Landmark Screens, LLC v. Morgan, Lewis, & Bockius, LLP et al

Filing 108

ORDER (1) GRANTING IN PART 85 Motion to Compel AND (2) INTERIM ORDER FOR IN CAMERA REVIEW by Magistrate Judge Howard R. Lloyd. The 1/19/2010 hearing is vacated. (hrllc1, COURT STAFF) (Filed on 1/15/2010)

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** E-filed January 15, 2010 **

NOT FOR CITATION IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION LANDMARK SCREENS, LLC, a Delaware limited liability company, v. Plaintiff, No. C08-02581 JF (HRL) ORDER (1) GRANTING IN PART PLAINTIFF'S MOTION TO COMPEL AND (2) INTERIM ORDER FOR IN CAMERA REVIEW OF DOCUMENTS [Re: Docket No. 85]

United States District Court

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For the Northern District of California

MORGAN, LEWIS & BOCKIUS LLP, a limited liability partnership; and THOMAS D. KOHLER, an individual, Defendants. ____________________________________/

Plaintiff Landmark Screens, LLC ("Landmark") hired defendant Thomas Kohler, then with the law firm Pennie & Edmonds LLP ("Pennie"), to prosecute patents pertaining to electronic billboard technology. After Pennie dissolved, Kohler joined defendant Morgan, Lewis & Bockius LLP ("MLB"). Subsequently, Landmark sued defendants and Pennie in state court, in part on grounds that they failed to promptly and properly advise it of a United States Patent and Trademark Office ("PTO") notice advising that Landmark's divisional patent application, filed by Pennie, was incomplete. The suit against Pennie and Kohler in his capacity as a Pennie partner settled during arbitration, but the state court dismissed the suit against MLB and Kohler in his capacity as an MLB partner for lack of subject-matter jurisdiction. Plaintiff then filed a new complaint in federal court against defendants asserting malpractice, negligence, breach of fiduciary duty, breach of implied contract, and fraud, but the allegation of fraud is now the only remaining claim in the case.

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In this motion, Landmark moves to compel production of documents it alleges that MLB has improperly withheld as privileged. In the alternative, it moves for an in camera review of these documents. MLB opposes the motion. Pursuant to Civil Local Rule 7-1(b), the court finds the matter suitable for determination without oral argument and vacates the January 19, 2010 hearing. DISCUSSION Privilege Logs For purposes of this motion, Landmark requests that this court consider not only the two privilege logs that defendants have produced in this action (one for MLB and one for Pennie), but also the MLB and Pennie logs produced in the earlier state court action. Landmark asserts that several documents appearing on the federal Pennie log originally appeared on the MLB state log. It points to other inconsistencies that, it argues, indicate that defendants' federal logs are suspect. Defendants say that it has explained to plaintiff numerous times that a different law firm prepared the state logs and that its new counsel created new logs for the federal action after reviewing the documents at issue. Under these circumstances, Landmark has not persuaded the court that differences between the state and federal logs indicate deceit on the part of defendants.1 Accordingly, the court will only consider the privilege logs that defendants have produced in the instant action. B. Internal Firm Communications Landmark moves to compel nearly every document on both the MLB and Pennie privilege logs on grounds that a law firm's duty of loyalty to its clients requires disclosure of the firms' internal communications. Although a law firm may assert privilege over communications with outside counsel, In re SonicBlue Inc., 2008 WL 170562, at *11 (Bankr. N.D. Cal. Jan. 18, 2008), its fiduciary duty to avoid conflicts of interest prevents it from withholding internal communications relating to the client's representation "once the law firm learns that [the] client may have a claim against the firm," Thelen Reid & Priest LLP v. Marland, 2007 WL 578989, at *7­8 (N.D. Cal. Feb. 21, 2007). "As a result, a law firm cannot assert the attorney-client privilege against a current Indeed, this court already performed one in camera review at the parties' request based on an inconsistency between the state and federal logs and found no evidence to support Landmark's suspicions. (Docket No. 104.) 2
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United States District Court

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For the Northern District of California

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outside client when the communications that it seeks to protect arise out of self-representation that creates an impermissible conflicting relationship with that outside client." In re SonicBlue Inc., 2008 WL 170562, at *8 (Bankr. N.D. Cal. Jan. 18, 2008). This rule also applies to documents withheld on work-product doctrine grounds. Thelen, 2007 WL 578989, at *8. 1. MLB Communications Landmark alleges that defendants were aware of a possible claim against them after receiving the PTO Notice on June 22, 2004. It argues that this resulted in a conflict of interest that requires them to disclose any internal communications discussing the actions defendants took in response to the PTO Notice. Defendants counter that no disclosure is necessary because all of the items listed on MLB's log are dated after Landmark terminated their attorney-client relationship on November 2, 2005. The earliest item on the MLB log is dated November 23, 2005. As a result, the documents listed on MLB's log would not require disclosure under Thelen because Landmark was not a current client when these communications took place. Nonetheless, Landmark argues that many items on Pennie's log are really MLB communications because they discuss potential litigation and involve MLB attorneys. In response, MLB asserts that the communications are properly listed on Pennie's log because the MLB attorneys involved were all former Pennie attorneys and because MLB "had nothing to do with filing the Divisional Application" that resulted in the PTO Notice. (Opp'n 11, 13.) A review of the Pennie log does not reveal suspect entries to suggest that they are in reality internal MLB communications. The entries involve former Pennie attorneys and many discuss the dissolution of a law firm. As well, nearly all involve Pennie's outside counsel, insurer, or policy board. The court is not convinced that these items are MLB internal communications merely because the subject includes "litigation" or because the author or recipients include former Pennie attorneys who are now at MLB. Consequently, they do not lose their privileged status on this basis. 2. Pennie Communications Landmark argues that even if the items listed on Pennie's log are properly Pennie communications, they should still be produced because Pennie never terminated its attorney-client

