In re Intel Corporation Microprocessor Antitrust Litigation, MDL 05-1717 (D. Del. May 9, 2008)
Is it just me, or do others also see a rapid erosion of the attorney-client privilege occurring as ESI problems proliferate in complex litigation? That is one way to view this case. The other is to recognize that legal holds are a necessity. Intel took a risk on the latter, deciding against employing a legal hold, and lost the privilege.
This case began as an antitrust action filed by AMD against Intel on June 27, 2005. A second case was filed on behalf of a class of consumers alleging anticompetitive and monopolistic practices, which was consolidated with over 70 other consumer-related actions by the Judicial Panel on Multidistrict Litigation. On the day the AMD case was filed, Intel assembled a team to put into place a process to identify and preserve relevant documents across six continents. This process included:
- The day after the Complaint was filed, Intel began to preserve a company-wide snapshot of e-mail and other electronic documents stored in Intel servers as of the week the Complaint was filed ("Complaint Freeze Tapes").
- Two days after the Complaint was filed, Intel sent a hold notice bulletin to 4,000 sales and marketing group employees with instructions to retain
documents related to competition with AMD and competition concerning the sale of CPUs generally.
- Four days after the Complaint was filed, Intel distributed a more detailed litigation hold notice to 629 employees and now has provided such
notices to approximately 1,500 employees.
- Within days of the filing of the Complaint, Intel began collecting the electronic and hard copy documents from certain employees.
- In the Fall of 2005, Intel began a process of preserving, on a weekly basis, the backup tapes containing e-mails of employees identified as having potential relevance to the lawsuit (“Weekly Backup Tapes”). These tapes were not the primary preservation method, but [rather] a mechanism to fall back on in the event documents could not be obtained directly from the individual employees who originally generated or received e-mails.
Special Master’s Report and Recommendation at 3. What Intel did not do was suspend the auto-delete function of its email system, which deleted email in employees’ mailboxes after 35 days. Intel took the position that the continuous running of this function would not compromise its preservation obligation because: “(1) it had instructed all custodians subject to the hold to preserve all relevant e-mails and (2) Intel would move all custodians to a group of isolated exchange servers that would backup on a regular weekly interval and would, in turn, preserve backup tapes through the litigation.”
The discovery in this litigation was expected to be significant. Intel projected that it would be producing electronic documents that would make a pile in the neighborhood of 137 miles high. Accordingly, the parties agreed to a three-step discovery process: (1) AMD and Intel would exchange custodian lists representing all of their personnel in possession of an “appreciable quantity of non-duplicative documents responsive to the opponent’s document requests – AMD guaranteed that its list would include at least 400 custodians, Intel guaranteed at least 1,000; (2) each party would then choose 20% of their list whose files would be reviewed and produced in the initial production; and (3) the parties would cooperate in informal discovery to enable each to designate an additional 15% of the other’s custodians.
Problems began when Intel discovered some “lapses” in its preservation plan. In the fall of 2006, Intel hired outside counsel to interview each of Intel’s 1,023 relevant custodians to determine their email preservation habits and their level of compliance with Intel’s litigation hold notices. In February 2007, Intel advised AMD of problems preserving email that post-dated the Complaint. Some individuals failed to retain all sent emails, some thought emails were being retained by Intel’s IT department, weekly backup tapes were not preserved between June and October 2005, some 151 of the first 900 custodians were not migrated to the dedicated servers, after the first 900, no additional custodians were migrated, and Intel’s European operations began recycling the weekly backup tapes after one year.
Not surprisingly, AMD had something to say about this. It accused Intel of gross communication failures, an ill-conceived preservation plan, and lackluster oversight by outside counsel. It focused on Intel’s allowing the 35-day email purges to continue, Intel’s exclusive reliance on a move-it-or-lose-it “honor system” that required individual custodians to correctly identify, segregate and proactively move relevant evidence to media or their local computer before that data was destroyed by a network purge, and weekly back-up of e-mail that required Intel's IT personnel to identify and correctly migrate custodian's data to dedicated servers subject to backup. AMD concluded:
[T]his “honor system” was defeated by a combination of apparently erroneous unclear or incomplete “litigation hold” instructions, lack of adequate monitoring to ensure those instructions were understood and followed and a wholesale failure [to] timely . . . deliver any preservation instructions to a third of the employee-custodians Intel itself identified.
Special Master’s Report and Recommendation at 7. AMD requested that Intel provide the Special Master and the parties with “a complete accounting of its preservation problems, a custodian-by-custodian tally of issues, identification of data that appears to have been lost, and an inventory of back-up tapes that exist and can be successfully restored.” Ultimately, the parties stipulated to a disclosure order that provided:
- On April 17, 2007 Intel shall submit in writing an updated and final report regarding 239 Intel Custodians for which Intel provided preliminary information to AMD on February 22, 2007, which will reflect Intel's best information gathered after reasonable investigation and which shall contain the following information for each such Intel custodian [footnote addressing the same information from former employees omitted]:
- The Intel Custodian's name;
- A detailed written description of the preservation issues affecting the Intel Custodian, including the nature, scope and duration of any preservation
issue(s).
