Safety Today, Inc. v. Roy et al
Filing
165
OPINION AND ORDER granting 144 Sealed Motion to Compel. Signed by Magistrate Judge Terence P Kemp on 10/11/2013. (pes1)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
Safety Today, Inc.,
Plaintiff,
v.
:
:
:
Susan Roy, et al.,
Defendants.
Case No. 2:12-cv-510
:
JUDGE MICHAEL H. WATSON
Magistrate Judge Kemp
:
OPINION AND ORDER
Plaintiff Safety Today, Inc., the former employer of
defendants Susan Roy and Jeanne Brady, filed suit against them
claiming they took confidential information away with them when
they stopped working for Safety Today and that they used it while
working for a competitor, defendant Safeware.
On August 2, 2013,
defendants filed a motion to compel production of certain
documents which, according to Safety Today, are protected from
disclosure by the attorney-client privilege.
briefed.
The motion is fully
For the following reasons, the Court will grant the
motion by ordering production of the documents for an in camera
review.
I.
The facts leading up to the motion to compel are not really
disputed.
From the Court’s perspective, the relevant facts are
these.
After alleging in its complaint that Ms. Roy and Ms. Brady
misappropriated its trade secrets, breached duties of good faith
and loyalty, and committed various other torts, Safety Today
obtained a temporary restraining order from Judge Watson.
As the
factual basis for that order, Judge Watson found that shortly
before she left the company, Ms. Roy emailed some Safety Today
files to her personal account, accessed some confidential
customer information, and took some documents relating to private
label gloves manufactured by another company, Superior Gloves.
After she left, she forwarded a confidential document obtained by
Ms. Brady to two Safeware employees.
Judge Watson also concluded
that the information which Ms. Roy took was “likely trade
secrets” under Ohio law and that irreparable harm would result if
she or Safeware were allowed to use it.
He consequently enjoined
both defendants from “soliciting the business of Safety Today
customers to whom they provided services as employees of Safety
Today in 2012” and from disclosing or using any of the
information at issue.
Order of June 29, 2012, Doc. 15.
The TRO
was extended several times to permit the Court to conduct a
hearing on Safety Today’s motion for a preliminary injunction.
The Court held a preliminary injunction hearing on September
21, 2012.
Following the hearing, and after considering the
parties’ briefs, Judge Watson issued a preliminary injunction
order on October 12, 2012.
That order (Doc. 67) specifically
recited that Safety Today failed to prove that either Ms. Roy or
Ms. Brady still had any of its proprietary information in their
possession or that other Safeware employees did so.
Based on
defendants’ agreement, however, Judge Watson enjoined them from
using any such information to solicit any customers or to order
work from vendors.
The balance of the TRO, including that part
which prohibited Ms. Roy and Ms. Brady from soliciting business
from certain Safety Today customers, was dissolved.
Almost immediately after this order was filed, Safety Today
prepared and sent a letter to its customers and vendors about the
litigation.
Copies of this letter are attached to defendants’
motion to compel (Doc. 144) as Exhibit A.
After describing the
actions taken by Ms. Roy and Ms. Brady as they left Safety
Today’s employ, the letter stated, in bold typeface, that “the
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Federal Court acknowledged that Sue Roy and Joanne Brady not only
took Safety Today’s confidential information and trade secrets
but used such information to solicit the business of Safety
Today’s customers.”
It then explained that this Court prohibited
Ms. Roy and Ms. Brady, as well as Safeware, from using any of
that information to solicit customers or to order work from
vendors and to “return all original Safety Today confidential
information and trade secrets that Sue Roy and Joanne Brady took
from Safety Today.”
Believing this letter to be a substantial misrepresentation
of the Court’s order, defendants served a document request on
Safety Today asking for any drafts of that letter and any email
correspondence relating either to the letter or to the Court’s
order.
There are apparently a large number of such documents.
Most of them were either sent by or to Kimberly Duttlinger, one
of Safety Today’s attorneys.
Ms. Duttlinger testified in her
deposition that she “drafted this letter with folks at Safety
Today” including Ed Gustafson and possibly others.
Deposition, Doc. 117, at 18).
(Duttlinger
She also testified that outside
counsel, Gary Batke, reviewed the letter before it was mailed and
that there were changes made to it after his review.
Id. at 21.
She agreed that “the intent of the letter was to give ...
customers a fair understanding of what was going on in the
litigation.”
Id. at 23.
