IBEW - NECA LOCAL 505 HEALTH & WELFARE PLAN v. SMITHKLINE BEECHAM CORPORATION

Filing 461

MEMORANDUM AND/OR OPINION (ORDERS FOR THIS OPINION ISSUED ON 5/3/2012 AS FOLLOWS FOR C.A. NO. 08-3149 - ECF NO. 333) AND FOR C.A. NO. 08-3301, ECF NO. 421).. SIGNED BY HONORABLE ANITA B. BRODY ON 7/2/2012. 7/2/2012 ENTERED AND COPIES VIA ECF AND U.S. MAIL.(mo, )

IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF PENNSYLVANIA

In re FLONASE ANTITRUST
LITIGATION
THIS DOCUMENT
RELATES TO:
Indirect and Direct Purchaser
Actions

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July __2__, 2012

CIVIL ACTIONS
No. 08-CV-3149
No. 08-CV-3301

Anita B. Brody, J.
MEMORANDUM

I. INTRODUCTION
Direct and Indirect Purchasers of a steroid nasal spray containing the active ingredient
fluticasone propionate (“FP”), along with a generic FP manufacturer, have brought actions
against Defendant SmithKline Beecham Corporation, doing business as GlaxoSmithKline PLC
(“GSK”), the manufacturer of the branded version of FP (“Flonase”), alleging various violations
arising from GSK’s conduct delaying market entry of generic FP. Currently before me is a
dispute between Direct Purchasers and GSK concerning whether attorney-client privilege
attaches to the communications involving GSK and independent consultant Swiftwater Group
L.L.C. (“Swiftwater”).1 I initially referred this matter to a Special Master to render an advisory
Decision and Recommendation on whether privilege attached to the communications involving
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Only Direct Purchasers filed an opposition to GSK’s motion for de novo review. Indirect
Purchasers later joined their objection. For the purposes of brevity, I will only refer to Direct
Purchasers in this opinion.

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GSK and Swiftwater (“Swiftwater Documents”). On December 13, 2011, the Special Master
issued a Decision and Recommendation finding, as a matter of law, that the Swiftwater
Documents were not privileged.
In response to the Special Master’s Decision and Recommendation, GSK filed a motion
for de novo review of the Special Master’s finding that the Swiftwater Documents were not
privileged. On May 2, 2012, I held a hearing on GSK’s motion. Following the hearing, I issued
an order granting GSK’s motion for de novo review to the extent that otherwise privileged
communications between GSK and Swiftwater do not lose their privileged status simply by
having Swiftwater included in them. See No. 08-3149, ECF No. 333; No. 08-3301, ECF No.
421. Based on this conclusion, I ordered an in camera review of the Swiftwater Documents that
Direct Purchasers believe GSK incorrectly claims are privileged. I referred this task to
Magistrate Judge Strawbridge for a Report and Recommendation as to which documents should
be entitled to privilege. The opinion that follows explains why the Swiftwater Documents do not
lose their privileged status solely because Swiftwater is an independent consultant.
II. BACKGROUND
Swiftwater is a national consulting firm that provides pharmaceutical consulting services,
as an independent contractor, to large multi-national corporations like GSK. On July 1, 1999,
GSK and Swiftwater began a Master Consulting and Service Agreement (“Master Agreement”).
Def.’s Mot. App. II, C2. According to the Master Agreement, Swiftwater was to provide
consulting services that included, but were not limited to, “advice, analysis, management,
technical or operational support or software programming.” Id. at ¶ 1. The Master Agreement
characterized Swiftwater’s role as an “independent contractor” and “not as [GSK’s] . . . agent or
employee,” and further stated that Swiftwater had “no authority to make any statement,
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representation, or commitment . . . binding upon [GSK]” without GSK’s authorization. Id. at ¶
13. Additionally, the Master Agreement required confidentiality as to “any and all information
provided” relating to Swiftwater’s services. Id. at ¶ 7.
In 2001, GSK formed a Flonase brand maturation team to assist the corporation as the
Flonase brand matured. From its inception, Swiftwater was involved with the Flonase brand
maturation team. Def.’s Mot. App. I, B2 at Attach A ¶ A.1. Swiftwater’s involvement with the
Flonase brand maturation team was defined by a series of engagement letters and work
agreements. Def.’s Mot. App. I. The Flonase brand maturation team was expected to “help
generate the development of the [maturation] plan by establishing and then prioritizing a
comprehensive set of strategic options.” Def.’s Mot. App. I, B2 at Attach. A ¶ A.1. Swiftwater
“was secured . . . to coordinate this cross-functional matrix team, [and to] help provide additional
administrative support to bring these various elements together.” Pls.’ Mot. Ex. 3 at 64. As
understood by Associate General Counsel for GSK, Swiftwater’s role was to “support . . . the
brand maturation team,” “[a]nd to do the kinds of things consultants do well, organize and
compile ideas and catalyze people to work well together and so on.” Def.’s Mot. App. III, E.
Specifically, during the initial stage of the Flonase brand maturation plan, Swiftwater’s
role was “to work with . . . the core-team to determine the necessary work streams for the
creation of the Brand Maturation Plan,” and to “help create and integrate the project plans
necessary to build the strategy.” Def.’s Mot. App. I, B2 at Attach. A ¶ A.1. To do this,
Swiftwater would be “drawing on [its] experience in [its] work with Zantac and Ceftin in helping
to guide the expanse of strategic options to consider and in developing the plans to determine the
viability and or effectiveness of each option.” Id.