* *
*
- On April 27, 2007, Intel shall provide the same information identified in paragraph 6 for those custodians identified in paragraph 2. (“Paragraph 7 Summaries”).
- With respect to the remainder of Intel's Custodians not on the list of 239 Intel custodians referred to in Paragraphs 6 and 7, commencing after April 27, 2007, Intel shall provide
the same information called for by Paragraph 6 in a reasonable time frame, on a rolling basis and prioritizing those Intel custodians in senior positions. (“Paragraph 8 Summaries”).
Special Master’s Report and Recommendation at 8-9. This Order contained no reference to attorney-client privilege or work product protection, although it did provide that AMD and the class plaintiffs were free to seek additional information from Intel with respect to preservation issues, including formal discovery, or to seek any other relief, remedy or order with respect thereto. Between April 7, 2007 and March 24, 2008, Intel filed its Paragraph 7 Summary and over 1,000 Paragraph 8 Summaries.
AMD and the Class plaintiffs then sought the “notes of investigation interviews conducted by Intel's counsel concerning Intel's [custodian] employees' compliance with their evidence preservation obligations” in order to test Intel's assertions that the lapses in its document preservation efforts were “misunderstandings or errors by individual employees” and that its “investigation has revealed no instance of deliberate deletion to deny AMD access to any information responsive to the allegations in the Complaint.” Intel asserted attorney-client privilege and work product protection and refused to produce the notes.
After review, the Special Master held that Intel had waived the attorney-client privilege with respect to those portions of the summaries that reveal the substance of the custodian statements already voluntarily disclosed in the Paragraph 8 Summaries. He reasoned that “[w]hen a party discloses a portion of otherwise privileged materials while withholding the rest, the privilege is waived only as to those communications actually disclosed, unless a partial waiver would be unfair to the party's adversary.” (citing
Westinghouse Electric Corp. v. Republic of the Philippines, 951 F. 2d 1414, 1426 n.12 (3d Cir. 1991)). The Special Master cited In re
Kidder Peabody Sec. Litig., 168 F. R. D. 459, 468 (S.D.N.Y. 1996), noting that the court there held that the final report of findings which was released to the public contained “not only a factual summary based on the interview documents, but explicit paraphrases from the interviews” and that defendant “has made repeated and extensive use of the . . . report . . . in this litigation.” As a result, the Kidder court ordered the production of attorney notes and memoranda reflecting employee interviews conducted by defendant's trial counsel during an internal fraud investigation. The key comment in Kidder seemed to be:
The waiver may be found even if the privilege holder does not attempt to make use of a privileged communication; he may waive the privilege if he makes factual assertions the truth of which can only be assessed by examination of the privileged communication.
The Kidder court quoted Hearn v. Ray, in explaining its position on waiver:
All of these established exceptions to the rules of privilege have a common denominator; in each instance, the party asserting the privilege placed information protected by it in issue through some affirmative act for his own benefit, and to allow the privilege to protect against disclosure of such information would have been manifestly unfair to the opposing party. The factors common to each exception may be summarized as follows: (1) assertion of the privilege was a result of some affirmative act, such as filing suit, by the asserting party; (2) through this affirmative act, the asserting party put the protected information at issue by making it relevant to the case; and (3) application of the privilege would have denied the opposing party access to information vital to his defense. Thus, where these three conditions exist, a court should find that the party asserting a privilege has impliedly waived it through his own affirmative conduct.
Special Master’s Report and Recommendation at 18 (quoting Kidder, 168 F. R. D. at 470). Intel argued that it only provided factual information, in summary form, “derived in part from attorney's notes, pursuant to Court Order, but did not disclose or even paraphrase the attorney-client communications themselves.” The Special master’s response was essentially a non sequitur:
The Special Master is satisfied that the principles of waiver articulated in both
Westinghouse and Kidder apply with equal force to the voluntary disclosure of the verbatim privileged communication itself, a full report containing references to same, or to a memorandum or summary of the privileged communication. As in Westinghouse, it appears to the Special Master that the disclosure of the privileged information to AMD, the Class Plaintiffs and to the Court were not “disclosures necessary to encourage clients to seek informed legal advice,” but rather were for the purpose of supporting Intel's litigation position.
Special Master’s Report and Recommendation at 18 (quoting Westinghouse, 951 F. 2d at 1426). This is just another way of saying the communications were not privileged to begin with, which is not at all the issue the Special Master was addressing. What is the point of treating the waiver issue if there was no privilege to begin with? Indeed, this is nothing more than a restatement of the “control group” test, which was specifically rejected by the Supreme Court in
Upjohn Co. v. United States, 449 U.S. 383, 101 S. Ct. 677 (1981). In Upjohn, the very same type of internal investigation and the attorney notes of that investigation were at issue. The Court was succinct:
In the corporate context, … it will frequently be employees beyond the control group as defined by the court below … who will possess the information needed by the corporation’s lawyers. Mid-level – and indeed lower-level – employees can, by actions within the scope of their employment, embroil the corporation in serious legal difficulties, and it is only natural that these employees would have the relevant information needed by corporate counsel if he is adequately to advise the client with respect to such actual or potential difficulties.