Ms. Duttlinger was also questioned extensively about whether
the information which Ms. Roy and Ms. Brady took from Safety
Today was, in fact, confidential.
She acknowledged that the
parties to this case took different positions on that issue.
at 47.
Id.
She also stated that this Court has not yet resolved that
issue although she felt, based on the language in the preliminary
injunction order, that Judge Watson must have considered “some of
the information to be trade secret.”
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Id. at 53.
Defendants have counterclaimed based on the mailing of these
letters to customers and vendors.
The counterclaim (Doc. 105)
alleges that despite the fact that “Judge Watson’s Decision [the
ruling on the motion for preliminary injunction] is absolutely
clear that the Court never acknowledged that confidential
information or trade secrets had been used by either Ms. Roy or
Ms. Brady,” the letter “falsely asserted that Defendants took and
used Plaintiff’s confidential information and trade secrets.”
Id. at ¶s 9 & 11.
Claiming that this misstatement was made “with
actual knowledge ... that the assertions in it were both false
and directly contrary to Judge Watson’s actual ruling,”
defendants have brought claims for tortious interference with
contract or prospective business relations and for defamation.
Subsequently, they provided the Court with evidence from Safety
Today’s own documents that various vendors who received the
letter expressed some measure of support for Safety Today’s
actions against Safeware and the two individual defendants based
on the letter’s contents.
II.
The document requests at issue are reprinted in the motion
to compel at page 8.
They asked for:
1. All drafts and versions of the October 17, 2012
letter sent by Plaintiff Safety Today regarding the
October 12, 2012 order, as referenced in pages 18-20
and 59 of Kimberly Duttlinger’s deposition transcript.
2. All email correspondence concerning or referencing
the October 17, 2012 letter sent by Plaintiff Safety
Today regarding the Court’s October 12, 2012 order, as
referenced on page 20 of Kimberly Duttlinger’s
deposition transcript.
Safety Today produced “a few responsive documents” but withheld
76 separate documents on the ground of attorney-client privilege.
The privilege log showing the withheld documents is Exhibit E to
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the motion to compel.
Defendants dispute the designation of these documents as
privileged for one basic reason.
They say that the “crime-fraud
exception” to the attorney-client privilege applies to the
documents because the documents all related to a future unlawful
action - namely, the sending out of a false letter with the
intent to injure the defendants’ business relationships.
Defendants do not argue that sending out the letter violated any
criminal laws, but they do contend that it was the type of
unlawful act which comes under the crime-fraud exception.
They
also assert that it is fairly evident from the privilege log’s
description of the documents that they all relate to the process
by which the letter came to be drafted and sent out.
Relying on
the formulation of the elements of the crime-fraud exception as
set forth in Ohio decisions like Moskovitz v. Mt. Sinai Med.
Ctr., 69 Ohio St. 3d 638 (1994), defendants conclude that their
evidence satisfies that standard and that, at the very least,
they have made out a case for in camera review of the documents.
In its opposing memorandum, Safety Today takes issue with a
fundamental premise of defendants’ argument.
It asserts that the
crime-fraud exception to the attorney-client privilege is limited
to situations where the conduct in question is either a crime or
an actual fraud; that is, the exception does not apply more
generally to “unlawful conduct” which is neither criminal nor
fraudulent.
Safety Today cites, inter alia, Squire, Sanders &
Dempsey LLP v. Givaudan Flavors Corp., 127 Ohio St. 3d 161
(2010)(which, in turn, cited State ex rel. Nix v. Cleveland, 98
Ohio St. 3d 379 (1998)) for the proposition that the party
invoking the crime-fraud privilege must show that either a crime
or a fraud was committed, and that mere wrongful (but not
criminal or fraudulent) conduct will not suffice.
Safety Today
argues, in the alternative, that even if some type of conduct
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which is neither criminal nor fraudulent could satisfy the crimefraud exception, the type of conduct alleged here - which Safety
Today describes as “the underlying torts at issue in the case” does not qualify.
Lastly, it argues that defendants have failed
to show that any type of wrongful conduct occurred.
It seeks not
only denial of the motion to compel, but sanctions, asserting
that the motion has no legal foundation.
III.
Safety Today’s arguments raise this threshold issue: If one
assumes that all of the withheld documents relate to the drafting
of the letter in question, and further assumes that the letter
intentionally misrepresented the Court’s order so that Safety
Today could gain some competitive advantage in the marketplace or
cast unwarranted aspersions on Ms. Roy, Ms. Brady and Safeware,
does the attorney-client privilege still protect those documents
from disclosure?
