LIFESCAN, INC., et al., Plaintiffs, v. JEFFREY C. SMITH., et al., Defendants ROCHE DIAGNOSTICS CORPORATION, et al., Plaintiffs, v. JEFFREY C. SMITH., et al., Defendants Civil Action No. 17-5552 and , Civil Action No.19-8761 (CCC)(JSA) United States District Court, D. New Jersey, VII. Conclusion Filed February 15, 2023 Counsel Peter C. Harvey, Patterson, Belknap, Webb & Tyler, LLP, New York, NY, Katelyn O'reilly, Lauren Ruth Malakoff, Liza M. Walsh, Peter Joseph Pizzi, Stephen V. Falanga, Christopher Matthew Hemrick, William T. Walsh, Jr., Walsh Pizzi O'reilly Falanga LLP, Newark, NJ, Claudia A. Costa, Gordon & Rees LLP, Florham Park, NJ, for Plaintiffs. Gino A. Zonghetti, Iram Pagan Valentin, Kaufman, Dolowich & Voluck, LLP, Hackensack, NJ, Claudia A. Costa, Gordon & Rees LLP, Florham Park, NJ, Mary Susan Henifin, Buchanan Ingersoll & Rooney, PC, Princeton, NJ, Andrew George Hope, Buchanan Ingersoll & Rooney, P.C., for Defendants. Cavanaugh, Dennis, Special Master (Ret.) ORDER & OPINION OF THE SPECIAL MASTER JUDGE DENNIS CAVANAUGH, RET. (FOLLOWING IN CAMERA REVIEW) *1 Plaintiffs LifeScan, Inc., Roche Diagnostics Corporation and Roche Diabetes Care, Inc. (“Plaintiffs”) have filed a motion before the Special Master. Plaintiffs seek to compel Defendant Zions Bancorporation, S.A. (“Zions”) to produce communications with a third party consultant, Rocky Mountain Advisory (“RMA”). In deciding this motion, the Special Master has reviewed the following: 1. Plaintiffs’ letter brief in support of motion with attachments; 2. Zions’ letter brief in opposition to motion with attachments; and 3. Plaintiffs’ reply brief with attachments. Additionally, during the course of a status conference held on January 25, 2023, the Special Master and the litigants addressed the pending motion at the conclusion of which Zions agreed to submit the entirety of the documents at issue for in camera review. Following in camera review and for the reasons to be set forth more fully below, it is the opinion of the Special Master that Plaintiffs’ motion is GRANTED. I. Procedural History and Factual Background Once again, the Special Master recognizes that the parties are closely familiar with the procedural history and underlying facts which form the basis of this motion. Therefore, the Special Master will only briefly summarize the procedural and factual events pertinent to this motion. The litigation concerns the distribution and sale of diabetic testing strips (“DTS”) manufactured by LifeScan and Roche. Plaintiffs contend that various named defendants including officers, directors and investors in Alliance Medical Holdings LLC (“Alliance”) engaged in a complex scheme which defrauded them of profits through improper reimbursement of the sales of these strips through pharmacy benefit plans (“PBMs”). Pertinent to this particular motion, LifeScan asserts that another Defendant, Zions, a bank and an Alliance creditor, knowingly and deliberately supported this scheme. In 2014, Zions closed a loan to Alliance. Approximately three years later, on April 7, 2017, Alliance filed for Chapter 11 bankruptcy, an event which Zions contends caused the bank to suffer a $29 million loss under the credit agreement. On July 28, 2017, LifeScan filed this action and then later named Zions as a Defendant in an amended complaint filed on November 22, 2017. Roche filed its respective pleadings on March 19, 2019 and November 1, 2019. RMA is a forensic accounting firm. In February 2017, just months before Alliance filed for bankruptcy, RMA was retained on behalf of Zions to provide services with regard to the borrower. Accordingly, RMA, a third party, acted as a consultant to Zions. It is RMA's role as a consultant which is at the center of this dispute. As part of the discovery process in this suit, Zions has created a privilege log identifying communications between the bank and RMA. In that log, Zions identified certain documents which the bank asserts are shielded from discovery and are described as documents in which legal advice was either sought or provided. The documents are overwhelmingly described as being attorney-client privileged while a few are also designated as work product. The log, a copy of which has been submitted to the Court, consists of seven pages and describes 82 documents.[1] *2 Plaintiffs now seek an order compelling Zions to produce these documents. As mentioned, the documents have been submitted for in camera review. II. Plaintiffs’ Arguments Plaintiffs argue, in part, that the documents sought are the same category of documents the Special Master directed to be produced when Zions challenged LifeScan's claims of privilege over its communications with three third party consultants and memorialized in an Order.