Monco v. Zoltek Corp.
Monco v. Zoltek Corp.
Opinion of the Court
A.
The parties' current discovery dispute
Taking every minute of the 30 days the Order gave them, defendants made their production on May 10th. One of the documents produced was an email chain between Mr. Rumy and Zoltek Corporation and a representative of Toray Industries. The email referenced the draft of an *999agreement that Mr. Rumy sent Toray Industries, and explained that Toray Industries indicated it would be going over the draft with its counsel and Zoltek Corporation management.
Two weeks after production, Zoltek Corporation filed a motion asking that the court enter the parties' agreed Protective Order. [Dkt. # 113]. The Order was entered on May 15th. [Dkt. # 115]. One of its provisions stated that "[i]nadvertent disclosures of material protected by the attorney-client privilege or the work product doctrine shall be handled in accordance with Federal Rule of Evidence 502." [Dkt. # 115, ¶ 6].
B.
When defendant, Zoltek Corporation, made its court-ordered production on May 10th, it withheld the draft agreement between defendant, Zsolt Rumy, and defendants, Toray Industries and Zoltek Corporation. The draft clearly fell into the categories referenced in the Order of April 10th. Zoltek Corporation provided no Privilege Log describing the nature of each document being withheld, even though a Privilege Log describing the nature of each withheld document must be provided in a timely manner. Hobley v. Burge ,
When a party withholds information otherwise discoverable by claiming that the information is privileged or subject to protection as trial-preparation material, the party must: (i) expressly make the claim; and (ii) describe the nature of the documents, communications, or tangible things not produced or disclosed-and do so in a manner that, without revealing information itself privileged or protected, will enable other parties to assess the claim.
Zoltek Corporation failed to do both (i) and (ii).
It bears repeating that compliance with Rule 26(b)(5)(A) is not optional. Motorola Sols., Inc. v. Hytera Commc'ns Corp. , No.
To be sure, the waiver doctrine is not applied mechanistically. Towne Place Condo. Ass'n v. Philadelphia Indem. Ins. Co. ,
The document was only discovered because Zoltek Corporation produced-"inadvertently," it claims-an email chain referring to the document. In such an instance, a court should have no qualms about finding the party engaging in such a tactic has waived its privilege as to that document. Compare The Manitowoc Co., Inc. v. Kachmer , No. 14-CV-9271,
As for the email chain that referenced the draft agreement, there is no doubt that it was produced unwittingly-but not in the sense that Rule 502 uses the term, "inadvertently." After all, it was the document that revealed Zoltek Corporation's studied attempt to withhold documents it had been ordered to produce on April 10th, and to withhold them without a claim of privilege or privilege log. Thus, its production from Plaintiffs' perspective was definitely a blunder; but it was not an *1001"inadvertent disclosure," as the cases define the term.
The email, dated June 7, 2016, is between two non-attorneys, Mr. Zsolt Rumy and Mr. Aihara of defendant, Toray Industries. Mr. Rumy had sold Zoltek Corporation to Toray Industries in 2014. He then is said to have been a consultant and then "transition [ed] away from involvement with Zoltek Corporation." [Dkt. # 139-2, ¶¶ 4, 6]. It's all very vague-vagaries are a feature of Zoltek Corporation's submissions, likely with good reason-and Zoltek Corporation provides no timeline. But, in the email chain, Mr. Rumy Mr. Rumy and Mr. Aihara are clearly negotiating the terms of an agreement, with Mr. Rumy having sent a draft-the document already discussed-and Mr. Aihara sending back his thoughts and questions. Mr. Rumy tells us, in a declaration attached to Zoltek Corporation's opening brief, that the document evinces a deal whereby Toray Industries would assign a patent that was the centerpiece in a 20-year litigation odyssey back to Mr. Rumy. [Dkt. # 139-1, ¶ 9]. Mr. Rumy would then take over the litigation, which Toray Industries had become disinterested in pursuing. [Dkt. # 139-1, ¶ 8]. Two months later, Mr. Rumy and Toray say they executed what they tendentiously term a "common interest agreement." [Dkt. # 139-1, ¶ 10; # 139-2, ¶ 6]. But, titles are not determinative; substance is. Health Care Industry Liability Insurance Program v. Momence Meadows Nursing Center, Inc. ,
So, manifestly, based on what little Zoltek Corporation, Mr. Rumy, and Toray choose to tell us, we have a contract negotiation for the sale of the patent rights back to Mr. Rumy from Toray Industries. Like most contract negotiations, the negotiation between Mr. Rumy and Toray Industries for the transfer of the patent is are not privileged. They are akin to a game of Texas Hold 'Em, insofar as there are flop, turn, and river cards-face up-and hole cards-face down'. The face up cards here are the questions and comments from Toray Industries and the attached draft agreement from Mr. Rumy. Ordinarily, even if those items revealed legal advice, any privilege that might attach to them would be waived as, obviously, they weren't kept confidential. The "common interest doctrine," which Zoltek Corporation insists is applicable here, is not.