Or, as the court in Koch v. Specialized Care
Services, Inc., 437 F.Supp. 2d 362, 371 (D. Md. 2005) put it,
“[t]he principal question at issue here is what type of alleged
conduct falls within the ambit of the crime-fraud exception.”
As
it turns out, the answer to that question is not quite so
straightforward as Safety Today has suggested.
The parties agree that Ohio law governs this issue, and that
is correct.
See Fed.R.Evid. 501.
The Court therefore begins its
analysis with a discussion of Ohio law.
Unquestionably, Ohio recognizes both the attorney-client
privilege and the crime-fraud exception to that privilege.
Although Safety Today suggests that the Ohio legislature has
defined the scope of the crime-fraud exception in R.C.
§2317.02(A)(2), as defendants note, that statutory provision
applies only to insurance bad faith claims, and it is only a
testimonial privilege.
Ohio still retains a substantial body of
common law in the area of attorney-client privilege, and even
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after the enactment of §2317.02(A)(2) Ohio courts continue to
analyze the crime-fraud exception under the common law as it has
developed through the courts.
See, e.g., Sutton v. Stevens
Painton Corp., 193 Ohio App.3d 68 (Cuyahoga Co. 2011).
The
elements of the exception are still defined by Nix, supra.
at 75.
Id.
And although the language of Nix refers to the commission
of either a crime or a fraud, it is instructive to note that in
Nix itself, the wrongdoing which underlay the crime-fraud
exception argument was the forming of a conspiracy to bring false
criminal charges against the plaintiff - something which seems to
be neither a crime nor a fraud.
Nix is not the only Ohio decision which analyzes a species
of wrongful conduct other than crime or fraud as potentially
satisfying the crime-fraud exception.
For example, Euclid
Retirement Village, Ltd. Partnership v. Giffin, 2002 WL 1265570
(Cuyahoga Co. App. June 6, 2002) was a breach of fiduciary duty
case in which limited partners sued the general partner for
breach of fiduciary duty.
They claimed, among other things, that
an attorney had assisted the general partner in carrying out the
challenged transactions.
The appeals court held that the
attorney’s billing records, which the plaintiff had requested
through discovery, were not privileged, but it also held, in the
alternative, that the crime-fraud exception applied to the
records even if the information in them was privileged.
The
court reached that conclusion despite characterizing the wrongful
conduct as simply a breach of fiduciary duty, noting that “the
unlawful activity was self-dealing and the unlawful transfer of
partnership debt” and upholding the trial court’s determination
that “the documents were not privileged under the crime-fraud
exception to the attorney-client privilege.”
Id. at *5.
This
Court reached a similar result in Horizon of Hope Ministry v.
Clark County, Ohio, 115 F.R.D. 1, 5 (S.D. Ohio 1986), a case
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involving a claim of civil rights conspiracy, where Judge Rice
observed that “[a]ttorney/client communications which are in
perpetuation of a tort are not privileged.”
The most persuasive argument for this somewhat fluid
approach to the crime-fraud exception is found in Koch v.
Specialized Care Services, Inc., supra.
That was a case, like
this one, in which tortious interference with contract was
alleged.
Specifically, the plaintiffs, shareholders in a
privately-held corporation who had sold 90% of their shares to a
second corporation and who had negotiated terms for the sale of
the remaining 10%, alleged that the defendant acted intentionally
to deprive them of the benefit of their bargain for that latter
sale.
Part of the interference they identified was a letter
written by the defendant’s counsel stating (falsely, in their
view) that one of the plaintiffs had resigned his employment with
the second corporation.
Again, as here, communications between
the defendant and its attorney leading up to the letter’s being
sent were designated as privileged, and, as here, the party
alleging tortious interference claimed that the defendant acted
with actual malice and with the intent to deprive the plaintiff
of the economic benefit of his contract.
That is not a fraud claim.
Yet the Koch court applied the
crime-fraud exception, noting that although the Maryland courts
had not “ruled on the applicability of the exception to torts,”
it was true that “an intentional tort involving
misrepresentation, deception, and deceit, ... would appear to
constitute fraud” as defined in both Maryland law and the
Restatement of Torts.
Id. at 372-73. In so holding, the court
said that when determining whether to apply the crime-fraud
exception, “courts increasingly focus on the conduct alleged.
