James v. UMG Recordings, Inc.

Filing 181

Discovery Order re: 176 Discovery Letter Brief filed by Rick James. Signed by Judge Maria-Elena James on 2/10/2014. (cdnS, COURT STAFF) (Filed on 2/10/2014)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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RICK JAMES, et al.,

Case No. 11-cv-01613-SI (MEJ)

Plaintiffs,
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ORDER RE: JOINT DISCOVERY
LETTER

v.
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UMG RECORDINGS, INC.,

Re: Dkt. No. 176

Defendant.

United States District Court
Northern District of California

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I.

BACKGROUND
This is a consolidated putative class action for breach of contract, breach of the covenant of

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good faith and fair dealing, and statutory violations of various state laws against defendant, UMG

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Recordings, Inc., and its affiliated and subsidiary entities (“UMGR”), filed by plaintiff recording

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artists and producers (“Plaintiffs”), who allege that UMGR underpaid licensing royalties on digital

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downloads of Plaintiffs’ recordings.

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The current dispute concerns Plaintiffs’ motion to compel production of Privilege Log

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Entry Nos. 61-65, 75-80, 83-112, 114-128, 131-178, 180-240, 254-293, 300-317, and 337, which

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UMGR added to the log in May of 2013. Jt. Ltr.at 2. Plaintiffs assert that these documents relate

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to business decisions regarding: “(a) UMGR’s adoption of its policy for calculating digital

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download royalties, as reflected in the 2002 ‘Ostroff Memo’; (b) UMGR’s communicating such

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policy to artists and others; and (c) UMGR’s ‘digital media strategy.’” Id.at 3.

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In support of its claims of privilege, UMGR has produced a privilege log in which it

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contends each of the attorneys making these communications were “in-house counsel.” Id.at 4.

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Plaintiffs argue that UMGR fails to meet the burden to establish these communications are

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attorney-client because the lawyers listed on the privilege log were serving in primarily business

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roles when the communications were made. Id.at 3. They contend the privilege log is insufficient

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in that it fails to reveal the roles played by the attorneys writing or receiving the communications.

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Id., at 4, fn. 10. UMGR contends that it has made a prima facie showing that the attorney-client

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privilege applies because the dominant purpose of UMGR’s relationship with the lawyers listed on

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the log was a legal one at the time of the communications at issue. Id.at 5. UMGR denies

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asserting a blanket privilege, and states that it has released all communications relating to business

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decisions.

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II.

DISCUSSION

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A.

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Pursuant to Federal Rule of Evidence 501, attorney-client issues in diversity cases are

Applicable Law

substantive and thus controlled by the forum state’s law. Great Am. Assur.Co. v. Liberty Surplus

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United States District Court
Northern District of California

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Ins. Corp., 669 F. Supp. 2d 1084, 1090 (N.D. Cal. 2009). Under California law, the attorney-

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client privilege is governed by statute. Cal. Evid. Code § 911, et seq. Communications between a

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lawyer and client which are intended to be confidential are protected from disclosure. Id. § 954.

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Confidential communications include not only information given by a client to his or her attorney

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but also the attorney’s legal opinion and advice given to the client. Id. § 952.

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“The party claiming the privilege has the burden of establishing the preliminary facts

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necessary to support its exercise, i.e., a communication made in the course of an attorney-client

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relationship.” Costco Wholesale Corp. v. Superior Court, 47 Cal.4th 725, 733 (2009). “Once that

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party establishes facts necessary to support a prima facie claim of privilege, the communication is

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presumed to have been made in confidence and the opponent of the claim of privilege has the

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burden of proof to establish the communication was not confidential or that the privilege does not

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for other reasons apply.” Id.

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To determine whether a communication is privileged, “the focus of the inquiry is the

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dominant purpose of the relationship between the parties to the communication.” Clark v.

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Superior Court, 196 Cal. App. 4th 27, 51 (2011). “Under that approach, when the party claiming

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the privilege shows the dominant purpose of the relationship between the parties to the

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communication was one of attorney-client, the communication is protected by privilege.” Id.

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“The attorney-client privilege attaches to a confidential communication between the attorney and
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the client and bars discovery of the communication irrespective of whether it includes

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unprivileged material.” Costco, 47 Cal.4th at 734. “[B]ecause the privilege protects the

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transmission of information, if the communication is privileged, it does not become unprivileged

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simply because it contains material that could be discovered by some other means.” Id. at 735

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(emphasis in original).

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“The privilege does not apply to communications to an attorney who is transacting

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business that might have been transacted by another agent who is not an attorney.” Montebello

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Rose Co. v. Agri. Labor rel. Bd., 119 Cal. App. 3d 1, 33 (1981). Whether a particular

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communication is predominantly in furtherance of the attorney-client relationship is a question of

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fact. Id.

United States District Court
Northern District of California

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B.

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Plaintiffs argue that UMGR is improperly asserting the attorney client privilege to

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withhold virtually all of its internal correspondence regarding business decisions about its digital

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download policy, which were reflected in the 2002 “Ostroff Memo.” Crucial to Plaintiffs’

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position is that the Ostroff Memo announced “an across-the-board, extra-contractual decision” to

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pay artists higher royalties than they deserved” which was motivated solely by business concerns.

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Jt. Ltr.at 3. Plaintiffs also contend that emails regarding UMGR’s communication of the new

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policy to artists involve public relations, not legal issues. Id.at 3-4. Likewise, communications

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regarding “digital media strategy” relate primarily to business concerns. Id.at 4.

