Audi of America, Inc. v. Bronsberg & Hughes Pontiac, Inc.

Filing 363

MEMORANDUM OPINION - Accordingly, the Court having found that the 21 documents set forth on Audis privilege log are subject either to the attorney-client or work-product privilege, the defendants-intervenors request to compel further production of these documents is DENIED. Signed by Magistrate Judge Martin C. Carlson on January 16, 2018. (kjn)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
AUDI OF AMERICA, INC.,
Plaintiff
v.
BRONSBERG & HUGHES
PONTIAC, INC., d/b/a WYOMING
VALLEY AUDI,
Defendant

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Civil No. 3:16-CV-2470
(Judge Jones)
(Magistrate Judge Carlson)

MEMORANDUM OPINION
I.

INTRODUCTION
The purpose of this Order is to address and resolve a discovery dispute

relating the plaintiff’s assertion that 21 documents that have been withheld from
production in this case are privileged communications, subject to the attorneyclient and work-product privileges. The defendants and intervenors have asked the
Court to compel production of these documents, arguing that no privilege applies.
Following an in camera review of the records, and for the reasons discussed below,
the Court agrees that this limited set of documents identified on the plaintiff’s
privilege log are subject to these privileges, and therefore need not be disclosed.

II.

BACKGROUND
On December 13, 2016, Audi of America, Inc., (“Audi”) brought this breach

of contract action, alleging that Bronsberg & Hughes Pontiac, Inc., d/b/a Wyoming
Valley Audi (“Wyoming Valley”) breached certain terms of an Audi Dealer
Agreement into which the parties entered on January 1, 1997, when it entered into
an Asset and Real Estate Purchase Agreement (the “Purchase Agreement”) with
the Napleton Group (“Napleton”). Audi alleged that the Purchase Agreement,
which was signed on July 11, 2016, included the sale of Wyoming Valley’s Audi
assets in violation of Audi’s own right of first refusal and its right to refuse to
consent to the transaction on reasonable grounds. (Doc. 1.)
This dispute was cast into sharp relief for the parties in September of 2016,
when the plaintiff became aware of the material terms of this asset purchase
agreement, and issued a letter which, as we have previously noted: “is difficult to
read . . . as doing anything less than threatening formal legal action and making
specific legal demands, which Wyoming Valley and Napleton had a shared interest
in addressing.” Audi of Am., Inc. v. Bronsberg & Hughes Pontiac, Inc., 255 F.
Supp. 3d 561, 567 (M.D. Pa. 2017). In fact, it is undisputed that this
correspondence set the stage for the instant litigation.
It is against this backdrop that we have conducted our in camera review of
the 21 documents withheld by Audi on attorney-client privilege grounds. This
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review discloses that these emails and attachments were all prepared on or after
September 15, 2016, during the time frame when we have previously found that
the adversarial positions of the parties had sufficiently crystallized to justify
invoking the attorney-client privilege. The documents and attachments reflect
communications by, between, and among the plaintiff’s attorneys, both outside
counsel and in-house legal staff, and their clients. The focus of the
communications is the developing of an appropriate legal response to the asset
purchase agreement. The communications, therefore, include a candid evaluation
of legal options, risks, and rewards, the drafting of pleadings and correspondence,
draftsmanship plainly undertaken with an eye towards impending litigation, and
the marshalling of facts and information in support of potential avenues of
litigation.
Because the Court finds that the attorney-client and work product privileges
extend to such correspondence and communications, this assertion of the privilege
will be sustained.
II.

DISCUSSION
A.

The Attorney-Client and Work Product Privileges

The plaintiff relies upon the attorney-client privilege and the work-product
doctrine to justify its decision to withhold these 21 documents, consisting of emails
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and attachments that would otherwise be responsive to the defendants’ discovery
requests.
The legal tenets which govern this privilege analysis are familiar ones. The
United States Court of Appeals for the Third Circuit has summarized the purposes
of, and distinctions between, the attorney-client privilege and the work-product
doctrine, and the importance of limiting recognition of evidentiary privileges when
necessary to achieve their purposes, as follows:
Though they operate to protect information from discovery, the workproduct doctrine and the attorney-client privilege serve different
purposes. The purpose behind the attorney-client privilege is “ ‘to
encourage clients to make full disclosure of facts to counsel so that he
may properly, competently, and ethically carry out his representation.
The ultimate aim is to promote the proper administration of justice.’ ”
In re Impounded, 241 F.3d 308, 316 (3d Cir. 2001) (quoting In re
Grand Jury Proceedings, 604 F.2d 798, 802 (3d Cir. 1979)). The
work-product doctrine, by contrast, “promotes the adversary system
directly by protecting the confidentiality of papers prepared by or on
behalf of attorneys in anticipation of litigation. Protecting attorneys’
work product promotes the adversary system by enabling attorneys to
prepare cases without fear that their work product will be used against
their clients.”
Westinghouse Elec. Corp. v. Republic of the
Philippines, 951 F.2d 1414, 1428 (3d Cir. 1991) (citations omitted).
In re Chevron Corp., 633 F.3d 153, 164 (3d Cir. 2011).
Rule 501 of the Federal Rules of Evidence provides, in relevant part, as
follows:

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[I]n civil actions and proceedings, with respect to an element of a
claim or defense as to which State law supplies the rule of decision,
the privilege of a witness, person, government, State, or political
subdivision thereof shall be determined in accordance with State law.
Fed. R. Evid. 501. Accordingly, in diversity actions, such as the instant litigation,
the law governing evidentiary privileges is supplied by the courts of the state in
which the federal court sits. See, e.g., Rhone-Poulenc Rorer v. Home Indem. Co.,
32 F. 3d 851, 861 (3d Cir. 1994); Maertin v. Armstrong World Indus., Inc., 172
F.R.D. 143, 147 (D.N.J. 1997); McDowell Oil Serv., Inc. v. Interstate Fire & Cas.
Co., 817 F. Supp. 538, 545 (M.D. Pa. 1993) (in diversity action, party’s assertion
of attorney-client privilege governed by state law); see also Serrano v. Chesapeake
Appalachia, LLC, 298 F.R.D. 271, 280 (W.D. Pa. 2014) (observing that in
diversity actions a court “must look to state law for applicable legal principles on
issues of privilege.”).
The attorney-client privilege is meant to facilitate “full and frank
communication between attorneys and their clients.” Wachtel v. Health Net, Inc.,
482 F.3d 225, 231 (3d Cir. 2007). The privilege “recognizes that sound legal
advice or advocacy serves public ends and that such advice or advocacy depends
upon the lawyer’s being fully informed by the client.” Upjohn v. United States,
449 U.S. 383, 389 (1981). The privilege “applies to any communication that
satisfies the following elements:

it must be ‘(1) a communication (2) made
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between [the client and the attorney or his agents] (3) in confidence (4) for the
purposes of obtaining or providing legal assistance for the client.’ ”

In re

Teleglobe Communications Corp., 493 F.3d 345, 359 (3d Cir. 2007) (quoting the
Restatement (Third) of the Law Governing Lawyers § 68 (2000)). Thus, the
privilege reaches “[c]onfidential disclosures by a client to an attorney made in
order to obtain legal assistance.” Fisher v. United States, 425 U.S. 391, 403
(1976); see also In re Ford Motor Co., 110 F.3d 954, 965 n.9 (3d Cir. 1997)
(communication made by client and an attorney are privileged if made “for the
purpose of securing legal advice.”); United States v. Amerada Hess Corp., 619
F.2d 980, 986 (3d Cir. 1980).
The privilege applies both to information that the client provides to the
lawyer for purposes of obtaining legal advice, as well as to the advice the attorney
furnishes to the client. To this end, the Supreme Court has 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.” Upjohn, 449 U.S. at 390.
The work-product privilege, in turn, is a creature of federal law, see Fed. R.
Civ. P. 26(b) (3) (A), and “shelters the mental processes of the attorney, providing
a privileged area within which he can analyze and prepare his client’s case.” In re

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Cendant Corp. Sec. Litig., 343 F.3d 658, 661-62 (3d Cir. 2003). At the Third
Circuit has explained:
The purpose of the work-product doctrine differs from that of the
attorney-client privilege . . . . [T]he attorney-client privilege promotes
the attorney-client relationship, and, indirectly the functioning of our
legal system, by protecting the confidentiality of communications
between clients and their attorneys. In contrast, the work-product
doctrine promotes the adversary system directly by protecting the
confidentiality of papers prepared by or on behalf of attorneys in
anticipation of litigation.
Protecting attorneys’ work product
promotes the adversary system by enabling attorneys to prepare cases
without fear that their work product will be used again their clients.
Westinghouse Elec. Corp. v. Republic of the Philippines, 951 F.2d 1414, 1427-28
(3d Cir. 1991). Furthermore,
The doctrine is an intensely practical one, grounded in the realities of
litigation in our adversary system. One of those realities is that
attorneys often must rely on the assistance of investigators and other
agents in the compilation of materials in preparation for trial. It is
therefore necessary that the doctrine protect material prepared by
agents for the attorney as well as those prepared by the attorney
himself.
United States v. Nobles, 422 U.S. 225, 238-39 (1975) (footnote omitted).
With these animating principles, Rule 26(b)(3) shields from discovery
“documents and tangible things that are prepared in anticipation of litigation or for
trial by or for another party or its representative (including the other party’s
attorney, consultant, surety, indemnitor, insurer, or agent.”

Fed. R. Civ. P.