[2] Effectively, Plaintiffs say RMA was retained to further Zions’ commercial interests and did so in the normal course of business. As to the attorney-client privilege, Plaintiffs argue, communications involving third parties are not ordinarily subject to protection. There is a limited exception, i.e., when the communications to the third party are made in confidence and for the purpose of obtaining legal advice, citing E.I. du Pont de Nemours & Co. v. MacDermid, Inc., 06-cv-3383, 2009 WL 3048421, at *3 (D.N.J. Sept. 17, 2009). However, the third party's involvement must be necessary to the provision of legal advice, citing Louisiana Mun. Police Emps. Ret. Sys. v. Sealed Air Corp., 253 F.R.D. 300, 312 (D.N.J. 2008) (“Sealed Air”). As to work product, there is a two part inquiry: (1) At one point in time could litigation be reasonably anticipated and (2) were the documents generated because of the prospect of litigation and for no other purpose? Citing, Mondis Tech. Ltd v. LG Elecs., Inc. 2017 WL 4155121, at *4 (D.N.J. Sept. 19, 2017), aff'd 2017 WL 5495523 (D.N.J. Nov. 15, 2017). Here, say Plaintiffs, Zions cannot meet its burden to establish the privilege applies. Although Zions asserts that it sought and received legal advice from RMA, Plaintiffs say none of the RMA employees identified is an attorney. Therefore, Zions’ “bare invocation of the shadow of legal advice” does not support the notion that the communications were necessary to provide such advice. Additionally, there is a distinction between facts and advice. A party cannot shield facts from discovery even if at some point the facts are conveyed to an attorney. Here, that principle applies especially given that the communications do not involve attorneys at all. However, Plaintiffs stress, the most fundamental flaw in Zions’ assertion arises from the fact that the documents collectively concern matters of commercial interest and would have been generated regardless of the prospect of litigation or the need for legal advice. Plaintiffs assert that the descriptions associated with entries on Zions’ privilege log show that the communications were generated for the purpose of conducting bank business. Therefore, such documents are not privileged. Plaintiffs point to selected documents which reference legal advice as to “corporate planning and strategy” and “contract negotiations” as examples of non-privileged, business related subjects which would have been the topic of communication with Zions’ consultants irrespective of its need for legal advice or the prospect of litigation. III. Zions’ Argument *3 Zions opposes the motion on the grounds that the communications here, unlike those subject to the prior motion, are protected by attorney-client privilege and the work-product doctrine. Therefore, this motion is merely an attempt to retaliate as a consequence of Plaintiffs having been ordered to produce documents from their third party consultants. Zions provides some brief background to buttress its opposition. Zions served as a lender to Alliance between June 2014 and March 2017. Beginning in October 2016 until Alliance filed for bankruptcy, that entity experienced financial issues and repeatedly defaulted on its loan. On February 23, 2017, the FBI served warrants on Alliance accounts held by the bank. These events, according to Zions, raised concerns that Alliance would file for bankruptcy. As a result, in late February 2017, attorneys for Zions retained RMA “for the purpose of potential litigation with or related to Alliance,” i.e., “to assist in analyzing the priority of claims between the bank and the government which could result in potential litigation.” RMA continued to act as a consultant until Zions’ claims in bankruptcy were resolved. Zions makes the following legal arguments in opposition. A. Attorney-Client Privilege Zions reiterates that it retained RMA “to facilitate counsel's representation...in connection with potential litigation with Alliance.” Zions says that the withheld documents show that RMA investigated Alliance's financial history and viability, “digested the acquired information” and “translated it into understandable terms” for those attorneys. Citing, Sealed Air, 253 F.R.D. at 312, Zions maintains third party involvement was necessary to the lawyer's provision of legal advice. Zions effectively points to three reasons why the documents fall under the penumbra of being needed to provide legal advice. Here, the engagement letter was sent directly from RMA to Zions’ attorneys and explicitly states that the consultant understood its engagement “to be directed by counsel for the purpose of potential litigation.” The letter, therefore, helps demonstrate that the communications would not have been made but for the prospect of litigation. Similarly, the letter also says that any documents produced in connection with the case would be protected by applicable privileges “signifying that the parties engaged in protected communications related to counsel's provision of legal advice.” Second, unlike the litigant in Sealed Air, Zions’ counsel here contemplated using RMA services “to render effective legal advice” as to the probable bankruptcy and government investigation. Third, the timing of the retention, which occurred when Alliance began defaulting and the government had executed warrants, supports the position that Zions does not claim the privilege simply because the communications later became beneficial to its representation. Rather, the retention reflected then immediate legal concerns. B. Work-Product Doctrine Zions asserts that this doctrine, which is more expansive than attorney-client privilege, is equally applicable. Again, Zions emphasizes that the documents were prepared because of reasonably anticipated litigation and for no other purpose. Only four days before the retention, warrants were served and therefore the bank reasonably assumed – and was ultimately proven correct – that Alliance was