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For the Northern District of California

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relationship in writing as required by their retainer agreement. It claims that as a result, it was a current client of Pennie when these communications took place. MLB protests that the attorneyclient relationship between Pennie and Landmark ended when Pennie dissolved on December 31, 2003, or at the latest, when Landmark filed a Revocation and Power of Attorney with the PTO on April 13, 2004 that substituted MLB for Pennie. Still, Landmark asserts that neither of these events automatically terminated the relationship. For the purposes of this motion, Landmark has failed to persuade the court that an attorneyclient relationship with Pennie persisted into mid-July 2004--the date of the earliest items on Pennie's log. Although Landmark's Michael Wilson testified at deposition that he thought Pennie was looking to merge with another law firm (and thus, perhaps, continue to exist), he also testified that Kohler told him he was going to MLB and asked him if Kohler could take the Landmark file to MLB--a move to which he gave oral consent. Wilson also testified that he was not aware of anyone at Pennie other than Kohler who worked on Landmark's patent issues, that he did not talk to anyone at Pennie about patent issues after the dissolution date, that he did not receive any bills from Pennie after the dissolution date, and that he viewed Mr. Kohler as his attorney. (Wilson Dep. at 151­53, 155.) Such actions do not support the contention that seven months later, Landmark nevertheless believed it still had a current relationship with Pennie for patent matters.2 Landmark also argues that even if it were a former Pennie client, that "under California law, Pennie had a continuing duty of loyalty to Landmark even after termination of the attorney-client relationship" to not act in a way that would injure it. (Mot. 16­17.) See Styles v. Mumbert, 79 Cal. Rptr. 3d 880, 883 (Ct. App. 2008). It asserts that Pennie's failure to disclose information about the PTO Notice injured it in violation of this continuing duty of loyalty, and as a result, that Pennie must disclose its communications under the rationale of Thelen. But Thelen specifically entailed inhouse communications concerning current clients and conflicts. The court does not find that the circumstances here warrant an extension of Thelen's holding to any duties of disclosure Pennie may have had after the termination of the attorney-client relationship. Landmark's assertion that the attorney-client relationship persisted merely because Pennie failed to provide a written termination notice would also lead to an absurd result in this case: as Landmark alleges that Pennie never provided such a notice (Reply 11), it necessarily argues that it still has a current attorney-client relationship with Pennie, despite the fact that Pennie dissolved six years ago. 4
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United States District Court

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For the Northern District of California

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C.

Crime-Fraud Exception Landmark further moves for disclosure of documents on both the MLB and Pennie logs

under the crime-fraud exception to the attorney-client privilege. It argues that defendants' communications with inside and outside counsel that discuss "litigation," "anticipated litigation," or "potential litigation" show that they knew Landmark had a potential claim against them and sought to fraudulently conceal that information. (Mot. 18.) It says that accordingly, these communications must have been in furtherance of the alleged fraud. Defendants counter that Landmark only offers conjecture and fails to provide evidence to support the application of the crime-fraud exception. They argue that even an in camera review is inappropriate due to Landmark's lack of evidence. 3 Under the crime-fraud exception, communications are not privileged if the client seeks the advice of counsel to further a criminal or fraudulent scheme and the communications are sufficiently related to and made in furtherance of that scheme. In re Napster, Inc. Copyright Litig., 479 F.3d 1078, 1090 (9th Cir. 2007), abrogated on other grounds by Mohawk Indus., Inc. v. Carpenter, --U.S. ----, 130 S. Ct. 599 (2009) (citations omitted). Courts have also applied this rule to allow disclosure of attorney work product. See, e.g., In re Grand Jury Proceedings, 867 F.2d 539 (9th Cir. 1989). In a civil case, the "preponderance of the evidence" standard is required for outright disclosure of communications pursuant to this exception. In re Napster, 478 F.3d at 1094­95. Landmark's argument in support of disclosure pursuant to the crime-fraud exception is, for the most part, premised on the fact that Landmark's complaint alleges actual fraud. Nevertheless, merely repeating the facts as presented in its complaint does not show a preponderance of the evidence that the communications listed on the privilege logs were sufficiently related to and made in furtherance of fraud. Thus, compelling outright disclosure is inappropriate under the circumstances. That said, Landmark has also requested that the court perform an in camera review to determine whether the crime-fraud exception applies. "[T]he procedural posture and consequences MLB also argues that Landmark is precluded from asserting the crime-fraud exception as to Pennie's documents because the issue was already litigated in arbitration during the state court proceedings. However, the arbitration panel never rendered a final award, and the panel's decision on the motion to compel was not identical to the issue here as it was considering only the state privilege logs. See Producers Dairy Delivery Co. v. Sentry Ins. Co., 718 P.2d 920, 923 (Cal. 1986) (providing the requirements for collateral estoppel). 5
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For the Northern District of California