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As the Flonase brand maturation project progressed, Swiftwater entered into a new work
agreement with GSK “to serve in project management and analytical service roles to help the
Flonase Brand team guide and create recommendations for Flonase Brand Maturation Strategy.”
Def.’s Mot. App. I, B3 at Attach. A ¶ A.1. As part of this work agreement, Swiftwater agreed to
provide: a white paper summarizing its analysis and recommendations for brand maturation
strategy, an executive summary presentation of the brand maturation plan, interim presentations,
and scenarios in financial models to support its recommendations. Id.
By October 2001, three work streams had been identified to develop the Flonase brand
maturation strategy: legal and regulatory, business development, and standard business practices.
Def.’s Mot. App. I, A2 and C2. Swiftwater contributed to the development and analysis of all
three work streams. Def.’s Mot. App. I, A2, C2, and B4.
According to an “integrated action plan,” Swiftwater and the Flonase brand maturation team
evaluated possible projects that touched on legal and regulatory advice such as:
Assessment and assertion of GSK’s patent and other intellectual property
rights with respect to Flonase. (Integrated Action Plan, App. III, Tab A, at
GSK-FLON-1913438).
Application for and receipt of “pediatric exclusivity” period for Flonase . . . .
(Id. at GSK-FLON-1913439).
Application to FDA seeking permission to market over-the-counter Flonase.
(Id. at GSK-FLON-1913437).
Submission of comments to FDA’s Draft Guidance to ensure consistent and
fair standards for bioequivalence in nasal spray products. (Id. at GSK-FLON1913440).
Application to FDA for permission to market line extensions for Flonase, such
as a fragrance-free or double-strength version. (Id. at GSK-FLON-1913440).
Def.’s Mot. at 3-4 (citing Def.’s Mot. App. III, A).
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Thus, Swiftwater played a role in the creation, development, and implementation of the
Flonase brand maturation plan, which required Swiftwater not only to engage in administrative
tasks and business strategy, but also to delve into the legal and regulatory issues associated with
the brand maturation of Flonase. Def.’s Mot. App. I.
III. DISCUSSION
Both parties agree that the attorney-client privilege may attach to the Swiftwater
Documents if Swiftwater operated as the “functional equivalent” of a GSK employee.2 Thus, the
only issue is whether, as a matter of law, Swiftwater was the functional equivalent of a GSK
employee. GSK argues that Swiftwater was the functional equivalent of an employee because
Swiftwater was an integrated member of the brand maturation team that was responsible for
creating a brand maturation plan, which included numerous regulatory and legal strategies.
Additionally, GSK notes that Swiftwater was subject to the same confidentiality provisions as its
employees, and that the expectation was the attorney-client privilege would apply to the
Swiftwater Documents. Direct Purchasers contend that Swiftwater was not the functional
equivalent of an employee because Swiftwater played only an administrative role that was not
related to actual or anticipated litigation, possessed no specialized knowledge related to Flonase
or the FDA regulatory process, had no ability to bind GSK, and was not necessary to GSK
because GSK had the internal resources and personnel to perform Swiftwater’s functions.
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The Third Circuit has not yet had the opportunity to address whether a functional equivalent
test governs the determination of whether attorney-client privilege may attach to corporate
documents involving communications with independent contractors. However, both parties
agree that determination of whether Swiftwater is the functional equivalent of an employee is
essential to the attorney-client privilege dispute in this case. Moreover, the appellate courts that
have considered this issue have applied a functional equivalent test. See United States v. Graf,
610 F.3d 1148, 1158-59 (9th Cir. 2010); Fed. Trade Comm’n v. GlaxoSmithKline, 294 F.3d 141,
147-48 (D.C. Cir. 2002); In re Bieter Co., 16 F.3d. 929, 936-38 (8th Cir. 1994); see also Energy
Capital Corp. v. United States, 45 Fed. Cl. 481, 491-92 (2000).
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In Upjohn Company v. United States, 449 U.S. 383 (1981), the Supreme Court addressed
the scope of the attorney-client privilege in the corporate context. The issue presented to the
Court was whether attorney-client privilege attached to communications involving counsel and
non-management-level employees. Upjohn, 449 U.S. at 386-89. The court below had held that
only communications involving corporate employees within the control group were entitled to
attorney-client privilege. Id. at 388-89. The control group was defined as “officers and agents . .
. responsible for directing [the company’s] actions in response to legal advice . . . .” Id. at 391
(alteration in original) (internal quotation marks omitted). The Supreme Court rejected the
control group test adopted by the court below because it “frustrates the very purpose of the
privilege by discouraging the communication of relevant information by employees of the client
to attorneys seeking to render legal advice to the client corporation.” Id. at 392.
The Court defined the purpose of the attorney-client privilege “to encourage full and
frank communication between attorneys and their clients and thereby promote broader public
interests in the observance of law and administration of justice.” Id. at 389. Moreover, it
explained that “the privilege exists to protect not only the giving of professional advice to those
who can act on it but also the giving of information to the lawyer to enable him to give sound
and informed advice.” Id. at 390. Thus, the Court recognized that “[i]n the corporate context . . .
it will frequently be employees beyond the control group . . . who will possess the information
needed by the corporation’s lawyers.” Id. at 391.
Beyond providing legal advice on a specific problem, the Court acknowledged the
valuable role of corporate counsel “to ensure their client’s compliance with the law.” Id. at 392.
Accordingly, the Court noted: “In light of the vast and complicated array of regulatory

