Youngevity International, Corp. v. Smith et al

Filing 198

ORDER Denying 155 Defendants' Motion to Compel Production of Unredacted Communications and Granting 154 Plaintiffs' Cross-Motion on Privilege Log Issue. Signed by Magistrate Judge Jill L. Burkhardt on 9/22/2017. (Exhibits 1 and 2 filed under seal) (lrf)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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YOUNGEVITY INTERNATIONAL,
INC. AND JOEL D. WALLACH,
Plaintiffs,

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Case No.: 16-cv-704 BTM (JLB)

v.
TODD SMITH et al.,
Defendants.

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ORDER DENYING DEFENDANTS’
MOTION TO COMPEL
PRODUCTION OF UNREDACTED
COMMUNICATIONS AND
GRANTING PLAINTIFFS’ CROSSMOTION ON PRIVILEGE LOG
ISSUE

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[ECF Nos. 154 & 155]

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AND RELATED COUNTER ACTION.

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Before the Court is Defendants’ and Counterclaim Plaintiffs’ Motion to Compel

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Production of Unredacted Communications and Plaintiffs’ and Counterclaim Defendants’

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Cross-Motion on Privilege Log Issue. (ECF Nos. 154 & 155.) Specifically, Defendants
seek production, in unredacted form (and Plaintiffs seek continued protection), of email
communications1 described in Plaintiffs’ privilege log as follows:

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As noted by Plaintiffs, the documents submitted to the court in camera are Bates Stamped
“ANSON.000217-ANSON.000218” and “ANSON.000189- ANSON.000191,” but Plaintiffs identified
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16-cv-704 BTM (JLB)

12/14/2016

Rick Anson, George
Rondeau, Eric
Awerbuch, Peter
Arhangelsky

Attorney-Client;
Work-Product;
Common-Interest

Email
reflecting
legal advice.

12/14/2016

Rick Anson, George
Rondeau, Clay Carley,
Peter Arhangelsky, Eric
Awerbuch

Attorney-Client;
Work-Product;
Common-Interest

Email
reflecting
legal advice.

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ANSON000213

ANSON000214

Email

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ANSON000185

ANSON000187

Email

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The parties have provided the Court with an agreed-upon cast of characters. (ECF

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Nos. 150-7 (sealed), 155-1.) As to those in the part of the email chains at issue, Peter

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Arhangelsky and Eric Awerbuch are counsel for Plaintiff Youngevity International Corp.

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(Youngevity). Steve Wallach is Chief Executive Officer of Youngevity. George Rondeau

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is an attorney for both Livewell L.L.C. (Livewell) and Rick Anson. Rick Anson is and was

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the owner of Livewell, and at the time of circulation of the relevant emails, was Vice

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President of Product Development for Defendant Wakaya Perfection (Wakaya). Clay

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Carley was an officer for, and investor in, Livewell. (Id.)

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The relevance and responsiveness of these documents is not disputed. Plaintiffs

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argue that the documents are properly withheld from production because they contain

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attorney-client and work product privileged information and that the privilege has not been

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waived because these emails were shared only with those with a common interest.

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Defendants argue that any privilege has been waived.

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I.

Factual Background

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Plaintiff Youngevity is a multi-level marketing (MLM) direct selling company

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(DSC) which markets products in such categories as nutrition, sports and energy drinks,

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health and wellness, and lifestyle. (ECF No. 1 at 3-4.)2 Defendant Wakaya is also an MLM

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these documents as “ANSON000213-ANSON000214” and “ANSON000185-ANSON000187,”
respectively, in their privilege log. (ECF No. 154 at 2.) The Court uses ANSON000213-ANSON000214
and ANSON000185-ANSON000187 or Courts Exhibits 1 and 2 to refer to these documents. By this
Order, the Court directs the Clerk of Court to file the relevant emails, attached as Court Exhibits 1 and 2,
under seal, viewable by court personnel only, to preserve the record of what was reviewed in camera by
the Court.
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All citations to page numbers in this Order refer to the page numbers generated by the CM/ECF system.
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16-cv-704 BTM (JLB)

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company which was formed by former Youngevity distributor Defendant Todd Smith.

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(ECF No. 83 at 5, 7.)

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Livewell is a company owned by Anson. (ECF Nos. 150-7 (sealed), 155-1.)

