Klig v. Deloitte LLP, C.A. No. 4993-VCL (Del. Ch. Sept. 7, 2010), read opinion here.
This 22-page opinion is must reading for any attorney who: (i) seeks to maintain an attorney-client privilege in Delaware litigation; (ii) needs to prepare a privilege log under Delaware law; (iii) practices in the Delaware Court of Chancery; and/or (iv) wants to avoid waiver of a privilege due to an inadequately prepared privilege log. The Court of Chancery in this opinion denied an interlocutory appeal of a decision in which the Court determined that the attorney-client privilege was waived based on inadequate detail provided in the privilege log.
This litigation is based on a dispute between a partner of Deloitte LLP who, while defending criminal charges, sought to return to active employment with his partnership, and then sued for damages from Deloitte due to their refusal to allow him to return to work.
The opinion was generated as a result of a discovery battle in which the attorney-client privilege was claimed and for which a privilege log was prepared, but the Court determined that due to the failure of the privilege log to include sufficient detail, the attorney-client privilege for all of the documents on the insufficiently completed privilege log would be deemed waived. The Court in this opinion denied an interlocutory appeal but allowed a stay of 20-days from the date of the opinion in order for the Delaware Supreme Court to have an opportunity to determine if they would stay the case.
Procedurally, only the Delaware Supreme Court can determine whether to accept an interlocutory appeal, but that same rule also requires the Court of Chancery to make an initial assessment about whether an interlocutory appeal is warranted. Likewise the Delaware Supreme Court can decide to stay a trial court ruling pending appeal regardless of whether the Court of Chancery does so.
The appeal concerned the privilege log produced by Deloitte which was a 35-page document that described 348 assertedly privileged documents. All but six documents were withheld on the ground of attorney-client privilege. The Court described that 332 of those 342 documents referenced on the log repeated verbatim, under the column heading of “description,” “one of five identical phrases” that merely described the document as a communication either reflecting or requesting legal advice regarding the Klig matter, or a communication reflecting or requesting legal advice regarding the Klig matter which were redacted.
Delaware Rule of Evidence 502 defines the attorney-client privilege as extending to “confidential communications made for the purpose of facilitating the rendition of professional legal services to the client.” Because all 342 documents were designated as “attorney-client privilege” under the column “reason for withholding,” by also describing the documents as communications that were reflecting or requesting advices of counsel, the Court observed that defendants “offer no incremental information at all,” and more importantly, afforded the opposing party “no way to assess the propriety of the assertion of privilege.”
In this opinion, the Court explained its ruling from the bench on Aug. 6, 2010 which deemed the privilege waived due to the insufficient log (“Discovery Ruling”), as applying well established law in Delaware governing privilege logs. Moreover, the Court pointed out that Deloitte had acknowledged that same settled law in its motion papers in the following respects: (1) According to the Court, “from the motion papers of Deloitte, Deloitte agreed that ‘a party must include information on its privilege log identifying the subject matter of the communication sufficient to show why the privilege applies.’” (citing Unisuper Ltd. v. News Corp., C.A. No. 1699-N (Del. Ch. March 9, 2006)). (2) Moreover, Deloitte argued that the opposing party failed “to meet several of the basic requirements for establishing privilege [therefore], the documents listed on the log should be produced.”
The Court described what in essence is a “safety net,” which is important in interpreting the Discovery Ruling as not requiring a draconian “one-strike-and-you-are-out” rule that applies to all privilege logs in a Procrustean manner. Specifically, the Court explained that:
“A party that has attempted in good faith to provide meaningful descriptions should not be penalized for falling short. An order requiring supplementation for the inadequate entries could well be appropriate. If the number of documents is limited, in camera review by the Court or a Special Master may be the most efficient solution.”
The Court’s reasoning as applied to this case included three other points: (i) Deloitte served a privilege log which contained virtually identical and content-less descriptions for 342 documents; (ii) Deloitte made no effort to describe individual documents; and (iii) Deloitte did not even bother to identify who in the log was an attorney.
