Valenzuela et al v. Union Pacific Railroad Company et al

Filing 226

ORDER re privileged document review. Signed by Judge David G Campbell on 12/21/2016. (DGC, nvo)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Alonzo Valenzuela, et al.,
Plaintiffs,

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Union Pacific Railroad Company, et al.,

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ORDER

v.

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No. CV-15-01092-PHX-DGC

Defendants.

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Plaintiffs assert that six documents produced by Defendants Union Pacific and

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Kinder Morgan in this litigation are not privileged and should be available as evidence.

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Following a telephone conference, the Court directed the parties to submit the documents

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for in camera review and to provide the Court with memoranda on the issue. Doc. 190.

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The Court has reviewed the documents and memoranda (Docs. 213, 215, 217, 225), and

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holds that the privilege applies and has not been waived.

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The six documents reviewed in camera are referred to by the parties as Exhibits A

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through F. Exhibits A, B, C, and D are memoranda written by in-house attorney Roy

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Jerome between 1966 and 1976, and were addressed to officers or employees of Union

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Pacific’s and Kinder Morgan’s predecessor corporations. Doc. 215 at 3.1 Mr. Jerome

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was employed as a lawyer by Southern Pacific Company, the former parent of Union

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Pacific’s and Kinder Morgan’s predecessors. Exhibit E is a 1976 internal memorandum

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Citations are to page numbers attached at the top of each page by the Court’s
CMECF system, not to original page numbers at the bottom of each page.

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written to several individuals, including Mr. Jerome. Exhibit F is a 1957 document

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written by Engineering Management, Inc. (“EMI”) that discusses legal advice provided

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by Paul DeFord, an in-house attorney employed by Southern Pacific Company. Doc. 217

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at 3-4. Union Pacific asserts the attorney-client privilege with respect to Exhibits A-C,

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and Kinder Morgan asserts the privilege with respect to Exhibits D-F. Doc. 213 at 2.

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At the parties’ request, the Court previously entered a stipulated order which

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provides that “[t]he production of any privileged or otherwise protected or exempted

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Information shall not be deemed a waiver or impairment of any claim of privilege or

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protection, including, but not limited to, the attorney-client privilege or the protection

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afforded to work product materials, or the subject matter thereof, as to the produced

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Information, or any other Information.” Doc. 110 at 2. As a result, Plaintiffs do not

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contend that the production of Exhibits A-F waived the attorney-client privilege. They

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instead argue that the documents are not privileged in the first instance, that subject

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matter waiver has occurred through the production and use of related documents, and that

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Defendants waived the privilege by taking certain positions in this case and by failing to

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make timely objections when the documents were used in a deposition. Doc. 213.

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Plaintiffs cite Arizona privilege law in support of their arguments.

Id. at 2.

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Kinder Morgan argues that California law applies. Doc. 217 at 2-3. Union Pacific cites

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both Arizona and California law. Doc. 215. All parties cite Federal Rule of Evidence

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502. The Court need not engage in a choice-of-law analysis because Rule 502 resolves

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most of the issues and, where state law is relevant, the result would be the same under

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Arizona and California law.

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A.

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Plaintiffs make only cursory arguments that Exhibits A-F are not privileged.

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Doc. 213 at 4. They assert that the documents do not provide legal advice based on

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confidential information, but Exhibits A-E are written either by or to an attorney, Exhibit

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F recounts the advice of an attorney, and the significance of all six documents, in

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Plaintiffs’ view, is their legal advice – their statements about the legal status of the

Are the Documents Privileged?

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railroad’s ownership interest in the railroad right-of-way. Plaintiffs contend that the

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privilege does not extend to both Union Pacific and Kinder Morgan, but do not dispute

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Defendants’ assertion that they were sister corporations at the time of the

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communications, owned by a single corporate parent. Nor do Plaintiffs dispute that the

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attorneys involved were employed by the parent. Finally, Plaintiffs contend that Exhibit

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F was written by EMI, an unrelated third-party, but do not dispute that EMI was retained

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by Kinder Morgan’s predecessor as its right-of-way agent. Both Arizona and California

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law include agents within the corporate attorney-client privilege.

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2234(B) (corporate privilege includes agents); Nemirofsky v. Seok Ki Kim, 523 F. Supp.