heading for bankruptcy. “Nothing suggests that Zions would have hired RMA absent the combination of government warrants and Alliance's defaulted loan.” *4 In short, Zions contends that the documents are protected but has submitted the documents for in camera review. IV. Plaintiffs’ Reply Plaintiffs reiterate their position that communications with third parties, such as RMA, are presumptively not privileged due to the presence of that party. This is evidenced by the fact that a substantial portion of the communications listed on Zions’ privilege log are between RMA and the bank alone. Plaintiffs again harken back to the previous ruling by the Special Master to the effect that the involvement of an outside law firm who has engaged a vendor fails to constitute a “silver bullet” which protects those communications. Further, while the absence of any attorney on communications may not be dispositive, it is probative especially when documents which are claimed to be privileged bear no apparent connection to a party's litigation interest. Zions asserts that RMA is an accounting firm not equipped to analyze the priority of claims which might result in potential litigation. Plaintiffs point to redacted documents suggesting that RMA provided accounting support, which is equally important to business decisions as to a legal strategy. In fact, factors cited by Zions to support the claim that the communications were necessary to allow its counsel to provide legal advice are equally consistent with a need for general business and financial advice. The timing of RMA's retention in early 2017 actually encompasses a time period when “Zions was wrestling with business decisions, not just legal ones.” Additionally, other documentation partially produced in discovery show that an RMA employee met with the Alliance board to discuss a refinancing proposal – a purely business issue. V. Findings (Legal Principles) The Special Master finds that this motion does, in fact, bear a remarkable resemblance to Zions’ motion compelling Plaintiffs to produce documents and communications relating to “business practices and pre-suit investigations” performed by several third party consultants. Ultimately, Zions’ motion produced an Order issued by the Special Master (following in camera review) compelling production of those documents. The Special Master's decision here is not based upon what Plaintiffs mistakenly describe as a “what's good for the goose is good for the gander” legal principle but entirely upon the facts and circumstances that exist here. As it turns out, however, the facts and circumstances which underlie this motion are generally similar to the facts and circumstances of Zions’ previous application, perhaps because Plaintiffs and Defendants found themselves in similar circumstances when it came to Alliance and engaged in similar activities. Again, the Court is called upon to determine whether or not communications between a party and consultants retained to perform certain work in the broad context of litigation should be protected by the attorney-client privilege and/or the attorney work product doctrine (more so the former here). Zions, now in a defensive role, maintains that its consultant, RMA, was employed to provide assistance to its attorneys as to a legal issue while Plaintiffs now assert that the consultants were hired to address a business issue and that RMA would have been employed in that capacity irrespective of litigation. *5 Since the Court decided the prior motion, there has been no new law on these issues nor have the parties cited any additional precedent which alters the existing legal principles. With this in mind, and recognizing that the analysis which appears below is substantially similar to the analysis contained in the Order and Opinion of May 5, 2022, the Special Master will briefly address the attorney-client privilege and work-product doctrine in that order. Again, the primary purpose of the attorney-client privilege is to encourage “full and frank communications between attorneys and their clients”. Upjohn Co. v. United States, 449 U.S. 383, 389 (1981). Given this, the principle inquiry “is whether a communication is one that was made by a client to an attorney for the purpose of obtaining legal advice”. In Re: Spalding Worldwide, Inc., 203 F. 3d 800 (Fed. Cir. 2000). This privilege is narrowly construed since it obstructs the truth finding process. Westinghouse Elec. Corp. v. Republic of the Philippines, 95 F. 2d 1414, 1423 (3d Cir. 1991) and our Courts are admonished to be cautious in its application since “it protects only those disclosures necessary to obtain informed legal advice which might not have been made absent the privilege”. Fischer v. United States, 425 U.S. 391, 403, 93 S. Ct 1569, 48 L. Ed.2nd 39 (1976). The privilege includes within its ambit corporations; although the administration of the privilege in the case of corporations presents “special problems”. See, In Re: Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F. 2d 120, 124 (3d Cir. 1986). Significantly here, communications relating to business matters rather than legal matters do not fall within the protection of the privilege. Therefore, “while legal advice given to a client by an attorney is protected by the privilege, business advice generally is not”. See, Leonen v. Johns-Manville, 135 