26(b)(3)(A). The rule also establishes two categories of protected work product:
fact work product and opinion work product. “Fact work product is discoverable
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only upon a showing [of] ‘substantial need’ and by demonstrating that one cannot
otherwise obtain the ‘substantial equivalent’ of such materials without ‘undue
hardship.’” In re Linerboard Antitrust Litig., 237 F.R.D. 373, 381 (E.D. Pa. 2006)
(quoting Fed. R. Civ. P. 26(b)(3)). Opinion work product, “which consists of
‘mental impressions, conclusions, opinions, or legal theories of an attorney,’ is
afforded almost absolute protection” and it “is discoverable ‘only upon a showing
of rare and exceptional circumstances.’” Linerboard, 237 F.R.D. at 381 (quoting
Cendant, 343 F.3d at 663).
While recognizing the value served by these privileges, courts must also be
mindful that the privileges obstruct the truth-finding process and should, therefore,
be “applied only where necessary to achieve its purpose.” Wachtel, 482 F.3d at
231; see also Westinghouse Elec. Corp., 951 F.2d at 1423. Therefore, because the
purpose of the privileges is to protect and promote the “dissemination of sound
legal advice,” it applies only to communication conveying advice that is legal in
nature, as opposed to where the lawyer is providing non-legal, business advice.
Wachtel, 482 F.3d at 231; see also Allendale Mut. Ins. Co. v. Bull Data Sys., Inc.,
152 F.R.D. 132, 137 (N.D. Ill. 1993) (stating that the privilege is inapplicable
where the legal advice is incidental to business advice); Hardy v. New York News,
Inc., 114 F.R.D. 633, 643 (S.D.N.Y. 1987) (“The attorney-client privilege is

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triggered only by a client’s request for legal, as contrasted with business
advice[.]”).
With these principles in mind we turn to an assessment of the privilege
claims made in this case.
B.

The Disputed Documents in this Case are Privileged.

As we have previously found, in late September 2016, Volkswagen, BMW,
Audi and other manufacturers sent formal letters to Wyoming Valley, copying
their counsel, declaring that the submission of the Purchase Agreement without
apportionment of the purchase price – something that lies at the heart of the instant
lawsuit – constituted a “material breach of the Volkswagen Dealer Agreement and
a violation of Pennsylvania law.” (Doc. 173, Ex. D.) In its letter, Volkswagen
stated that it was preserving “any and all of its contractual and statutory rights,
relating to the APA and otherwise to the proposed transaction between Wyoming
Valley and the Napleton Auto Group.” (Id.) Audi sent a substantially identical
letter the following day, also copying its outside counsel. (Doc. 173, Ex. E.)
We have held that: “the manufacturers' [September 2016] challenges to the
Purchase Agreement, which explicitly referred to alleged violations of law and
material breaches of contracts, made litigation reasonably foreseeable . . . .”Audi of
Am., Inc. v. Bronsberg & Hughes Pontiac, Inc., 255 F. Supp. 3d 561, 570 (M.D.
Pa. 2017). Drawing upon this conclusion, a conclusion which no party to this
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litigation has seriously disputed, we have little difficulty in concluding that the 21
emails now at issue are privileged from disclosure. Our in camera review of these
documents reveals that they were directly related to the dispute regarding this asset
purchase agreement which blossomed into the instant litigation. This review
further discloses that these emails and attachments were all prepared on or after
September 15, 2016, during the time frame when we have previously found that
the adversarial positions of the parties had sufficiently crystallized to justify
invoking the attorney-client privilege. The documents were prepared, and
exchanged, with the common understanding that this controversy may grow into
litigation, and bear all of the earmarks of documents prepared in contemplation of
litigation. Many of the documents are thus labeled privileged, and some of the
documents expressly relate to the drafting of pleadings. Further, the documents and
attachments reflect communications by, between, and among the plaintiff’s
attorneys, both outside counsel and in-house legal staff, and their clients
concerning this on-going dispute, and impending litigation. The focus of the
communications is the developing of an appropriate legal response to the asset
purchase agreement, a response that all participants seem to acknowledge may
include potential litigation. The communications, therefore, include a candid
evaluation of legal options, as well as litigative risks and rewards; discuss the
drafting of pleadings and correspondence, draftsmanship plainly undertaken with
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an eye towards impending litigation; and the marshalling of facts and information
in support of potential avenues of litigation.
Given the nature and content of these communications, we find that they are
clearly privileged and the plaintiff has carried its burden of proof establishing all of
the elements of these privileges. Finding that these documents fall within the ambit
of the attorney-client and work product privileges, we conclude that they are
appropriately sheltered from disclosure by these longstanding legal privileges.
Accordingly, the request for disclosure of these documents will be denied.
An appropriate ORDER follows.
IV.

ORDER
Accordingly, the Court having found that the 21 documents set forth on

Audi’s privilege log are subject either to the attorney-client or work-product
privilege, the defendants-intervenors’ request to compel further production of these
documents is DENIED.
So ordered this 16th day of January, 2018.

/s/ Martin C. Carlson
Martin C. Carlson
United States Magistrate Judge

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