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2d 998, 1002 (N.D. Cal. 2007), as amended (Nov. 24, 2007) (privilege “includes

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communications with the entity’s agent, at least where the agent is acting within the

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scope of his agency.”).

See A.R.S. § 12-

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Union Pacific and Kinder Morgan provided detailed responses to Plaintiffs’

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arguments on this issue, and the Court afforded Plaintiffs an opportunity to reply, but the

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reply said nothing more about this issue. Doc. 225. The Court finds that Exhibits A-F

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satisfy the requirements for privileged attorney-client communications.

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B.

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Plaintiffs argue that Defendants waived the attorney-client privilege with respect

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to Exhibits A-F by disclosing three other letters or memoranda – Exhibits G, H, and I –

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which address the same subject matter (the status of the railroad’s right-of-way title) and

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were written by Defendants’ in-house lawyers. Although Plaintiffs initially suggested

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that the waiver occurred when Exhibits G-I were used in related California litigation

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referred to by the parties as the Rent Action, Plaintiffs narrowed their position in their

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reply, asserting that the Court need not consider the Rent Action. Plaintiffs instead claim

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that Defendants waived the privilege by failing to object to Plaintiffs’ use of Exhibits G-I

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in this litigation, both in Plaintiffs’ complaint and in depositions. Doc. 225 at 4.

Subject Matter Waiver under Rule 502.

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Plaintiffs assert an argument for subject-matter waiver – that Defendants’ waiver

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of the privilege with respect to Exhibits G-I constitutes a waiver of the privileged for

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other documents addressing the same subject matter (Exhibits A-F). In support, Plaintiffs

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rely on Federal Rule of Evidence 502(a):

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When the disclosure is made in a federal proceeding . . . and waives the
attorney-client privilege or work-product protection, the waiver extends to
an undisclosed communication or information in a federal or state
proceeding only if:
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the waiver is intentional;

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the disclosed and undisclosed communications or information
concern the same subject matter; and

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they ought in fairness to be considered together.

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Fed. R. Evid. 502(a).

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The Advisory Committee Note to Rule 502(a) explains the intent of this rule,

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particularly when privileged information “ought in fairness” to be disclosed. It explains

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that the rule does not establish a general rule of subject matter waiver. To the contrary,

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the Note states that voluntary disclosure of a privileged communication,

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if a waiver, generally results in a waiver only of the communication or
information disclosed; a subject matter waiver (of either privilege or work
product) is reserved for those unusual situations in which fairness requires a
further disclosure of related, protected information, in order to prevent a
selective and misleading presentation of evidence to the disadvantage of the
adversary.

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Fed. R. Evid. 502(a) advisory committee note (11/28/2007). As if for emphasis, the Note

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adds: “Thus, subject matter waiver is limited to situations in which a party intentionally

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puts protected information into the litigation in a selective, misleading and unfair

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manner.” Id. As one court has explained, Rule 502(a) “abolishes the dreaded subject-

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matter waiver, i.e., that any disclosure of privileged matter worked a forfeiture of any

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other privileged information that pertained to the same subject matter.” Trustees of Elec.

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Workers Local No. 26 Pension Trust Fund v. Trust Fund Advisors, Inc., 266 F.R.D. 1, 11

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(D.D.C. 2010).

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Union Pacific has shown that Exhibits G, H, and I were introduced as evidence in

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the Rent Action over its objection, were used against it in that case, and will not be used

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by Union Pacific in this case. Doc. 215 at 8-10. Kinder Morgan also states that it does

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not intend to use Exhibits G-I in this case. Doc. 217 at 6. Given these facts, the Court

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cannot conclude that Defendants are “intentionally put[ting] protected information into

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[this] litigation in a selective, misleading and unfair manner” as required by the Advisory

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Committee Note. Thus, even if the Court were to find that the documents were disclosed

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voluntarily in this litigation – a conclusion that is not obvious given that they were

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admitted in the Rent Action over Union Pacific’s objection and, according to Plaintiffs,

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are now available in the public record – Plaintiffs cannot satisfy the Rule 502(a)(3)

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requirement that disclosure of Exhibits A-F “ought in fairness” to be required. As

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another judge of this Court has noted, a party’s avowal that it does not intend to use a

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privileged communication in litigation eliminates the need for subject matter waiver

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under Rule 502 because “the party asserting the privilege is not selectively and

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misleadingly presenting the disclosed materials as evidence.” Gateway Deliveries, LLC

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v. Mattress Liquidators, Inc., 2016 WL 232427, at *3 (D. Ariz. Jan. 20, 2016).