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Livewell was a vendor of Wakaya beginning in February 2016. (Id.) In February 2016,

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Wakaya and Livewell entered into a license agreement and Wakaya and Anson entered

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into a royalty agreement providing Wakaya with a license to the Livewell products Anson

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had developed. (ECF Nos. 83 at 60, 150-7 (sealed); 155-1.) In addition, Anson was

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employed as Wakaya’s Vice President of Product Development. (ECF No. 83 at 61.) All

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of these relationships were severed sometime in mid-January, 2017. (ECF Nos. 150-7

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(sealed), 154 at 4 (“The parties ended their relationship in mid-Jan. 2017.”), 155 at 7.) The

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severance process was initiated on December 16, 2016, when Rick Anson sent Wakaya a

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Notice of Default as to the royalty agreement and Livewell sent a Notice of Default as to

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the license agreement (Notices). Both agreements provide for notice and a period to cure.

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(ECF No. 155 at 7.)

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Plaintiffs filed the instant action in March 2016. (ECF No. 1.) Youngevity filed an

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additional, separate lawsuit against Defendant Wakaya in November 2016. (ECF No. 155-

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1 at 43.)

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The emails at issue are dated December 14, 2016 and December 15, 2016. On

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December 14, 2016, Youngevity’s counsel sent an email to Rondeau, Livewell and

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Anson’s counsel, on the subject of the Notices. (Court Exh. 1 at 4.) Rondeau forwarded

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the email to Anson; and Rondeau, Anson, and Livewell officer Clay Carley proceeded to

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exchange communications regarding the Notices and Anson’s separation from Wakaya.

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(Id. at 2-3.) On December 15, 2016, Anson forwarded the communications between

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himself, Rondeau and Carley to Youngevity’s CEO, Steve Wallach. (Id. at 2.) The next

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day, Anson and Livewell provided the Notices to Wakaya. (ECF No. 155 at 7.) The Court

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must determine whether the email chains contain privileged material and whether any such

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privilege was waived (1) when Youngevity’s counsel shared the material with Anson and

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Livewell’s counsel, and (2) when the communications between Anson, Rondeau and

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Carley were shared with Wallach.

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Plaintiffs argue that the communications were privileged and that there was no

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waiver because the common interest doctrine applies. Specifically, Plaintiffs argue that

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“LiveWell and Youngevity shared a common interest in litigation against Wakaya

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Perfection, LLC.” (ECF No. 154 at 2.) Plaintiffs argue that when Anson sent the

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communications to Youngevity’s CEO, Wallach, “Anson did not thereby waive any

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privilege because LiveWell shared a common interest with Youngevity: legal opposition

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to Wakaya predicated on Wakaya’s tortious acts and breaches of contract.” (Id. at 6.)

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Plaintiffs argue that the same alleged wrongdoings by Wakaya that form the basis for

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Youngevity’s lawsuits against Wakaya also underlie the Notices Anson and Livewell sent

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to Wakaya. (Id. at 7-8.)

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Defendants argue that “Youngevity and its counsel cannot have had a common legal

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enterprise with Anson during the time Anson served as Wakaya VP.” (ECF No. 155 at 8.)

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Defendants argue that “Youngevity may assert a commercial interest in assisting Anson in

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terminating the Agreements, but it has no legal interest in such termination.” (Id. at 9.)

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Defendants further ague that Youngevity and Anson could not have had a common legal

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interest, and therefore could not benefit from the common interest doctrine, because

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California Rule of Professional Conduct 2-100 precluded Youngevity’s attorneys from

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communicating with Anson during the time he was an officer of Wakaya. (Id. at 8.)

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Finally, citing a crime-fraud doctrine case, Defendants argue that Anson violated his ethical

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and contractual obligations by sharing draft Notices, containing confidential information,

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with Youngevity, a business competitor and litigation opponent of Wakaya, and

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“Youngevity and Anson cannot rely on claims of attorney-client or common-interest

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privilege to hide their tortious conduct.” (Id. at 9.)

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II.

Legal Standards

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The attorney-client privilege protects confidential communications between a client

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and his or her attorney for the purposes of obtaining legal advice. In re Grand Jury
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Investigation, 974 F.2d 1068, 1070 (9th Cir. 1992). The party asserting the attorney-client

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privilege has the burden of establishing the existence of the attorney-client privilege. Id.