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of an in camera inspection of . . . disputed communications are fundamentally different from those of an order requiring their outright disclosure." Id. at 1092. As a result, "a lesser evidentiary showing is needed to trigger in camera review than is required ultimately to overcome the privilege." United States v. Zolin, 491 U.S. 554, 572 (1989); see also In re Napster, 479 F.3d at 1092. Instead of establishing a preponderance of the evidence, the party seeking an in camera review must show a factual basis supporting a reasonable, good-faith belief that a review may reveal evidence supporting the application of the crime-fraud exception. Zolin, 491 U.S. at 572. The Napster court noted that an in camera review is not "a panacea," but recognized that the "judicious use of in camera review, combined with a preponderance burden for terminating privilege," struck an appropriate "balance between the importance of the attorney-client privilege and deterrence of its abuse." Id. at 1096. Accordingly, the decision to have an in camera review "rests in the sound discretion of the district court." United States v. Zolin, 491 U.S. 554, 572 (1989). The fraudulent concealment at issue in this case primarily involves the actions of Kohler, as an MLB partner, concerning the PTO Notice. Landmark asserts that Kohler received the PTO Notice on June 22, 2004, but did not tell Landmark about it until early December 2004. Landmark also alleges specific acts suggesting that Kohler continued to conceal information through May 2005. (Mot. 3, 8.) Although these facts do not support a blanket in camera review of all the documents at issue in this motion, they do support a reasonable, good-faith belief that Kohler's communications with counsel during the alleged concealment period may reveal evidence supporting the application of the crime-fraud exception. Accordingly, the court will exercise its discretion to conduct an in camera review of documents appearing on Pennie's log involving Kohler's communications with outside counsel from the date of the PTO Notice through May 2005.4 D. Henry Communications Finally, Landmark moves to compel production of communications appearing on the Pennie log involving non-attorney Edward Henry, Pennie's former Executive Director, because it asserts that the communications were not primarily to seek legal advice. MLB responds that the "primary

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For the Northern District of California

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No items on MLB's log are dated within this time period. 6

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purpose" rule only applies to communications with in-house counsel and that Henry's communications presumptively are privileged because they were for the purpose of carrying out privileged communications with Pennie's outside counsel and insurance company representative. See United States v. ChevronTexaco Corp., 241 F. Supp. 2d 1065 (N.D. Cal. 2002). Landmark asserts that it has rebutted this presumption with evidence in the form of Henry's state court declaration. The court is unpersuaded that the documents listed in the Pennie log pertaining to Henry were not for the purpose of furthering communications with outside counsel and insurers such as to overcome the presumptive privilege. In his declaration, Henry notes that he "was required to provide Pennie's primary insurance carrier with status reports on all matters that could potentially result in claims against Pennie." (Henry Decl. 1.) In its motion, Landmark admits that California law recognizes that communications between an insured to his liability insurance company about a potential claim is treated as a privileged communication. (Mot. 18 n.6); see also Scripps Health v. Superior Court, 135 Cal. Rptr. 2d 126, 130 (Ct. App. 2003). Furthermore, Henry states that the duties of Pennie's outside counsel, James Corcoran, included "resolving claims brought against Pennie." (Henry Decl. 1.) This is a sufficient nexus to support MLB's assertion of privilege for Henry's communications. CONCLUSION Based on the foregoing, IT IS ORDERED that: 1. MLB shall produce to this court within fourteen days the following documents as they appear on the Pennie privilege log for an in camera review: MLBFED0002495­97; MLBFED0002510­11; MLBFED0002513­17; MLBFED0002520­25; MLBFED0002561; MLBFED0002563; and MLBFED0002575­80. 2. Following this court's in camera review, it shall order any subsequent disclosure as appropriate.

United States District Court

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For the Northern District of California

Dated: January 15, 2010 HOWARD R. LLOYD
UNITED STATES MAGISTRATE JUDGE

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C 08-02581 Notice will be electronically mailed to: Clark S. Stone Courtney Towle Edward John McIntyre Elliot Remsen Peters Inchan Andrew Kwon John Elliot Trinidad Steven Mark Levitan Steven Paul Ragland Wendy Jill Thurm William N. Kammer [e-mail], [e-mail] [e-mail] [e-mail], [e-mail] [e-mail], [e-mail], [e-mail] [e-mail], [e-mail], [e-mail], [e-mail] [e-mail], [e-mail] [e-mail] [e-mail], [e-mail], [e-mail] [e-mail], [e-mail], [e-mail], [e-mail] [e-mail], [e-mail]

Counsel are responsible for distributing copies of this document to co-counsel who have not registered for e-filing under the court's CM/ECF program.

United States District Court

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For the Northern District of California

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