Upjohn, 449 U.S. at 391-92, 101 S. Ct. at 683-84.
The Upjohn case is directly on point to the issue before the Special Master. Unfortunately, he never mentions the case, except for a passing reference to the underlying purpose of the privilege.
Instead the Special Master held that Intel placed the “accuracy and validity of the information contained in these summaries at issue, thus waving the attorney-client privilege on the underlying documents.” He cites to
Granite Partners, L.P. v. Bear Stearns & Co., Inc., 184 F. R. D. 49, 54 (S.D.N.Y. 1999), for support, ignoring his own characterization of the court’s finding: “finding privilege waiver where bankruptcy trustee used partial quotes of privileged communications in a publicly distributed document.” There were no similar “partial quotes” in the Intel summaries. Indeed, in
Upjohn, the Court held that “[t]he privilege only protects disclosure of communications; it does not protect disclosure of the underlying facts by those who communicated with the attorney.” It was the facts that Intel disclosed.
The Special Master goes on to cite to the tired “sword and shield” metaphor, completely missing the point that the plaintiffs were free to conduct discovery on all 1,000 plus custodians. And therein is the real rub here. In order to test these assertions on what is admittedly a collateral issue, the plaintiffs would have to engage in lengthy and costly discovery. It was just so much easier to find that Intel had waived the privilege.
The degree to which the Special Master was ignoring settled law is seen in his response to Intel’s argument that these Summaries are akin to Interrogatory Answers. The Special Master held that the Paragraph 8 Summaries a re different in “several critically important respects:
- The information contained in each Paragraph 8 Summary was agreed to by all parties.
- The Paragraph 8 Summaries were unlike interrogatory responses because they were filed with the Court. F. R. Civ. P. 5(a)(1).
- The Paragraph 8 Summaries were, unlike interrogatory responses, not signed by Pat Doe, the person who prepared them. F. R. Civ. P. 33(b)(5).
- The clear purpose of the Paragraph 8 Summaries is to provide facts to the Court regarding Intel's preservation issues and permit Intel to build and prove its assertion that permit AMD and the Class Plaintiffs to test Intel's position and assist in informing the Court in this regard.
Special Master’s Report and Recommendation at 22. Huh! I’m trying to discern the critically important differences… and failing miserably. This sounds like nonsense to me – distinctions without a difference.
The Special Master did not stop there. He also found that Intel also waived work product protection with respect to non-core work product. The Special Master distinguished core from non-core work product:
Core or opinion work-product encompasses the mental impressions, conclusions, opinion or legal theories of an attorney or other representative of a party concerning the litigation," and is "generally afford near absolute protection from discovery. Non-core work-product or fact work-product contains raw factual information.
Special Master’s Report and Recommendation at 24 (citations omitted). The Special Master found that the core work product is not so intertwined with fact information that the entirety of the interviews should be treated as core. The facts can be easily separated from any core work product.
The Special Master went on to determine that disclosure to an adversary waives the protection. Frankly, I’m not exactly sure what he meant by that statement, but his attitude was clear when he characterized Intel’s behavior. It could have left AMD to conduct “protracted world¬wide preservation depositions.” It did not. “Rather it
trumpeted its willingness to have AMD, the Class Plaintiffs and the Court informed as to fact work-product gathered and provided “a detailed written description of the information provided by each custodian [to Weil] during the interviews.” Actually, I was under the impression that AMD had insisted on this course of conduct and Intel had agreed to a joint stipulated Order. I guess they trumpeted their agreement.
In this portion of his Report & Recommendation, the Special Master again relied upon the decision in
Westinghouse. In Westinghouse, however, the court was considering whether waiver occurred when the actual report was disclosed to an adversary. Here the underlying facts were disclosed. I see a difference. The Special Master did not. The Westinghouse court stated, “the standard for waiving the work-product doctrine should be no more stringent than the standard for waiving the attorney-client privilege.” Disclosure of underlying facts does not waive the attorney-client privilege, at least in most cases. The opacity of this Report & Recommendation is not helpful.
Finally, the Special Master held that had the motion been filed under Rule 26(b)(3)(A)(ii), Fed. R. Civ. P., arguing substantial need and undue hardship, the motion would have been granted. He noted that it was possible to separate the core work product, containing mental impressions, opinions, conclusions, and legal theories, from the non-core work product, containing merely facts. The Special Master concluded that AMD and the Class Plaintiffs should not be saddled with the prospect of deposing over 1,000 custodians, nor can it be forced to settle for something less in the form of a sampling of the custodian pool.
One cannot help but sense that the last portion of this Report & Recommendation really gets to the heart of the problem. Dealing with more than 1,000 custodians in the context of an ancillary issue in the case was just too much to ask AMD and the Class Plaintiffs to do. The Special Master found a way around the problem, and in the process simply ignored settled law regarding the attorney-client privilege.
Read the Report & Recommendation