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Complex Civil Litigation Decision Provides Guidance on Assertion Of Attorney-Client Privilege

April 25, 2012
Morris James LLP
Delaware Business Court Insider

Assertion of attorney-client privilege requires careful judgment. On the one hand, not asserting attorney-client privilege can lead to charges of waiver or waiver. On the other, over-asserting attorney-client privilege can lead to expensive motion practice and anger courts.

Balancing these competing concerns can be even more difficult when the information withheld relates to facts. In E.I. Du Pont De Nemours v. Medtronic Vascular, C.A. No. N10C-09-058 (Del. Super. Ct. Mar. 13, 2012), a decision in a Superior Court complex civil matter, Judge Joseph R. Slights III addressed the assertion of attorney-client privilege where the documents at issue contained factual content. The court also addressed the privilege of communications with a former employee and whether a party must issue litigation holds to its independent auditors.

The dispute arose from a license agreement. Plaintiff E.I. DuPont de Nemours & Company sued defendant Medtronic Vascular for breaching a 1989 license agreement requiring Medtronic to pay DuPont royalties for certain products, according to the opinion. During discovery, disputes arose between the parties. Both parties moved to compel production of facts within attorney-client privileged documents. Medtronic also moved to compel production of communications with a former DuPont employee and responses to document preservation discovery relating to DuPont's independent auditors.

As the court recognized, the attorney-client privilege protects the giving of legal advice and the giving of information to lawyers in order for lawyers to provide legal advice. The attorney-client privilege does not, however, protect disclosure of underlying facts. The court emphasized the distinction between a fact, which is not subject to attorney-client privilege, and a communication concerning a fact, which may be subject to attorney-client privilege. A party cannot be compelled to disclose facts he or she communicates to his or her attorney in order to obtain legal advice, but a party can disclose facts he or she personally knows or facts known from other sources, even if those facts were disclosed to an attorney.

Applying these principles, the court denied DuPont's motion to compel production of an unredacted version of an email from Medtronic's former in-house counsel. The unredacted portion of the email reflected Medtronic counsel's summary of DuPont's position on royalties. Medtronic claimed this disclosure, as well as production of an email from a Medtronic financial analyst to Medtronic's chief patent counsel stating that DuPont had called demanding royalties, constituted a waiver of the attorney-client privilege, according to the opinion. With respect to the email from the financial analyst, the court found there was no waiver of the attorney-client privilege because there was no indication that the email sought legal advice. As far as the redacted email from Medtronic's counsel summarizing DuPont's position on royalties, the court concluded there was no waiver because the unredacted portion was simply a recitation of facts and there was no indication that the recitation of facts was necessary to facilitate the rendition of legal advice.

The court similarly denied Medtronic's motion to compel five documents that Medtronic claimed contained nonprivileged facts. Medtronic argued that it was entitled to discover relevant facts that might be contained within the documents and invited the court to conduct an in camera inspection of the documents. The court declined the invitation, describing as unfounded Medtronic's suspicions that DuPont had improperly withheld facts as opposed to communications concerning facts.

The court also denied Medtronic's motion to compel production of communications between DuPont attorneys and a former DuPont employee. Medtronic argued that the documents were not privileged because the former employee was not a client of DuPont's counsel at the time of the communications. The court concluded that the privilege log descriptions reflected that the communications related directly to knowledge obtained or conduct that occurred while the former employee worked at DuPont, so those communications were properly withheld.

Finally, the court denied Medtronic's motion to compel DuPont to provide witnesses who could testify about any litigation hold notices DuPont issued to two independent auditors it used for audits of Medtronic's royalty payments. The court concluded that such depositions would not lead to the discovery of admissible evidence because Medtronic had not identified any Delaware authority requiring DuPont to issue litigation holds to the auditors. The engagement letter with one of the auditors expressly provided that working papers created during the engagement were the property of the accountant, according to the opinion. Moreover, 24 Del. C. §120(a) provides that an accountant's work papers and other materials prepared by an accountant are the property of the accountant, absent an express agreement to the contrary. There was no such agreement here. Relying on the engagement letter and Section 120(a), the court concluded that the work papers and other documents prepared by the auditors were not within DuPont's possession, custody or control and therefore DuPont had no obligation to preserve these documents or authority to cause others to do so. DuPont was, however, required to produce documents it had provided to its auditors, if it had not already done so.

This decision offers useful guidance to practitioners asserting the attorney-client privilege in Delaware litigation. As the court recognized, the distinction between nonprivileged facts and privileged factual communications can be subtle. This decision illustrates that a party can disclose facts relayed to or by an attorney without waiving the attorney-client privilege, when those facts were not disclosed to facilitate the rendition of legal advice. This decision also stands for the proposition that Delaware law does not require companies to issue their auditors litigation hold notices for documents prepared by their auditors. It is important to note, however, that the Supreme Court and Court of Chancery have not yet addressed this issue.