*1002D.
The "common interest" doctrine is not a separate privilege; rather, it derives from the attorney client privilege. It is "an exception to the rule that no privilege attaches to communications between a client and an attorney in the presence of a third person." United States v. BDO Seidman, LLP ,
The purpose of the attorney-client privilege is to "encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice." Jaffee v. Redmond ,
Here, there is plainly not the required shared legal interest in an ongoing enterprise. All we know from Zoltek Corporation is that one party-Toray Industries-is transferring a patent to another party-Mr. Rumy. Zoltek Corporation tells us that Toray Industries is transferring that patent because it doesn't want to be involved in the ongoing litigation anymore. As such, Toray Industries does not share the required common legal interest with Mr. Rumy; quite the contrary: Toray Industries is abandoning a legal interest and transferring it to Mr. Rumy. Mr. Rumy says that he then would pursue the litigation in his "individual capacity." [Dkt. # 139-1, ¶ 9](Emphasis supplied). By definition, that's not a "joint venture," regardless of Zoltek Corporation's tendentious attempt to describe it as such. [Dkt. # 139, at 6]. It is well to remember that "saying so doesn't make it so." United States v. 5443 Suffield Terrace, Skokie, Ill.,
E.
Zoltek Corporation is unable to direct us to any case where simply being a party to a commercial transaction results in the parties sharing a "common legal interest" in an ongoing enterprise. The cases that Zoltek Corporation relies upon do nothing to support the applicability of the common interest doctrine in this case. Indeed, two of the cases reject the application of the doctrine. In re Grand Jury Subpoena Duces Tecum ,
Dexia Credit Local v. Rogan ,
In sum, Zoltek Corporation has not shown the that the common interest doctrine is applicable to the deal between Toray Industries and Mr. Rumy to transfer the patent back to Mr. Rumy. Accordingly, any attorney-client privilege that might have attached to the email and attachment is deemed waived. The question of work product protection, however, requires a different analysis.
F.
Codified at Rule 26(b)(3) of the Federal Rules of Civil Procedure, the work-product doctrine is designed to protect an attorney's thought processes and mental impressions against disclosure, and to limit the circumstances in which attorneys may piggyback on the fact-finding investigation of their more diligent counterparts. See Hickman v. Taylor ,
*1005"Discovery was hardly intended to enable a learned profession to perform its functions either without wits or on wits borrowed from the adversary." Hickman ,
In a contract negotiation, Toray Industries and Mr. Rumy are adversaries across the poker table, as it were. Again, the draft contract from Mr. Rumy and the suggestions for changes and questions from Toray Industries are the river cards in the game. Those cards weren't kept confidential; the parties chose to reveal information to one another at that point of the negotiation. But, unlike the situation involving attorney-client privilege, disclosure to a third party doesn't necessarily waive work product protection. The question is whether the disclosure is inconsistent with the foregoing dual purposes of the doctrine. Appleton Papers, Inc. v. E.P.A. ,
Here, the work product doctrine is inapplicable. While the patent transfer agreement was purportedly designed to transfer control of the lengthy case from Toray Industries to Mr. Rumy, that's not what "prepared in anticipation of litigation" means in the context of work product protection in this case. There is nothing in Zoltek Corporation's submissions that suggests that the draft agreement contract for the transfer of the patent and any suggested edits or questions about it in the email reveal any strategies for pursuing the patent litigation or this litigation. Cf. Mattenson v. Baxter Healthcare Corp. ,
All Zoltek Corporation, being deliberately vague, can say is that the draft agreement is "a document prepared concerning the [patent litigation] and the result of the legal advice [Mr. Rumy] had received from his counsel regarding the [patent litigation]." [Dkt. # 139, at 7]. That document, the patent transfer agreement-again according to Zoltek Corporation-merely results in a change of the plaintiff in the patent litigation. Toray Industries would step away, and Mr. Rumy would take over in his "individual capacity." That is not a strategy in a sense all the cases use the term. Quite the contrary. It is merely a fact that is inevitably and intentionally revealed to all, including the adversary in that litigation. It is not a question of an adversary's performing his functions with wits borrowed from his opponent. Thus, Zoltek Corporation has fallen far short of establishing that the emails and draft patent transfer agreement sent between Mr. Rumy and Toray Industries were prepared in "anticipation of litigation" and protected by the work product doctrine.