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Union Pacific does intend to use Exhibit K, which consists of title cards created by

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Union Pacific attorneys to reflect sources of title for individual track segments. Plaintiffs

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argue that the cards were created by in-house attorneys, that they contain attorney-client

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communications, and that Union Pacific’s use of the cards creates the unfairness Rule

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502(a) is intended to prevent. The Court is not persuaded. The cards relate to specific

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properties and appear to show the parcel number, the source of the railroad’s interest in

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the property (deeds, patents, statutes), whether the title is in fee, limited, or an easement,

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other relevant information such as mineral reservations, and a column for “remarks,”

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which often includes information such as termination dates. Each card appears to be

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signed and dated by an attorney.

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The existence of the attorney-client privilege usually must be established by the

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party asserting it. S. Union Co. v. Sw. Gas Corp., 205 F.R.D. 542, 551 (D. Ariz. 2002).

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In this instance, the normal roles are reversed. Plaintiffs claim that the title cards are

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privileged, while Defendants claim the opposite. Plaintiffs, therefore, bear the burden of

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showing that the privilege applies.

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Plaintiffs have not carried this burden. The cards are not labelled as privileged,

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are not addressed to anyone, and appear to be an information-tracking system. Plaintiffs

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provide no evidence that the cards were created or maintained in confidence. Deposition

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testimony provided by Union Pacific states simply that the cards were maintained in the

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“real estate file room.” Doc. 215-1 at 34.

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Plaintiffs quote deposition testimony stating that the cards contain “a very rough

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opinion as to the nature of title associated with the parcel” (Doc. 225 at 6-7), but cite no

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authority to show that documents created by attorneys for a tracking system constitute

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privileged communications. Such documents may be attorney work product if litigation

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is anticipated, Fed. R. Civ. P. 26(b)(3), but Plaintiffs do not suggest that the cards were

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created in anticipation of litigation.

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On this record, Plaintiffs have not shown that the cards contain privileged

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information being used selectively by Defendants. The Court therefore cannot conclude

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that Defendants are “intentionally put[ting] protected information into the litigation in a

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selective, misleading and unfair manner.” Fed. R. Evid. 502(a) advisory committee note

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(11/28/2007). Plaintiffs may raise this issue again if they develop other evidence.

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C.

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The attorney-client privilege may be waived through a party’s litigation actions.

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Chevron Corp. v. Pennzoil Co., 974 F.2d 1156 (9th Cir. 1992) (citing United States v.

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Bilzerian, 926 F.2d 1285, 1292 (2d Cir. 1991)). The test for such waiver is three-

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pronged. First, a party must assert the privilege as an affirmative act in the litigation.

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Second, through the affirmative act, the party must put privileged information at issue.

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Third, the Court must find that allowing the privilege to stand would deny the opposing

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party access to information vital to its case. Arizona Dream Act Coal. v. Brewer, No.

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CV-12-02546-PHX-DGC, 2014 WL 171923, at *1 (D. Ariz. Jan. 15, 2014).

Waiver by Litigation Conduct.

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Plaintiffs claim that Defendants have waived the attorney-client privilege for

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Exhibits A-F by asserting that their easement practices are lawful. Specifically, Plaintiffs

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cite an affirmative defense asserted by Union Pacific which states that “conduct alleged

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in the Complaint conformed with all state and federal statutes, regulations, and other law

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based upon the state of knowledge at all relevant times alleged in the Complaint.”

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Doc. 115 at 24. Plaintiffs claim that this puts in issue Union Pacific’s knowledge of legal

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matters during the relevant times periods, and note that Kinder Morgan has adopted the

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same defense by incorporation.

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It is well-established that a holder of the privilege cannot claim that legal advice

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from his or her attorney justifies his or her action while simultaneously shielding that

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advice from disclosure. Chevron, 974 F.2d at 1163; In re Cnty. of Erie, 546 F.3d 222,

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228 (2d Cir. 2008); Sedco Int’l S.A. v. Cory, 683 F.2d 1201, 1206 (8th Cir. 1982). But if

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the privilege holder merely asserts that his conduct was lawful and makes no claim that

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he or she relied on counsel’s advice, privileged information is not necessarily placed in

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issue.