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at 1070-71. The party asserting the privilege must establish: “(1) Where legal advice of

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any kind is sought (2) from a professional legal adviser in his capacity as such, (3) the

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communications relating to that purpose, (4) made in confidence (5) by the client, (6) are

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at his instance permanently protected (7) from disclosure by himself or by the legal adviser,

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(8) unless the protection be waived.” Id. at 1071 n.2 (quoting Matter of Fischel, 557 F.2d

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209, 211 (9th Cir. 1977)).

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The work product doctrine provides a qualified immunity for materials prepared in

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anticipation of litigation by a party, an attorney, or other representatives of the party.

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Hickman v. Taylor, 329 U.S. 495 (1947); Fed. R. Civ. P. 26(b)(3). The party asserting

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work product protection bears the burden of proving that the privilege applies. Hickman,

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329 U.S. at 510-12.

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Attorney-client communications “made in the presence of, or shared with, third-

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parties destroys the confidentiality of the communications and the privilege protection that

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is dependent upon that confidentiality.” Nidec Corp. v. Victor Co. of Japan, 249 F.R.D.

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575, 578 (N.D. Cal. 2007) (citation omitted). Any exception to this rule must be construed

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narrowly to avoid “creating an entirely new privilege.” In re Pac. Pictures Corp., 679 F.3d

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1121, 1128 (9th Cir. 2012).

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Similarly, work product protections may be waived when disclosure to a third party

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“enables an adversary to gain access to the information.” Nidec Corp., 249 F.R.D. at 580

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(quoting United States v. Bergonzi, 216 F.R.D. 487, 497 (N.D. Cal. 2003)). See also Goff

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v. Harrah’s Operating Co., 240 F.R.D. 659, 661 (D. Nev. 2007) (work product protections

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may apply in spite of disclosure to a third party “unless the breach ‘has substantially

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increased the opportunities for potential adversaries to obtain the information’”) (quoting

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Charles A. Wright, Arthur R. Miller & Richard L. Marcus, Federal Practice & Procedure:

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Civil 2d § 2024 (3d ed.)). “If a document otherwise protected by work-product immunity

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is disclosed to others with an actual intention, or reasonable probability, that an opposing
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party may see the document, the party who made the disclosure cannot subsequently claim

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work-product immunity.” Cal. Sportfishing Prot. Alliance v. Chico Scrap Metal, Inc., 299

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F.R.D. 638, 645 (E.D. Cal. 2014) (citing In re Imperial Corp. of Am., 167 F.R.D. 447, 456

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(S.D. Cal. 1995), aff’d, 92 F.3d 1503 (9th Cir. 1996)).

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The “common interest” or “joint defense” doctrine is an exception to the general rule

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that disclosure of protected material to third parties constitutes a waiver. Nidec Corp., 249

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F.R.D. at 578; Cal. Sportfishing Prot. Alliance, 299 F.R.D. at 646. The common interest

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doctrine is “designed to allow attorneys for different clients pursuing a common legal

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strategy to communicate with each other.” In re Pac. Pictures Corp., 679 F.3d at 1129

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(citing Hunydee v. United States, 355 F.2d 183, 185 (9th Cir. 1965)). The exception is

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available regardless of whether litigation has actually commenced. Continental Oil Co. v.

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United States, 330 F.2d 347, 350 (9th Cir. 1964). The common interest exception applies

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when “(1) the communication is made by separate parties in the course of a matter of

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common interest; (2) the communication is designed to further that effort; and (3) the

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privilege has not been waived.” Bergonzi, 216 F.R.D. at 495 (citing In re Mortgage Realty

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Trust, 212 B.R. 649, 653 (Bankr. C.D. Cal. 1997)).

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There must be “an on-going and joint effort to set up a common defense strategy”

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for the common interest exception to apply. U.S. ex rel. Burroughs v. DeNardi Corp., 167

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F.R.D. 680, 685 (S.D. Cal. 1996). “[A] shared desire to see the same outcome in a legal

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matter is insufficient to bring a communication between two parties within this exception.”

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In re Pac. Pictures Corp., 679 F.3d at 1129.

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communication in pursuit of a joint strategy in accordance with some form of agreement—

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whether written or unwritten.” Id. An agreement to set up a common defense strategy

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“may be implied from conduct and situation, such as attorneys exchanging confidential

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communications from clients who are or potentially may be codefendants or have common

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interests in litigation.” United States v. Gonzalez, 669 F.3d 974, 979 (9th Cir. 2012)

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(quoting Continental Oil Co., 330 F.2d at 350).