The determinant of the exception's applicability is the
wrongfulness of the conduct before the Court, not the form of its
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pleading.”
Id. at 373.
The court also commented that “[i]t is
not necessary to a finding of the exception that a party plead a
specific crime or cause of action in fraud” because “courts have
moved to expand the conduct undeserving of the attorney-client
privilege.”
Id.
The Koch court then surveyed the trend in the
law up to the date of its decision (2005) and, after citing
numerous treatises which support the expansion of the exception
to any intentionally tortious conduct undeserving of protection,
concluded that “[a] survey of case law demonstrates judicial
willingness to expand the exception to the kind of conduct
alleged here.”
Id. at 376.
Finally, the court determined that
the tortious interference alleged by the plaintiff, which
involved “injurious falsehood,” fell close enough to the type of
fraudulent conduct covered by the crime-fraud exception to
justify applying that exception to the privileged documents in
question.
Id. at 376-77.
The Koch decision, especially in its treatment of the
Restatement (Third) Law Governing Law §82 cmt. d., candidly
acknowledged that there is a split of authority on whether the
exception should be expanded beyond actual crimes or frauds to
other intentional tortious conduct, and that the Restatement
points out that formulating a broad rule about what additional
types of conduct should be included is a difficult task.
At the
same time, however, the Restatement recognizes that
“[l]egislatures and courts classify illegal acts as crimes and
frauds for purposes and policies different from those defining
the scope of the privilege.
Thus, limiting the exception to
crimes and frauds produces an exception narrower than principle
and policy would otherwise indicate.”
375.
Id., quoted in Koch at
That led the Koch court to opt for a case-by-case analysis
when actions which are not strictly crimes or frauds are
involved.
See also In re Heraeus Kulzer GmbH for an Order
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Pursuant to 28 U.S.C. Section 1782 to Take Discovery Pursuant to
Federal Rules of Civil Procedure for Use in Foreign Proceedings,
2012 WL 1493883 (N.D. Ind. April 26, 2012)(applying the exception
in a case of misappropriation of trade secrets).
For essentially the same reasons set forth in Koch, this
Court concludes that Ohio courts have, and will continue to,
analyze wrongful conduct not strictly falling into the category
of either crimes or frauds on a case-by-case basis to determine
if the conduct involves similar elements of malicious or
injurious intent and deliberate falsehood.
If it does, there is
no reason why the law should prevent disclosure of the role an
attorney may have played in assisting his or her client to commit
that type of act, which itself has no social value.
Deciding that something other than a crime or fraud can
trigger the application of the crime-fraud exception does not, of
course, resolve the motion to compel.
The Court must still
decide if the facts which defendants allege qualify as the
intentional and injurious conduct which is similar to fraud; and,
if so, whether the traditional two-prong test for invoking the
crime-fraud exception has been satisfied.
The Court begins with
the first question.
Here, defendants have alleged tortious interference with
contract or business relations, which is a species of intentional
tort under Ohio law.
Two elements of that claim are “the
wrongdoer’s intentional procurement” of an interference and “lack
of justification.”
See, e.g., Reali, Giampetro & Scott v. Soc.
Nat’l Bank, 133 Ohio App.3d 844, 849 (Mahoning Co. 1999).
As in
Koch, these are matters which require the specific intent to
commit a wrongful act.
Further, under the facts of this case,
the alleged wrongful act is a misrepresentation designed to
mislead others, and may be seen as especially egregious because
the misrepresentation relates to a court order.
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The Court has
little difficulty in concluding that the conduct alleged (which,
of course, Safety Today disputes) is sufficiently akin to fraud
to permit the Court to explore further the applicability of the
crime-fraud exception.
Once such an act has been identified, the Court must proceed
as outlined in United States v. Zolin, 491 U.S. 554 (1989).
As
Zolin explains:
Before engaging in in camera review to determine the
applicability of the crime-fraud exception, “the judge
should require a showing of a factual basis adequate to
support a good faith belief by a reasonable person,”
Caldwell v. District Court, 644 P.2d 26, 33 (Colo.
1982), that in camera review of the materials may
reveal evidence to establish the claim that the
crime-fraud exception applies.
Id. at 572. Following that standard, “courts have required the
privilege challenger to present evidence: ‘(1) that the client
was engag[ed] in (or was planning) criminal or fraudulent
activity when the attorney-client communications took place; and
(2) that the communications were intended by the client to
facilitate or conceal the criminal or fraudulent activity.’” In
re Grand Jury Proceedings, 417 U.S. 18, 22 (1st Cir. 2005),
quoting In re Grand Jury Proceedings (Violette), 183 F.3d 71, 75
(1st Cir. 1999).