*1006G.
The case is presently set for oral argument on Thursday, July 19, 2018. [Dkt. # 124]. However, after reviewing the briefs it appears that oral argument will be unnecessary. Cases can be decided without oral argument where it would not significantly aid the court. The rule applies both in the Courts of Appeals, Delgado v. Merit Syst. Protection Board ,
CONCLUSION
The "common interest" doctrine does not apply to the document or documents at issue here and presently being withheld by the defendants. They must be turned over no later than 7/19/18.
This ruling pertains only to those documents discussed and sought in plaintiffs' motion to compel, the email chain and the draft agreement. [Dkt. # 120]. Midway through briefing on those documents plaintiffs raised the issue of additional documents they wish to obtain from Zoltek Corporation. Those will have to be the subject of a proper motion to compel, filed only after the parties strictly comply with Local Rule 37,2 and meet and confer in good faith regarding the additional documents. Emails and messages do not count under the Rule.
The Rule provides that disclosure "does not operate as a waiver in a federal or state proceeding if: (1) the disclosure is inadvertent; (2) the holder of the privilege or protection took reasonable steps to prevent disclosure; and (3) the holder promptly took reasonable steps to rectify the error, including (if applicable) following Federal Rule of Civil Procedure 26(b)(5)(B)." Fed.R.Civ.P. 26(b)(5)(B) states that:
If information produced in discovery is subject to a claim of privilege or of protection as trial-preparation material, the party making the claim may notify any party that received the information of the claim and the basis for it. After being notified, a party must promptly return, sequester, or destroy the specified information and any copies it has; must not use or disclose the information until the claim is resolved; must take reasonable steps to retrieve the information if the party disclosed it before being notified; and may promptly present the information to the court under seal for a determination of the claim. The producing party must preserve the information until the claim is resolved.
By the time Zoltek Corporation filed its reply brief, it seemingly came to the realization that its characterization of the document at issue as a "patent transfer agreement" or "draft patent transfer agreement" in its opening submissions [Dkt. # 139-1, ¶¶ 9, 11, 15] was fatal to its common interest doctrine claim. And, so, Zoltek Corporation tells us for the first time in its reply brief that the document is not an asset transfer at all, because the patent had expired and had no other use than in the underlying patent litigation. It also bizarrely blames the plaintiffs for this mischaracterization even though it clearly referred to it as a patent transfer-an asset transfer-multiple times. Zoltek Corporation also claims, in its reply brief, that the document embodies "the terms [Zoltek Corporation and Mr. Rumy] could move forward together in litigation...." [Dkt. # 151, at 1]. But that's directly contradictory to the Zoltek Corporation's representations in its opening submissions that Mr. Rumy was transitioning away from Zoltek Corporation and Toray and would "pursue the Stealth litigation in [his] individual capacity." [Dkt. # 139-1, ¶ 9 (emphasis supplied) ].
The courts have characterized this tactic in a variety of ways-all negative. Blind-siding, gamesmanship, and sandbagging are the most commonly used epithets. Regardless of the name applied, the gambit has no place in the judicial system. Cf., United States v. Portis ,
Thus, litigants are chastised for raising new arguments or new evidence in reply briefs; a reply brief is for replying, not for raising a new ground. In that context the new matter is deemed waived. Wilborn v. Ealey ,
In its reply brief, Zoltek Corporation seems to assert that Eighth Circuit law should apply to the question of whether the common interest doctrine applies and states that it discussed Eighth Circuit law in its opening brief at pages 4-6. [Dkt. # 151, at 7 & n. 2]. Most of the cases Zoltek Corporation relied upon, however, are either Seventh Circuit cases or cases from this district. [Dkt. # 148, at 4-8]. But as discussed, infra , the cases Zoltek Corporation cites, whether from the Seventh Circuit, Eighth Circuit, or the Northern District of Illinois, do not support the common interest doctrine to the commercial transfer here.
In re Whirlpool Corp. ,
"Evidentiary privileges in litigation are not favored." Herbert v. Lando,
See also Towne Place Condo. Ass'n v. Philadelphia Indem. Ins. Co. ,
Reference
- Full Case Name
- Dean A. MONCO, an individual, John S., Mortimer, an individual, and Wood, Phillips, Katz, Clark & Mortimer, an Illinois professional partnership v. ZOLTEK CORPORATION, a Missouri corporation, Zsolt Rumy, an individual, and Toray Industries, Inc., a Japanese corporation
- Cited By
- 15 cases
- Status
- Published