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The most analogous case in this circuit appears to be United States v. Amlani, 169

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F.3d 1189 (9th Cir. 1999), in which the defendant argued on appeal that the prosecutor’s

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disparaging comments about his lawyer caused him to fire his lawyer and settle for less

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effective counsel. The government sought discovery of the defendant’s conversations

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with his lawyer to determine whether the alleged disparagement had in fact caused him to

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change counsel, and the defendant asserted the attorney-client privilege in response. The

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Ninth Circuit held that the defendant’s claim – that his lawyer was fired only because of

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statements made by the prosecutor – sufficiently interjected his communications with the

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lawyer into the case to constitute waiver of the privilege. Id. at 1195.

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Other cases have taken a variety approaches on this issue. At one end of the

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spectrum, the Eastern District of Washington in Hearn v. Rhay, 68 F.R.D. 574 (E.D.

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Wash. 1975), took a broad view of waiver. In Hearn, prison officials in a civil rights

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case asserted the defense of qualified immunity. Id. at 574. The defendants never

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claimed advice of counsel as a defense to their actions, but the district court noted that for

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qualified immunity to apply, the defendants must have acted in good faith. Id. The

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plaintiff sought disclosure of the legal advice rendered to the defendants by the state’s

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attorney “insofar as such advice related to plaintiff’s confinement and tends to prove

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defendants’ bad faith.” Id. at 578. The district court held that the defendants’ assertion

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of the immunity defense was an affirmative act and, because “the legal advice they

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received is germane to the qualified immunity defense they raised,” the first two prongs

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of the waiver test were met. Id. at 581. The district court justified its holding by noting

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that “the content of defendants’ communications with their attorney is inextricably

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merged with the elements of plaintiff’s case and defendants’ affirmative defense. These

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communications are not incidental to the case; they inhere in the controversy itself, and to

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deny access to them would preclude the court from a fair and just determination of the

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issues.” Id. at 582.

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Other courts disagree with the broad scope of waiver applied in Hearn. See, e.g.,

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In re Cnty. of Erie, 546 F.3d at 229. The Third Circuit, for example, reviewed the

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holding in Hearn and similar cases and characterized them as extending “waiver of the

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privilege to cases in which the client’s state of mind may be in issue in the litigation,”

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rather than limiting waiver to situations where a party affirmatively asserts that advice of

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counsel justified his or her actions. Rhone-Poulenc Rorer Inc. v. Home Indem. Co., 32

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F.3d 851, 864 (3d Cir. 1994). The Third Circuit noted that cases such as Hearn “rest on a

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conclusion that the information sought is relevant and should in fairness be disclosed.”

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Id. But “[r]elevance is not the standard for determining whether or not evidence should

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be protected from disclosure as privileged.” Id.; see also Erie, 546 F.3d at 229. The

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Third Circuit held that even if a privilege holder’s state of mind is at issue, the privilege

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still applies. Other courts have also held that “a party must rely on privileged advice

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from his counsel” in order to waive the privilege, rather than merely make the evidence

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relevant. Erie, 546 F.3d at 229 (emphasis in original).

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The Court finds the reasoning in Rhone-Poulenc and Erie truer to the intent and

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nature of the attorney-client privilege than Hearn. Waiver requires that a party put the

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advice of counsel at issue, either by asserting that it relied on that advice or, as in Amlani,

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placing the attorney-client communications squarely in the case. Defendants have not

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done so. They do not claim that they should prevail in this case because they relied on

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advice of counsel. Nor do Plaintiff’s claims lend themselves to such a defense. Plaintiffs

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sue for trespass, quiet title, ejectment, inverse condemnation, unjust enrichment, recovery

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of rents, and an accounting. Doc. 75 at 18-28. These claims will turn on whether

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Defendants had title to the property they occupied, not whether they reasonably believed

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so based on the advice of counsel.

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This is not a bad faith case like State Farm Mut. Auto. Ins. Co. v. Lee, 13 P.3d

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1169 (Ariz. 2000), cited by Plaintiffs, where the reasonableness of the party’s state of

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mind is the question. The defendant in Lee “alleged that its actions were objectively and

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subjectively reasonable and in good faith based on its evaluation of the law – an

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evaluation that included advice of counsel.” Id. at 1175. Defendants make no similar

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assertion here, and the Court cannot conclude that they have asserted the privilege as an

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affirmative act in this litigation and thereby put privileged information at issue. Amlani,

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169 F.3d at 1195.

