In re Pacific Pictures Corp., 9th Cir., No. 11-71844, 4/17/12
Key Holding: Ninth Circuit rejects “selective waiver,” holding that disclosure of documents to government subject to grand jury subpoena destroys attorney-client privilege.
Potential Impact: The decision makes the score 10-1 in favor of federal circuit courts that have declined to allow parties to selectively waive the privilege, with the Eighth Circuit the only holdout.
Voluntary disclosure of privileged documents to the government in response to a subpoena waives the attorney-client privilege for those documents and opens them up to discovery by third parties in civil litigation, the U.S. Court of Appeals for the Ninth Circuit declared April 17 (In re Pacific Pictures Corp., 9th Cir., No. 11-71844, 4/17/12).
The court's rejection of the idea that certain disclosures of privileged information may not waive the attorney-client privilege adds to a very lopsided split among the circuits, with the U.S. Court of Appeals for the Eighth Circuit standing alone as the only one adhering to the “selective waiver” theory.
Siegel, Shuster, and their heirs have been battling with D.C. Comics over the rights ever since, sparking much litigation, the court said.
A relatively new entrant in the saga was Marc Toberoff, a Hollywood producer and lawyer, who approached the heirs about managing the IP litigation as well as creating a new Superman film.
The Ninth Circuit joins nine other circuits in rejecting the “selective waiver” approach.
However, Toberoff's plans were nearly foiled after a former employee absconded with a number of documents from the Siegel and Shuster files and ultimately sent them to D.C. Comics. He included a cover letter “outlining in detail Toberoff's alleged master plan to capture Superman for himself,” the court explained.
D.C. Comics gave the documents to an outside attorney and then tried to obtain them through discovery--eventually gaining access to the cover letter.
That letter formed the basis of a new lawsuit, filed by D.C. Comics, asserting that Toberoff interfered with its contractual relationships with the heirs.
Soon after the action was filed, Toberoff approached the U.S. attorney's office and asked that it investigate the former employee. A grand jury subpoena was issued for the documents taken from the files, along with a letter in which the government agreed not to share them with third parties.
Toberoff complied and D.C. Comics then made a request for every document turned over to the government, which a magistrate judge granted over Toberoff's objections that the documents were privileged.
After the district court denied review, Toberoff sought a writ of mandamus from the Ninth Circuit blocking the magistrate's order.
Although other factors come into play, the court said a failure to show error is always fatal--essentially kryptonite to mandamus review.
Assuming that the documents in question were privileged in the first place, the magistrate judge did not err in concluding that the privilege was waived when Toberoff disclosed them to the government, the court held.
“[V]oluntarily disclosing privileged documents to third parties will generally destroy the privilege,” O'Scannlain said, because it is an indication that the client would have openly shared the information with his attorney, even without the protection of the privilege.
Toberoff pointed to the Eighth Circuit and its holding in Diversified Indus. Inc. v. Meredith, 572 F.2d 596 (8th Cir. 1978) (en banc), that not all strategic disclosures constitute a waiver of the privilege.
But the 1978 decision in Diversified was based on “unjustified” concerns over the willingness of corporations to hire independent counsel to investigate and advise them, thereby protecting stockholders, the Ninth Circuit said.
“More importantly, such reasoning does little, if anything, to serve the public good underpinning the attorney-client privilege,” O'Scannlain wrote.
“If we were to unmoor a privilege from its underlying justification,” the court said, it would amount to creating a new privilege. Such power is not to be exercised lightly and is better thought of as a “legislative function,” the court held.
In this case, O'Scannlain said, “Congress has declined broadly to adopt a new privilege to protect disclosures of attorney-client privileged materials to the government.”
Thus, the court joined the First, Second, Third, Fourth, Sixth, Seventh, Tenth, D.C., and Federal circuits in rejecting the theory of selective waiver, and it declined to create a new privilege protecting disclosures to the government.
It denied that the letter from the government agreeing not to share the documents with third parties had any effect on the court's analysis. Even if the letter constituted a “confidentiality agreement,” O'Scannlain said, enforcing it still does nothing to bolster the underlying interest in effective attorney-client communication that the privilege is meant to protect.
It also said that just because Toberoff was the alleged victim of a crime, there was no reason to believe that he had a “common interest” with the government in prosecuting the case or that they were actively pursuing a joint legal strategy that necessitated the sharing of information.
Nor did the fact that the disclosure was made subject to a subpoena, or that the heirs themselves “did not take the affirmative step to disclose the documents,” have any bearing on its decision, the court said.
“Toberoff both solicited the subpoena and 'chose not to assert the privilege,'” O'Scannlain pointed out.
As for the heirs' apparent lack of complicity, the court said, “we do not consider it a manifest injustice to hold Petitioners to their apparent acceptance of Toberoff's authority to waive the privilege on behalf of clients, who have never disputed his authority to do so.”
Richard B. Kendall of Kendall Brill & Klieger, Los Angeles, argued for the heirs and Toberoff. Matthew T. Kline of O'Melveny & Myers, Los Angeles, argued for D.C. Comics.
Full text at /uploadedFiles/Content/News/Legal_and_Business/Bloomberg_Law/Legal_Reports/1171844(1).pdf.
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