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“Instead, the parties must make the

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The existence of an express or implied joint defense agreement “is not necessarily

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an all-or-nothing proposition.” Id. at 981. The separate parties “need not have identical

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interests and may even have some adverse motives,” but must share a common interest in

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litigation. Id. (citing Hunydee, 355 F.2d at 185). For example, in United States v.

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Gonzalez, the Ninth Circuit held that an express or implied joint defense agreement existed

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between husband and wife who were initially codefendants, even though their trials were

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severed and the husband ultimately asserted a defense that was adverse to the wife’s

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interests. Id. at 980.

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In the attorney-client privilege context, such an agreement must be founded on “a

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common legal, as opposed to commercial, interest.” Nidec Corp., 249 F.R.D. at 579

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(quoting Bank Brussels Lambert v. Credit Lyonnais (Suisse) S.A., 160 F.R.D. 437, 447

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(S.D.N.Y. 1995)). Additionally, the communications at issue must be “designed to further

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that legal effort.” Id. (quoting Bergonzi, 216 F.R.D. at 495) (emphasis in original). “The

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protection of the privilege under the community of interest rationale, however, is not

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limited to joint litigation preparation efforts. It is applicable whenever parties with

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common interests join forces for the purpose of obtaining more effective legal assistance.”

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Id. at 578 (quoting Rice, Attorney Client Privilege in the United States § 4:36, at 216).

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Parties may have both common commercial and legal interests, such as when the parties

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are discussing a merger or negotiating for a patent license. See, e.g., Louisiana Mun. Police

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Employees Ret. Sys. v. Sealed Air Corp., 253 F.R.D. 300, 310 (D.N.J. 2008) (“The weight

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of case law suggests that, as a general matter, privileged information exchanged during a

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merger between two unaffiliated business would fall within the common-interest

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doctrine.”) (quoting Cavallaro v. United States, 153 F.Supp.2d 52, 61 (D. Mass. 2001),

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aff’d 284 F.3d 236 (1st Cir. 2002)); In re Regents of Univ. of California, 101 F.3d 1386,

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1390 (Fed. Cir. 1996) (communications between defendant and third party negotiating for

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exclusive license to defendant’s patents were protected under the common interest

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exception, reasoning in part that the communications were designed to reduce or avoid

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litigation). Compare Santella v. Grizzly Indus., Inc., 286 F.R.D. 478, 482 (D. Or. 2012)
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(third party waived privilege when it sent “offering package” with its attorney’s opinion to

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numerous potential investors because potential investors had only a commercial interest in

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the information).

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“The common interest exception is construed more narrowly in the context of

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attorney-client privilege than it is in the context of the attorney work product doctrine.”

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Cal. Sportfishing Prot. Alliance, 299 F.R.D. at 646.

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“[e]ssentially, a court must decide if disclosure is consistent with the work product

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doctrine’s purpose of preserving the adversary system.” Id. “So long as transferor and

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transferee anticipate litigation against a common adversary on the same issue or issues,

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they have strong common interests in sharing the fruit of the trial preparation efforts.”

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United States v. Am. Tel. & Tel. Co., 642 F.2d 1285, 1299 (D.C. Cir. 1980).

In the work product context,

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Once a common interest or joint defense agreement is formed, one party to the

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agreement cannot unilaterally waive the privilege for other holders. Gonzalez, 669 F.3d at

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982.

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III.

Analysis

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As the party asserting attorney-client privilege and work product protection,

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Youngevity bears the burden of establishing that privilege was not waived over the email

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chains at issue. Hickman, 329 U.S. at 510-12; In re Grand Jury Investigation, 974 F.2d at

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1070-71.

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A. Work Product Protection of the Material Youngevity Sent to Anson and
Livewell’s Counsel

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On December 14, 2016, Youngevity’s counsel emailed Anson and Livewell’s

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counsel materials containing the mental impressions, opinions and legal theories of counsel

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regarding the Notices and Youngevity’s claims against Wakaya. (See Court Exh. 1 at 4;

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Court Exh. 2 at 2-3.) At this time, Youngevity was already engaged in litigation with

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Wakaya. The Notices themselves set forth Wakaya’s alleged defaults and breaches under

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the two agreements that arguably triggered the termination provisions of the agreements.

