mr. Rigot and Mr. Brown describing the nature of such communications." March 31, 2009 Decision and Order at 2-4. As such, the R&M Parties were directed to serve Defendants with copies of the subject documents within 20 days. Id. at 4. On April 14, 2009, R&M filed objections to the March 31, 2009 Decision and Order, arguing that the undersigned abused his discretion in finding that all privileges and protections regarding communications related to the Outside Counsel Letter had been waived. Doc. No. 234 at 7-12.
In an order filed April 20, 2009 (Doc. No. 239), the parties were directed to complete fact discovery by June 1, 2009, and given ten days from resolution of R&M's then-pending objections to file for a further enlargement of time to complete discovery. In Text Orders entered September 11, 2009 (Doc. Nos. 244 and 245), District Judge Skretny, finding no legal error, denied the objections filed by the R&M Parties to both the December 17, 2008 Order (Doc. No. 226), and the March 31, 2009 Decision and Order (Doc. No. 233).
On September 18, 2009, Defendants filed a motion (Doc. No. 247) ("Defendants' First Sanctions Motion"), requesting the R&M Parties be sanctioned by dismissal of the Amended Complaint for violations of the December 17, 2008 Order (Doc. No. 226), and the March 31, 2009 Decision and Order (Doc. No. 233), requiring production of the collateral communications R&M withheld as protected by the attorney-client privilege or as attorney work product. In particular, Defendants requested the court strike R&M's Amended Complaint and dismiss the action or, alternatively, requested the court treat the R&M Parties' failure to comply with the subject orders as contempt, requiring the R&M Parties pay Defendants' expenses incurred in connection with the motions to compel and for sanctions, and re-open fact discovery for an additional 60 days, as contemplated by the April 20, 2009 Order. Doc. No. 247-2 at 4-5. On September 29, 2009, the R&M Parties moved (Doc. No. 248), for a stay pending appellate review of the court-ordered discovery including, inter alia, discovery of all collateral communications related to the Outside Counsel Letter. Doc. No. 248-2 at 2. The R&M Parties then filed with the Second Circuit Court of Appeals two Notices of Interlocutory Appeal (Docs. Nos. 249 and 250) as to both Text Orders entered September 11, 2009 (Doc. Nos. 244 and 245), denying the R&M Parties' objections filed with regard to the court orders concerning the disputed discovery, including the Outside Counsel Letter and the collateral communications.
In a Decision and Order filed December 1, 2009 (Doc. No. 257) ("December 1, 2009 Decision and Order"), the undersigned denied the pending motion to stay (Doc. No. 248), and directed the R&M Parties produce to Defendants the collateral communications, which are the subject of the prior court's rulings (Docs. Nos. 226 and 233), as affirmed by Judge Skretny (Docs. Nos. 244 and 245), and reopening discovery for 60 days. Decision on Defendants' First Sanctions Motion (Doc. No. 247) requesting R&M Parties pay Defendants' expenses incurred in connection with the motions to compel and for sanctions, was reserved and, to date, remains under advisement. December 1, 2009 Decision and Order at 2. On December 10, 2009, the R&M Parties produced the collateral communications to Defendants.
On December 16, 2009, the R&M Parties moved to withdraw the Notices of Interlocutory Appeals, and, on February 20, 2010, the Second Court of Appeals granted the motion. (Doc. No. 270).
On December 29, 2009, the R&M Parties and Defendants filed a joint motion (Doc. No. 263), seeking expedited resolution of a discovery dispute concerning R&M's claim of privilege as to two additional documents ("the two additional documents") referenced in the collateral communications previously produced, which R&M agreed to submit for in camera review. The undersigned reviewed the two additional documents in camera and, at oral argument on the motion on January 6, 2010 (Doc. No. 266), held that by failing to include the two additional documents in a privilege log provided to Defendants, the R&M Parties had waived any privilege asserted with regard to the two additional documents, and further that the communications when made were not made in the course of litigation and, as such, are not protected from disclosure by the attorney-client privilege nor do they qualify as attorney work product, and the parties were ...