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legislation confronting the modern corporation, corporations, unlike most individuals, constantly
go to lawyers to find out how to obey the law . . . .” Id. (internal quotation marks omitted).
Given the underlying purpose of the privilege to provide sound legal advice, the Court
held that whether the attorney-client privilege applies shall be determined on a case-by-case
basis, looking at the reasons for the communication, rather than the status of the employee. Id. at
394-96. Thus, the Court adopted a functional approach to attorney-client privilege that examined
whether the communications at issue were made by employees with relevant information that
was necessary to secure legal advice. Id. at 394-95.
Although Upjohn addressed whether the attorney-client privilege may apply to corporate
communications involving lower-level employees, it did not address whether the attorney-client
privilege may apply to communications involving independent consultants of a corporation.
In In re Bieter Company, 16 F.3d 929 (8th Cir. 1994), the Eighth Circuit was the first
appellate court to address whether communications between counsel and a corporation’s
independent consultant may fall within the scope of the attorney-client privilege. An
examination of the purpose of privilege set forth in Upjohn led the Eighth Circuit to “believe that
when applying the attorney-client privilege to a corporation or partnership, it is inappropriate to
distinguish between those on the client’s payroll and those who are instead, and for whatever
reason, employed as independent contractors.” Id. at 937. The Eighth Circuit concluded that
“just as [m]iddle-level-and indeed lower-level-employees . . . would have the relevant
information needed by corporate counsel if he is adequately to advise the client with respect to . .
. actual or potential difficulties, so too would nonemployees who possess a significant
relationship to the [client] and the [client]'s involvement in the transaction that is the subject of
legal services.” Id. at 938 (alteration in original) (citation omitted) (internal quotation marks
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omitted). Based on this reasoning, and the principles established in Upjohn, the Bieter Court
adopted the approach that communications involving counsel and an independent consultant may
be entitled to privilege as long as the independent consultant was the functional equivalent of an
employee. Id. While the Eight Circuit looked at several factors to determine that the
independent consultant in Bieter was the functional equivalent of an employee, id., it did not
adopt a generalized test for making this determination. Id.
Since Bieter, several courts have grappled with how to determine when an independent
consultant is the functional equivalent of an employee. Some courts have taken a very narrow
view of which independent consultants may qualify as the functional equivalent of employees.
See, e.g., Exp.-Imp. Bank of the U.S. v. Asia Pulp & Paper Co., 232 F.R.D. 103, 113-14
(S.D.N.Y. 2005); In re Bristol-Myers Squibb Sec. Litig., No. 00-1990, 2003 WL 25962198, at *4
(D.N.J. June 25, 2003). These courts have developed somewhat stringent, multi-factor tests for
determining who qualifies as the functional equivalent of an employee. Id. For instance, in
Bristol-Myers, the court listed the following factors as appropriate to a functional equivalent
determination:
whether the consultants: 1) were incorporated in the staff to perform a corporate
function, which is necessary in the context of actual or anticipated litigation; (2)
possessed information needed by attorneys in rendering legal advice; (3)
possessed authority to make decisions on behalf of the company; and (4) were
hired because the company lacked sufficient internal resources and/or adequate
prior experience within the consultant's field.
2003 WL 25962198, at * 4.
Direct Purchasers advocate that this Court adopt the multi-factor test established in
Bristol-Myers, and argue that, under this narrow interpretation of the functional equivalent
doctrine, the Swiftwater Documents are not entitled to attorney-client privilege because