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D.

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Plaintiffs claim that Defendants waived the privilege with respect to Exhibits A, B,

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D, and E by failing to make timely objections after the exhibits were used in depositions

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in this case. Doc. 213 at 12-13.

Timeliness of Objections.

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Exhibits A and B were marked during the morning session of the Ryan Dahl

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deposition on October 19, 2016. Doc. 213, Ex. L. Mr. Dahl responded to questions

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about both exhibits. Immediately after lunch, counsel for Kinder Morgan stated on the

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record that he had determined that the exhibits were privileged, that he objected to further

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questions on the exhibits and would instruct the witness not to answer such questions,

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and that he would raise the issue with the Court. Id. at 81-83. Counsel for Union Pacific,

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which was participating by phone, did not have copies of the exhibits when they were

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introduced in the deposition. When counsel located copies later that day, he sent an

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email objecting to their use and invoking the procedures of the Court’s protective order.

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Doc. 215-1 at 10. His email is time-stamped 2:36 p.m. Id.

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Exhibits D and E were marked during the afternoon of Mr. Dahl’s deposition.

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Counsel for Kinder Morgan stated on the record that he could not determine whether the

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exhibits were privileged, and reserved any privilege objections. Id. at 109, 116-17.

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Counsel for Plaintiffs responded: “If you want to raise an objection later, that’s fine.” Id.

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at 117. Kinder Morgan later asserted that the exhibits were privilege. Doc. 217 at 11.

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Plaintiffs cite three cases where waiver resulted from a party’s failure to timely

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object to the use of privileged information. Doc. 213 at 12. In the first case, Luna

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Gaming-San Diego, LLC v. Dorsey & Whitney, LLP, No. 06CV2804 BTM (WM), 2010

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WL 275083 (S.D. Cal. Jan. 13, 2010), the memo in question was used in a deposition

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without objection, used in another deposition two months later without objection, and

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used in a summary judgment motion without objection. Id. at *5-6. The court found that

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any privilege claim for the memo had been waived, and cited cases where delays of

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between six days and two months had resulted in waiver. Id. at *5. In the second case,

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SurfCast, Inc. v. Microsoft Corp., No. 2:12-CV-333-JAW, 2013 WL 4039413 (D. Me.

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Aug. 7, 2013), the producing party failed to object when an obviously privileged

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document was marked and discussed at a deposition, and did not raise an objection to the

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questioning until five days later. Id. at *1, 4-5. In the third case, Jacob v. Duane Reade,

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Inc., No. 11 CIV. 0160 JMO THK, 2012 WL 651536 (S.D.N.Y. Feb. 28, 2012), the

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producing party did not object until two months after the deposition where the privileged

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document was used. Id. at *5. The court noted that other cases had found waivers from

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delays of one month and four months. Id. at *6.

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In contrast to these cases, the delay on which Plaintiffs rely with respect to

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Exhibits A and B was a matter of hours. Objections were made while the deposition was

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still underway. With respect to Exhibits D and E, a reservation of the privilege objection

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was immediately lodged and Plaintiffs’ counsel stated that a later objection would be

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fine. Given these facts, the Court cannot conclude that Defendants delayed unreasonably

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in raising their privilege objections. Other cases have held that objections made during a

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deposition, even if after some questioning on privileged documents, do not waive the

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privilege. See Datel Holdings Ltd. v. Microsoft Corp., No. C-09-05535 EDL, 2011 WL

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866993, at *5 (N.D. Cal. Mar. 11, 2011) (“As soon as Defendant obtained the entire text

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of the emails while the deposition was still ongoing, Defendant interrupted the deposition

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to put its privilege assertion on the record. Then, within a few days, Defendant reviewed

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its entire production to identify other documents affected by the glitch. These steps

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constitute a prompt and immediate response to the inadvertent production.”).

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Rule 502 states that waiver does not occur if “the holder promptly took reasonable

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steps to rectify the error.” Fed. R. Evid. 502(b)(3). The Court concludes that this

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requirement was satisfied by Defendants’ same-day actions to assert the privilege.

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Dated this 21st day of December, 2016.

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