Analysis

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The party claiming the privilege shoulders the burden of showing that the evidence it seeks

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to suppress falls within the terms of an applicable statute. Costco, 47 Cal.4th at 733. Accordingly,

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the Court turns to UMGR’s showing. UMGR contends that it has made a prima facie showing

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that the dominant purpose between the parties to the communications was one of attorney client.

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Jt. Ltr. at 5. UMGR asserts that “in 2001 –3, it had a corporate ‘center’ and various business units

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(such as different record labels) each run by business executives, for whom UMGR claims no

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privilege for the documents involved here.” Id. The center also had lawyers, led by UMGR’s

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General Counsel, Michael Ostroff. Id. Many of the larger business units had their own lawyers.

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Id. UMGR asserts that the dominant purpose of the relationship between UMGR and 22 of the 24
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lawyers on the privilege log was a legal one at the time of the communications at issue. Id.

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UMGR relies on the privilege log, which it claims provides sufficient foundational facts to

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determine the privilege issue. Id. The information in a privilege log “must be sufficiently specific

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to allow a determination of whether each withheld document is or is not [in] fact privileged.”

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Wellpoint Health Networks, Inc. v. Superior Court, 59 Cal. App. 4th 110, 130 (1997). For each

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document, UMGR’s privilege log contains the author, date of preparation, recipients, description

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of the contents and purpose of the document, and the specific privilege claimed. This is sufficient

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information under Wellpoint. Accordingly, the Court finds that UMGR’s privilege log meets the

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presumption.
However, the inquiry does not end there. As Plaintiffs contend, the attorney-client

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United States District Court
Northern District of California

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privilege does not attach to an attorney’s communications when the client’s dominant purpose in

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retaining the attorney was something other than to provide the client with a legal opinion or legal

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advice. The attorney-client privilege “is inapplicable where the attorney merely acts as a

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negotiator for the client, gives business advice or otherwise acts as a business agent.” Chicago

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Title Ins. v. Superior Court, 174 Cal. App. 3d 1142, 1151 (1985). The attorney-client privilege

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does not apply without qualification where the attorney is merely acting as a negotiator for the

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client (Montebello Rose Co., 119 Cal. App. 3d at 32-35, or merely gave business advice (Estate of

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Perkins v. Bigelow, 195 Cal. 699, 710 (1925)). “To make the communication privileged the

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dominant purpose must be for transmittal to an attorney ‘in the course of professional

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employment.’” Montebello, at 32.

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Plaintiffs largely rely on the deposition testimony of attorney Larry Kenswill, who was

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then President of eLabs, UMGR’s division handling electronic commerce initiatives, to establish

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that the communications pertain primarily to business advice, given by lawyers serving as

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business advisors. When asked whether the decision to treat permanent download income not as

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licensed income was primarily a legal or business decision, Kenswill stated: “I am not comfortable

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with the word ‘primarily.’ I am comfortable saying that there were both legal and business…

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issues to be thought of.” Jt. Ltr., Kenswill Dep. at 140. Rand Hoffman, then an Executive Vice

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President of Business and Legal Affairs (“BLA”), testified that he “wouldn’t characterize his
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conversations with Ostroff leading up to the memo as either business or legal.” Id., Hoffman Dep.

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at 62, 72. Plaintiffs also rely on Kenswill’s statement that “Anyone who had a law degree in the

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business affairs department was working largely in a business capacity” as support for their

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contention that the attorneys on the privilege log all worked in non-legal capacities when the

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communications were made. Id.at 3, Kenswill Dep.at 42.
Plaintiffs’ evidence fails to overcome UMGR’s claims of privilege. UMGR has

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sufficiently supported its claim that the dominant purpose of the relationship with the attorneys at

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the time the communications were made was legal. The log entries state that legal advice was

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either sought or given with respect to digital downloads, artist communications, on-line royalties,
digital media strategy, and anti-piracy. Plaintiffs’ only evidence that the named attorneys were not

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United States District Court
Northern District of California

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working in a legal capacity when they made these communications is Kenswill’s testimony

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regarding the roles of BLA attorneys. However, this statement pertained to 1998, not the time

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period in the log. Jt. Ltr.at 5, fn. 18. This is insufficient evidence that these lawyers worked in a

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primarily non-legal capacity and gave primarily business advice. Nor does the fact that Hoffman

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wouldn’t characterize his conversations with Ostroff as “either business or legal” defeat UMGR’s

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claim of privilege. Id. at 2. Only thirteen of the challenged communications are between

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Hoffman and Ostroff, nine of which also include other attorneys. (Privilege Log Entries 138, 140,

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145, 149, 150, 151, 155, 162, 197, 210, 216, 218, and 233.)
Here, the Court finds that UMGR has not asserted a blanket privilege over its

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communications. UMGR has produced non-privileged communications authored by the attorneys

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on the log, and invoked attorney-client privilege only for those documents involving legal advice.

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See In re 3dfx Interactive, Inc., 347 B.R. 394, 403 (N.D. Cal. Bankr. 2006) (denying motion to

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compel production of documents on the basis that defendant’s in-house counsel was acting as

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business advisor; defendant consistently stated in letters, motions, and depositions that it produced

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all documents pertaining to business purposes).

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III.

CONCLUSION

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For the foregoing reasons, the Court finds the communications are privileged, and on that

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basis DENIES Plaintiffs’ motion to compel production of Privilege Log Entries: Nos. 61-65, 755

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80, 83-112, 114-128, 131-178, 180-240, 254-293, 300-317, and 337.
IT IS SO ORDERED.

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Dated: February 10, 2014
______________________________________
MARIA-ELENA JAMES
United States Magistrate Judge

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United States District Court
Northern District of California

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