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Swiftwater was not the functional equivalent of a GSK employee. However, this restrictive view
of attorney-client privilege, as it relates to independent consultants, does not comport with the
purpose of privilege as defined in Upjohn. By requiring an independent consultant to possess
the authority to make decisions on behalf of the corporation in order to be the functional
equivalent of an employee, Bristol-Myers resurrects the control group test that the Supreme
Court expressly rejected in Upjohn. As the Bieter Court recognized, “too narrow a definition of
‘representative of the client’ will lead to attorneys not being able to confer confidentially with
nonemployees who, due to their relationship to the client, possess the very sort of information
that the privilege envisions flowing most freely.” Bieter, 16 F.3d at 938.
Based on the underlying purpose of the attorney-client privilege, several courts have
adopted a broad practical approach to determining whether an independent consultant is the
functional equivalent of an employee. See, e.g., U.S. ex rel. Strom v. Scios, Inc., No. C05-3004,
2011 WL 4831193, at *4 (N.D. Cal. Oct. 12, 2011) (“[T]he dispositive question is the
consultant’s relationship to the company and whether by virtue of that relationship he possesses
information about the company that would assist the company’s attorneys in rendering legal
advice.”); U.S. ex rel. Fry v. Health Alliance of Greater Cincinnati, No. 1:03-167, 2009 WL
5033940, at *4 (S.D. Ohio Dec. 11, 2009) (“As long as the independent contractor has a role
similar to that of an employee . . . , communications between the contractor and attorneys for the
purpose of seeking legal advice are privileged.”); Stafford Trading, Inc. v. Lovely, No. 05-4868,
2007 WL 611252, at *7 (N.D. Ill. Feb. 22, 2007) (“The Court adopts this balanced approach . . .
, limiting the privilege to those instances where . . . [the independent consultant] confidentially
communicated with . . . counsel for the purpose of obtaining or providing legal advice.”). In
Federal Trade Commission v. GlaxoSmithKline, the D.C. Circuit took a practical approach and
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held that confidential communications involving consultants were entitled to privilege because
they involved the rendering of legal advice and “corporate counsel worked with these consultants
in the same manner as they d[id] with full time-employees; . . . acted as part of a team with fulltime employees . . . and . . . became integral members of the team assigned to deal with issues
[that] . . . were completely intertwined with [GSK’s] litigation and legal strategies.” 294 F.3d
141, 147-48 (D.C. Cir. 2002) (alteration in original) (internal quotation marks omitted).
The broad approach to determining whether an independent consultant is the functional
equivalent of an employee reflects the privilege analysis in Upjohn by focusing its inquiry on
whether the communications at issue were kept confidential and made for the purpose of
obtaining or providing legal advice. See Trs. of Elec. Workers Local No. 26 Pension Trust Fund
v. Trust Fund Advisors, Inc., 266 F.R.D. 1, 8 (D.D.C. 2010). “In applying the principles set forth
by the Supreme Court in Upjohn, there is no reason to distinguish between a person on the
corporation's payroll and a consultant hired by the corporation if each acts for the corporation
and possesses the information needed by attorneys in rendering legal advice.” In re Copper Mkt.
Antitrust Litig., 200 F.R.D. 213, 219 (S.D.N.Y. 2001). Moreover, this approach reflects the
reality that “corporations increasingly conduct their business not merely through regular
employees but also through a variety of independent contractors retained for specific purposes.”
Edna Selan Epstein, The Attorney-Client Privilege and the Work-Product Doctrine 269 (5th ed.
2007). To apply a narrow construction of the privilege to communications involving
independent consultants would be “‘too restrictive’ to be realistic in today’s marketplace, where
businesses frequently hire contractors and still expect to be able to seek legal advice.” Fry, 2009
WL 5033940, at *4 n.1.