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Accordingly, the Court is satisfied Youngevity has met its burden to show that, absent
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waiver, these communications qualify for work product protection as materials prepared in

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anticipation of litigation by an attorney. See Hickman, 329 U.S. at 510-12.

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The question, then, is whether Youngevity waived this protection by sending the

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material to third parties Livewell and Anson. The Court finds that the common interest

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exception applies because the communications were made by separate parties in the course

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of a matter of common interest; the communications at issue were designed to further that

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effort; and the privilege was not waived by disclosure to a party outside of the common

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interest. See Bergonzi, 216 F.R.D. at 495. At the time of the email communications, all

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parties had or were preparing to assert legal claims against Wakaya. Youngevity and

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Wakaya were already engaged in litigation. Livewell and Anson were preparing to assert

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their claims against Wakaya in the Notices that were sent two days later, on December 16,

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2016. Accordingly, counsel for Youngevity, Livewell and Anson shared legal advice

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related to their common legal claims against Wakaya. The parallels between the Notices

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and Youngevity’s allegations in the instant litigation evidence this common legal strategy.

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Specifically, both the Notices and Youngevity’s Third Amended Complaint, filed on

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December 21, 2016, allege that Wakaya: (1) made misrepresentations about David

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Gilmour’s status at Wakaya, (2) falsely claimed that the ingredients of all Wakaya products

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were sourced from Wakaya island, (3) marketed ginger products with excessive bacteria,

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and (4) distributed clay products with high levels of lead and arsenic. (ECF No. 154 at 7)

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Although there was no written agreement, the Court concludes that the parties’ exchange

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of confidential communications regarding Youngevity, Livewell and Anson’s legal claims

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against Wakaya evidences an implied agreement to pursue a common legal strategy. See

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Gonzalez, 669 F.3d at 979.

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Wakaya argues that Youngevity could not have had a common legal interest with

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Anson during the time Anson served as an officer of Wakaya. (ECF No. 155 at 8.)

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Wakaya’s argument seems to be premised on the position that Anson could not have a

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common interest with Youngevity, a competitor and litigation opponent of Wakaya, while

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Anson served as an officer of Wakaya. The Ninth Circuit’s analysis in United States v.
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Gonzalez is somewhat instructive. In Gonzalez, the car of Gonzalez’s wife was found

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burned in a field, with a gas can in the backseat, ten days after the wife had taken out an

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insurance policy on the vehicle. Gonzalez, 669 F.3d at 976. Gonzalez initially admitted to

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burning the car and stated that his wife knew nothing of the plan, but later argued that he

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was not involved in the burning of the vehicle and had lied to investigators to protect his

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wife. Id. After trial, Gonzalez’s wife filed an ineffective assistance of counsel claim and

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the government sought communications between the wife’s counsel and Gonzalez’s

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counsel, arguing that the communications were not protected by the common interest

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exception because the trials had been severed and Gonzalez asserted a defense adverse to

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his wife’s interests. Id. The court held that an express or implied joint defense agreement

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existed, as the existence of such an agreement “is not necessarily an all-or-nothing

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proposition.” Id. at 981. The case was remanded to the district court to determine the

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extent and duration of the agreement, noting that “[i]f their mutual interest is defined more

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narrowly . . . then it is possible that their other adverse positions did not undermine their

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joint defense privilege on this specific issue.” Id. at 980-81.

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As in Gonzalez, while Anson’s position as an officer of Wakaya meant he had some

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interests that were adverse to Youngevity, it does not establish that Anson was adverse to

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Youngevity in all respects. Wakaya presents no evidence that Anson took any action

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adverse to the common legal strategy agreement between Youngevity, Livewell and

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Anson. To the contrary, the record shows that at the time of the email correspondence at

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issue, Anson was actively working to sever all ties with Wakaya by drafting the Notices

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and seeking legal advice on separation as an employee of Wakaya. Although Anson and

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Youngevity may not have had “identical interests and may even have [had] some adverse

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motives,” the record shows they shared a common legal interest in asserting common

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claims against Wakaya. See id.