Proof by even a preponderance of the evidence
is not needed; rather, the requesting party’s burden is satisfied
by showing that there is a “reasonable basis” for the privilege
challenger’s claim.
Id. at 23; see also In re Antitrust Grand
Jury, 805 F.2d 155, 166 (6th Cir. 1986)(party seeking to avoid
the privilege “must present evidence to give ‘colour to the
charge’ that a wrongful act was committed and that the
communications at issue show the attorney’s involvement in it”).
Here, there is little doubt that Safety Today was planning
to send the letter in question during the time that the
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communications occurred.
Ms. Duttlinger and the other
participants in the letter’s drafting all testified to that fact.
The real issue is whether defendants have made at least a prima
facie showing that sending the letter constituted the tort of
intentional interference with business relationships, committed
by means of an intentionally misleading misrepresentation of
Judge Watson’s order.
Safety Today’s memorandum does not directly address this
issue.
Rather, its argument, consistent with its position that
this type of tortious interference claim is not strictly a crime
or fraud and that Ohio requires proof of such acts, is that
“Defendants have not established or even identified any crime or
fraud ....”
Memorandum in Opposition, Doc. 158, at 12.
so, but they have identified a wrongful act.
Perhaps
Further, there is
at least prima facie evidence to support their claim.
The
wording used in the letter can be read as a misstatement of Judge
Watson’s order, and the identity of the recipients, the letter’s
strong suggestion that the defendants were engaged in either
illegal or unethical conduct, and Safety Today’s tracking of the
responses permits an inference that it was Safety Today’s intent
to make it harder for defendants to compete with Safety Today.
That is a sufficient showing to justify at least an in camera
review of the withheld documents.
It is important to stress, at this point, what the Court is
not deciding.
The Court has not determined, as a matter of law,
if the letter represents an intentional misrepresentation of
Judge Watson’s order - only that its language can be read to
support that inference, among others.
Further, the Court has not
determined that defendants have proved either the intent element,
or any other element, of their tortious interference claim.
will ultimately be a decision for the trier of fact.
That
The Court
is also not deciding, without the benefit of an in camera review,
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if any of the withheld documents show that Safety Today’s
attorneys may have wittingly or unwittingly furthered the alleged
intentional and malicious misrepresentation; that is the very
purpose of the review.
Finally, it is helpful to recall that
this is only a discovery issue, and while the attorney-client
privilege is an important consideration in the discovery stages
of the case, if an exception applies which allows disclosure of
attorney-client communications, the ultimate significance of
those communications is again a matter for the trier of fact.
At
this point, all the Court has decided is that a species of
intentional tortious conduct involving intentional
misrepresentations has been identified; that there is some
credible evidence to support the claim; and that the
communications at issue were made at a time and in such a manner
as to permit an inference that they had the effect of furthering
the conduct at issue.
That is enough to allow for an in camera
review of the documents, and that is what the Court orders.
It should be apparent that the Court has rejected Safety
Today’s claim that the motion to compel lacked even an arguable
basis in law.
That being so, an award of sanctions in its favor
is clearly unwarranted.
IV.
Based on the discussion contained in this Opinion and Order,
the motion to compel (Doc. 144) is granted.
Within seven days,
Safety Today shall deliver the withheld documents to the Court
for an in camera inspection.
After that is completed, the Court
will issue a further order concerning whether any of the
documents in question must be disclosed to the defendants.
V.
Any party may, within fourteen days after this Order is
filed, file and serve on the opposing party a motion for
reconsideration by a District Judge.
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28 U.S.C. §636(b)(1)(A),
Rule 72(a), Fed. R. Civ. P.; Eastern Division Order No. 91-3, pt.
I., F., 5.
The motion must specifically designate the order or
part in question and the basis for any objection.
Responses to
objections are due fourteen days after objections are filed and
replies by the objecting party are due seven days thereafter.
The District Judge, upon consideration of the motion, shall set
aside any part of this Order found to be clearly erroneous or
contrary to law.
This order is in full force and effect, notwithstanding the
filing of any objections, unless stayed by the Magistrate Judge
or District Judge.
S.D. Ohio L.R. 72.3.
/s/ Terence P. Kemp
United States Magistrate Judge
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