F.R.D. 94, 98 (D.N.J. 1990). The privilege does not apply simply because a statement was made to an attorney and the fact that an attorney is copied on emails does not prove a document is privileged. In Re Riddell Concussion Reduction Litig., 2016 WL 7108455, at *3 (D.N.J. Dec. 5, 2016). Routine communications amongst corporate or company personnel do not become privileged because in-house or outside counsel are copied since litigants could “facilely avoid producing relevant discovery by simply copying an attorney on every email”. Id. at *3. The fact that an attorney communicates with a third party does not necessarily waive the privilege provided that the disclosure is necessary “for the client to obtain informed legal advice” and constitutes an exception to the rule. Westinghouse Corp., supra, at 1424. Or, as the Court stated in Riddell: “To be protected communications with a third party agent must be made in confidence for the purpose of obtaining legal advice from the lawyer”. Id. at *6. The party claiming the third-party as an agent has the burden of showing that a privilege exists and that it has not been waived. Id. The work-product doctrine provides qualified immunity from discovery of materials prepared by an attorney or the attorney's agent in anticipation of litigation or for trial. In Re Gabapentin Litigation, 214 F.R.D. 178, 182 D.N.J. 2003). This doctrine is codified in Fed. R. Civ. P. 26(b)(3): A party may obtain discovery of documents and tangible things otherwise discoverable...and prepared in anticipation of litigation or for a trial by or for another party or by or for that party's representative (including the other party's attorney, consultant...or agent...) only upon a showing that the party...has substantial need for the materials...and cannot, without undue hardship...obtain their substantial equivalent by other means. *6 Courts in this Circuit have applied a two part test in determining whether communications should be protected under the doctrine. In re Gabapentin, supra, at 183. The first prong is the “reasonable anticipation” test which requires the Court to “determine at what point in time litigation could reasonably have been anticipated”. Id. While the phrase “in anticipation of litigation” may be incapable of the precise definition, the Courts in this Circuit and District have provided a template for assessing whether a document can be said to be prepared in anticipation of litigation: In general, though, “a party must show more than a ‘remote prospect’ and ‘inchoate possibility’, or a ‘likely chance of litigation’ ”. Rather, a party must show that there existed “an identifiable specific claim of impending litigation when the materials were prepared”...The mere involvement of, consultation with, or investigation by an attorney does not, in itself, evidence the “anticipation of litigation”...Neither will the mere fact that litigation actually occurred establish that documents prepared before the litigation were created in anticipation thereof. In Re Gabapentin Litigation, supra, at 183 (citations omitted). In this Circuit, there is a second prong – whether the material was produced because of the prospect of litigation “and for no other purpose”. Documents created for other purposes that prove useful in subsequent litigation are not attorney work-product while documents that are routinely prepared in the ordinary course of business are outside the scope of work-product protection. In Re Gabapentin Litigation, supra, at 184. The Special Master will now apply those principles to the facts and circumstances which form the basis of this motion. VI. Findings In order to provide context to this ruling, the Special Master will briefly summarize the contents of the documents submitted for in camera review. As set forth previously, Zions provided 82 documents along with a corresponding privilege log. In that log, Zions asserts that the documents have been withheld on the basis of attorney-client privilege, work product or both. However, as noted previously, overwhelmingly Zions asserts attorney-client privilege as a basis for shielding these documents with only seven emails withheld, in part, as work product. The documents themselves encompass a time frame from March 23, 2017 to April 5, 2017. All are emails – some single emails but most are email “strings” in which communications are being replied to or forwarded among the parties. Those parties can generally be categorized into three groups: employees of Rocky Mountain Advisory (RMA), the consultant; employees of Zions; and attorneys from the law firm of Ray Quinney & Nebeker P.C. (“RQN”). The firm appears to be Zions’ local counsel. Few of the documents (11 in number) are actually authored by Zions’ counsel although RQN lawyers are copied on a large majority of the communications. Perhaps a third of the documents consist of emails in which the RQN attorneys were neither the sender, the recipient, nor one of those copied. In other words, no apparent attorney participation at all. In the Special Master's assessment, the emails contain little substantive information. A substantial number of them are merely repetitive or reflect a recipient's acknowledgement of receipt. Many of the communications simply involve the timing of meetings or phone calls. The emails initially concern the engagement letter which has