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Lawyers play a valuable role in the corporate setting, “ensur[ing] their client’s
compliance with the law.” Upjohn, 449 U.S. at 392. As Upjohn explained, the purpose of the
privilege “is to encourage full and frank communication between attorneys and their clients and
thereby promote broader public interests in the observance of law and administration of justice.”
Id. at 389. Based on the principles espoused in Upjohn, and the widespread use of independent
consultants by corporations, I adopt a broad practical approach to determining whether
Swiftwater is the functional equivalent of a GSK employee.
As the record demonstrates, Swiftwater acted as an integrated member of the brand
maturation team, which was comprised of full-time GSK employees. Swiftwater played a
crucial role in the team, assisting in an administrative, managerial, and analytic capacity.
Moreover, Swiftwater was intimately involved in the creation, development, and implementation
of the Flonase brand maturation plan. As part of brand maturation strategy, Swiftwater assisted
employees on three work streams, including the legal and regulatory work stream. This work
touched on several legal and regulatory issues, such as GSK’s assertion of intellectual property
rights, interaction with the FDA, and application for and receipt of pediatric exclusivity for
Flonase. The Swiftwater Documents, produced as a result of Swiftwater’s collaboration with
GSK employees, were at all times kept confidential and treated as if the attorney-client privilege
applied.
The evidence establishes that Swiftwater was the functional equivalent of a GSK
employee. However, without looking at the individual documents, it is impossible to know
whether each Swiftwater Document was created for the purpose of providing or obtaining legal
advice. This analysis must occur before a final determination may be made on the merits of
GSK’s assertion of privilege over the Swiftwater Documents.
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IV. CONCLUSION
For the reasons stated above, I hold that Swiftwater is the functional equivalent of a GSK
employee. Thus, as a matter of law, communications involving Swiftwater and GSK’s counsel
may be entitled to the attorney-client privilege. However, whether the privilege applies to each
communication must be determined on a case-by-case basis under the principles established in
Upjohn. In light of this conclusion, I have referred the Swiftwater Documents that remain in
dispute to Magistrate Judge Strawbridge for a Report and Recommendation as to which
documents should be entitled to the privilege. This Opinion is consistent with my Order entered
on May 3, 2012. See No. 08-3149, ECF No. 333; No. 08-3301, ECF No. 421.

s/Anita B. Brody
_____________________________
ANITA B. BRODY, J.

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