Required Details for Privilege Logs
The Court quoted from the Unisuper case referred to above, for the details required by the Court of Chancery in a privilege log, that must include the following details in order to preserve the claim of attorney-client privilege:
“(a) The date of the communication, (b) The parties to the communication (including their names and corporate positions), (c) The names of the attorneys who were parties to the communication, and (d) The subject [matter] of the communication sufficient to show why the privilege applies . . .. With regard to the last requirement, the privilege log must show sufficient facts as to bring the identified and described document within the narrow confines of the privilege.”
Regarding the requisite detail that Chancery requires in a privilege log, the Court further explained that sufficient information must be provided in the log “to enable the adversary to assess the privilege claim and decide whether to mount a challenge. Vapid and vacuous descriptions interfere with the adversary’s decision-making process.”
General Principles of Discovery
The Court also buttressed its reasoning with general principles of discovery in Delaware, which has a “well established policy of pre-trial disclosure which is based on a rationale that a trial decision should result from a disinterested search for truth from all the available evidence, rather than tactical maneuvers based on the calculated manipulation of evidence and its production. Candor and fair-dealing are, or should be, the hallmark of litigation and required attributes of those who resort to the judicial process.” See generally Court of Chancery Rule 1.
Cases Cited in Support of the Court’s Ruling
In footnotes 1 and 2 of the opinion, the Court cites to a long list of Delaware decisions to support (i) the position that “an improperly asserted claim of privilege is no claim of privilege at all,” and (ii) to provide support for placing the burden of proving that a privilege exists “on the party asserting the privilege.”
The Court also cited prior decisions, as well as the leading treatise on Chancery practice, to support the Court’s holding that waiver is an available penalty for the inadequate assertion of privilege: “i.e., the insufficient description of documents on a privilege log.” See footnotes 3, 4 and 5. Also distinguished was a relatively recent Chancery decision that confirmed that even if the Court has discretion to impose the penalty of waiver of the privilege for insufficient descriptions on a privilege log, it need not always do so. Specifically, in Cephalon, Inc. v. Johns-Hopkins University, 2009 WL 2714064 (Del. Ch. Aug. 18, 2009), the Court of Chancery ordered privilege logs to be revised to provide additional information so that the log states as to each document that “it contains confidential information made for the purpose of facilitating the rendition of professional legal services to the client” or some other basis for the privilege. Id. at *3 (quoting D.R.E. 502(b)(3)).
The opinion explained that the Cephalon case did not suggest that the Court was departing from a pre-existing requirement that a party describe each document with sufficient facts to support the claim of privilege. The opinion also distinguished a Delaware Superior Court decision to explain that the Discovery Ruling was not a marked departure from the approach taken in the Superior Court.
The Court emphasized that even though other members of the Court of Chancery may in the past have exercised their discretion in different ways under other circumstances, that does not establish a rule of law against the waiver. The Court also underscored that its ordering that the inadequately described documents be produced, was within its discretion and was neither a “harsh new rule nor a ‘sharp departure’ from precedent.” In addition, the Court reiterated that it was not announcing a “one-strike-and-you’re-out” rule that will apply in all future cases.
Lastly, the Court explained that the Discovery Ruling did not alter in any way the requirements for the attorney-client privilege which continues to be governed by Delaware Rule of Evidence 502. Moreover, the Court rejected the argument that applying settled law on waiver would alter the underlying scope of the attorney-client privilege, or create any uncertainty for future litigants.
After reviewing the applicable standard for a stay pending appeal, pursuant to Court of Chancery Rule 62(d) and Delaware Supreme Court Rule 32(a), based on the potential irreparable harm that may occur once the privileged documents were produced and reviewed, the Court balanced the risk of a potential furthering of a strategy that the Court called: “defense-by-attrition” (Fabian tactics) and granted a stay for 20-days in order to allow Deloitte sufficient time to pursue an interlocutory appeal and a stay with the Delaware Supreme Court.
UPDATE: Today, the Delaware Supreme Court, on the last day of the stay granted by the trial court, rejected the appellant’s request for both an extension of the stay and an interlocutory appeal, in an Order available here.
Supplement: Tony Coles on his new blog called Business Litigation in the Southern District of New York, (that is truly worth checking out), writes here about a recent case in the S.D.N.Y. styled as Dey, L.P. v. Sepracor, Inc., 07 Civ. 2353 (S.D.N.Y., December 8, 2010), in which the Court deemed the attorney/client privilege waived for 170 documents that were not listed on the privilege log.