been produced for in camera review and has been partially referenced by Zions in its opposition. The communications reflect that RMA, the consultant, prepared the engagement letter. While Zions’ counsel were copied on emails concerning the letter, and while counsel appear to have approved the final draft, this was essentially an exchange between Zions and RMA. *7 From this point forward, the substantive topics addressed generally concerned requesting and/or obtaining information relating to Alliance's (that is, another third party's) financial status. Among the topics addressed were: access to Alliance's computer system to monitor the company's transactions; Alliance's cash flows; Alliance's accounts receivable; questions as to whether Alliance was diverting monies to new accounts; the company's attempts at cost cutting measures; the potential for a “white knight” to buy the failing company; extending draws to Alliance; and generally determining Alliance's viability moving forward. In short, virtually all of the substantive communications reflect a creditor's (Zions’) concerns with the financial stability of a debtor (Alliance). RMA appears to have been hired to explore these issues, obtain information and report back to Zions as to its findings. The communications also reflect that RMA was in direct contact with Alliance and its employees. Taking all of these emails into consideration, the broad picture painted by them can be described as follows. After it appeared that Alliance was in financial and legal trouble and perhaps heading to bankruptcy, Zions hired RMA to perform forensic accounting services in order to retrieve pertinent information as to Alliance's status. Ultimately, a bankruptcy took place, so it could be argued that litigation was certainly looming, but the retention of a forensic accountant was clearly the type of action that would be taken by any lender which had made a substantial loan to a borrower whose business appeared to be in trouble. Moreover, as we know from other communications cited by Plaintiffs, the bank and Alliance had discussed a forbearance agreement, i.e., an alternative plan by which Alliance could pay off its debt. Therefore, Zions, like any other lender, also considered steps short of litigation in an effort to mitigate the losses associated with a potentially bad loan – a business concern. It is the Special Master's finding that the retention of a third party forensic accountant (RMA) to act as a consultant and analyze the financial viability of a creditor constitutes action taken in the ordinary course of business, an action that would have been taken irrespective of the prospect of litigation. Many of the emails at issue are communications between Zions and RMA as to which the bank's attorneys seem to have had little or no input. Additionally, a number of the entries in the privilege log which describe the communications as “seeking” or “providing” legal advice are simply exchanges of factual information as to Alliance's ongoing financial status such that the characterizations in the log are a far cry from the actual content of the communications. Furthermore, no communications, emanating from or directed to the bank's counsel in any way suggests an exchange containing legal advice or needed to provide legal advice or commentary. In summary, the Special Master concludes that the communications are protected neither by attorney-client privilege nor the work product doctrine. Nothing in the emails transmitted between Zions, RMA and Zions’ counsel demonstrate that the disclosure was necessary for the client to obtain informed legal advice so as to fall under the rubric of attorney-client privilege. While Alliance ultimately declared bankruptcy and thereby, in effect, instituted litigation, the Special Master finds that there was not an identifiable specific claim of impending litigation when the materials were prepared and that the communications were not prepared solely for the purposes of litigation. Instead, the communications were prepared in the ordinary course of the bank's business and would have been prepared irrespective of litigation. *8 Therefore, for all of the reasons stated above, Plaintiffs’ motion is GRANTED and Zions is ORDERED to produce the documents at issue. For the reasons previously set forth, it is the opinion of the Special Master that Plaintiffs’ motion is GRANTED and Zions is ORDERED to produce the documents at issue. Footnotes [1] The last page is entitled a “Redaction Log” but the document will simply be referred to here in the singular (“log”). [2] The opinion that Plaintiffs reference arose from the Special Master's Order of May 5, 2022. Zions had sought production of documents relating to pre-suit investigations performed by consultants retained by Plaintiffs. The motion was denied pending in camera review and the parties were ordered to provide an agreed upon set of documents. After review, an Order dated August 5, 2022 was entered compelling Plaintiffs to produce these communications. The Order and Opinion compelling production included a finding that communications were not protected by either attorney-client privilege or the work product doctrine and were neither necessary to obtain informed legal advice “nor related solely to an identifiable specific claim of impending litigation and for no other purpose.”