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Manufacturer and Supplier Fail to Establish Joint Privilege

By Lisa R. Bliss, Litigation News Associate Editor – November 1, 2011

A written “joint defense” agreement and cost sharing, without more, is insufficient to shield documents from discovery according to the U.S. District Court for the Eastern District of Pennsylvania . If the parties wish to assert successfully the community-of-interest privilege, they must support the written agreement with conduct establishing that they actually engage in an ongoing and coordinated defense.

History of the Community-of-Interest Privilege
In the U.S. Court of Appeals for the Third Circuit, the community-of-interest privilege evolved from the joint defense privilege in criminal proceedings. Courts initially recognized a preference for criminal co-defendants represented by different counsel to coordinate their defense. That gave rise to the joint defense privilege.

Over time, courts expanded the criminal defendants’ joint defense privilege into a broader protection of all communications shared within a community-of-interest in criminal and civil contexts. Under Third Circuit law, if the people or entities at issue share a “substantially similar legal interest” that is not solely commercial in nature, their exchange of otherwise privileged information remains confidential and need not be disclosed. The burden is on the party asserting the privilege to prove the privilege applies.

Pharmaceutical Manufacturer and Its Supplier Provide a Case Study
In King Drug Co. of Florence, Inc. v. Cephalon, Inc. [PDF], the Eastern District of Pennsylvania addressed multiparty antitrust litigation by pharmaceutical purchasers against patented and generic manufacturers of the drug Provigil. Barr Pharmaceuticals (Barr), a generic manufacturer, sought to withhold its communications with its supplier. The supplier was not a party to the litigation.

In response to a motion to compel and Barr’s assertion of the community-of-interest privilege, the court reviewed the allegedly privileged materials in camera. The court described the 18 documents as related to how the patent litigation settlement between the patented drug manufacturers and Barr would financially affect Barr’s supplier.

The court noted that the community-of-interest privilege encourages counsel to develop a joint defense strategy without fear that communications will be discoverable. It concluded the privilege did not apply if the communications were outside that context.

According to the court, the parties’ written “joint defense agreement” did not—standing on its own—meet Barr’s burden. There was “nothing else in the record [to] reflect that any actual concrete, tangible steps were taken to effectuate or implement that joint defense.” Therefore, the companies could not shield their communications from discovery based only on the written joint defense agreement.

What Is Necessary to Establish the Privilege?
“The common interest (or community-of-interest) privilege is an expansion on the traditional joint defense privilege,” offers Elizabeth T. Timkovich, Charlotte, NC, cochair of the ABA Section of Litigation’s Commercial and Business Litigation Committee. “Whereas the joint defense privilege technically applies only to co-defendants, the common interest privilege can in theory apply to communications among any groups or individuals—litigants or not. [They must] share a common legal interest; [be] represented by separate legal counsel; and agree either in writing or informally—to share information on the topic of commonality without destroying confidentiality,” says Timkovich. She notes that courts in several circuits, including the Third, Fourth, and Seventh Circuits—“have so far recognized that the threat of litigation is not a prerequisite to application of the common interest doctrine.”

“The primary question in determining whether a common interest exception [to disclosure] is applicable is whether that [claimed] interest is primarily commercial or legal in nature,” explains Edna Selan Epstein, Chicago, author of all five editions of the Section’s seminal work on the subject, The Attorney-Client Privilege and the Work-Product Doctrine. “Different courts weigh that question differently, with some courts being more willing to allow an admixture of commercial interest to what nonetheless has to be a primarily legal common interest,” she adds.

“What is unusual in this case is that entering into a formal common interest agreement was not availing to the parties, as they obviously hoped it would be. The court looked to the substance of the common interest rather than to the form of the agreement,” Epstein concludes.

Where Does This Decision Lead Us?
“The King Drug opinion has the potential effect of diluting one of the most fundamental traits of the common interest privilege: its application to non-litigants,” observes Timkovich. “By holding that the common interest privilege does not apply where there was never a joint, coordinated, and ongoing defense strategy, the decision diverges from precedent and the Restatement Third of the Law Governing Lawyers and shrinks the scope of the privilege.”

Lawyers commonly discuss business interests and may provide business advice to clients. Courts, however, have not viewed such communications as privileged. “The attorney-client privilege is to be narrowly drawn,” notes Dori Ann Hanswirth, New York City, cochair of the Section’s Commercial and Business Litigation Committee. She cautions that under King Drug, “Two parties can’t draft themselves into a privilege that is greater than what the law recognizes.”

“An agreement regarding joint strategy does not mean that the privilege automatically applies,” Hansworth continues. “Based on King Drug, courts will go beyond the content of any joint agreement and examine the contents of the communications themselves to determine application of the privilege,” she concludes.

Timkovich advises that not all courts actively follow the Restatement’s guidance that extends the common interest privilege to communications about a shared legal interest as well as to communications about shared factual or strategic interests. Therefore, parties attempting to establish this privilege should emphasize any legal interests that they share. Because many jurisdictions are unclear to what extent the privilege will apply to communications with a non-lawyer, parties should minimize non-lawyer involvement in common-interest communications.

Keywords: litigation, community-of-interest privilege, attorney-client privilege

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