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Wakaya also argues that Rule 2-100 of the California Rules of Professional Conduct

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prohibited Youngevity’s counsel from communicating with Anson while he was an officer

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of Wakaya. (ECF No. 155 at 8.) Rule 2-100 states, in part, “While representing a client,
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a member shall not communicate directly or indirectly about the subject of the

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representation with a party the member knows to be represented by another lawyer in the

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matter, unless the member has the consent of the other lawyer.” There is no evidence

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before the Court that counsel for Youngevity communicated with Anson except through

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Anson’s counsel, Rondeau. The Court is not persuaded by Wakaya’s argument that the

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application of Rule 2-100 means Anson and Youngevity could not have had a common

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interest in sharing the fruits of litigation preparation.

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Citing a case on the crime-fraud exception to privilege protection, Wakaya further

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argues that “Youngevity and Anson cannot rely on claims of attorney-client or common-

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interest privilege to hide their tortious conduct” and “Anson cannot shield his improper

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disclosure of Wakaya’s confidential information to Youngevity by funneling such

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disclosure through counsel.” (Id. at 9.) To the extent that Wakaya endeavors to rely on

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the crime-fraud exception to privilege protection, it has failed to persuade the Court of its

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applicability to the current situation. Although Wakaya asserts the conduct of Anson and

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Youngevity was unethical and tortious, it makes no argument that either was “engaged in

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or planning a criminal or fraudulent scheme,” the first requirement for showing the

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application of the crime-fraud exception to privilege protection. In re Grand Jury

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Proceedings, 87 F.3d 377, 381 (9th Cir. 1996).

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Accordingly, the Court concludes that Youngevity did not waive work product

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protection by forwarding work product to counsel for Livewell and Anson because the

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parties shared a common legal interest.3

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B. Attorney-Client Privilege Protection of the Email Communications Between
Livewell, Anson and Counsel Forwarded to Youngevity

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The common interest exception also applies to the email communications exchanged

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by Livewell, Anson and Rondeau that were forwarded to Wallach. Livewell and Anson

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Wakaya does not argue, and the Court does not address, whether work product protection of the email
correspondence should nonetheless be overcome based on a showing of substantial need for the materials.
See Fed. R. Civ. P. 26(b)(3).
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exchanged privileged attorney-client communications with their counsel when they sought

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legal advice, in confidence, regarding the claims asserted in the Notices of Default and

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Anson’s separation from Wakaya. See In re Grand Jury Investigation, 974 F.2d at 1071

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n.2; Court Exh. 1 at 2-3. These attorney-client communications were sent to a third party,

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Wallach, destroying privilege unless an exception to waiver applies. See Nidec Corp., 249

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F.R.D. at 578. Here, the common interest exception applies.

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The attorney-client privilege was not waived when Anson forwarded the email

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communications to Wallach because Livewell, Anson and Youngevity had an implied

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agreement to pursue a common legal strategy. See Gonzalez, 669 F.3d at 979. Having

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reviewed the email communications, the Court finds that the email communications at issue

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furthered that common legal interest. As evidenced by the common claims asserted by the

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parties against Wakaya, the communications were based on “a common legal, as opposed

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to commercial, interest.” Nidec Corp., 249 F.R.D. at 579 (quoting Bank Brussels Lambert,

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160 F.R.D. at 447). Youngevity, Anson and Livewell “join[ed] forces for the purpose of

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obtaining more effective legal assistance,” as memorialized in the Notices and

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Youngevity’s allegations against Wakaya in the instant litigation. See id. at 578 (quoting

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Rice, Attorney Client Privilege in the United States § 4:36, at 216). See also Sealed Air

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Corp., 253 F.R.D. at 310. At the time of the email communications at issue, Youngevity,

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Anson and Livewell shared a common legal interest in pursuing parallel claims against

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Wakaya. Thus, the Court concludes that Youngevity has met its burden to show the email

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communications are privileged.

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IV.

Conclusion

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For the foregoing reasons, Defendants’ motion to compel production of

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ANSON000213-ANSON000214 and ANSON00185-ANSON00187 is hereby DENIED,

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and Plaintiffs’ cross-motion for continued protection of the email correspondence is

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GRANTED.

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The Court hereby directs the Clerk of Court to file the email correspondence

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reviewed in camera, Court Exhibits 1 and 2, under seal for the Court’s eyes only. Good
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cause exists to place Court Exhibits 1 and 2 under seal because the Court concludes that

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these documents are protected by the attorney-client privilege and work product doctrine.

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IT IS SO ORDERED.
Dated: September 22, 2017

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13
16-cv-704 BTM (JLB)