1994.C03.350 (http://www.versuslaw.com), 32 F.3d 851; United States Court of Appeals for the Third Circuit, Nos. 93-1962, 93-1975; March 10, 1994

[2] Nos. 93-1962, 93-1975

[3] 1994.C03.350 <http://www.versuslaw.com>, 32 F.3d 851

[4] March 10, 1994

[5] RHONE-POULENC RORER INC. AND ARMOUR PHARMACEUTICAL COMPANY, PETITIONERS, v. THE HOME INDEMNITY COMPANY, A NEW HAMPSHIRE CORPORATION, V. AETNA CASUALTY & SURETY INSURANCE; AIU INSURANCE COMPANY; AMERICAN CENTENNIAL INSURANCE COMPANY; BIRMINGHAM FIRE INSURANCE COMPANY; FIRST STATE INSURANCE COMPANY; GRANITE STATE INSURANCE COMPANY; HARTFORD INSURANCE COMPANY; INSCO LIMITED; INSURANCE COMPANY OF PENNSYLVANIA; LEXINGTON INSURANCE COMPANY; MANHATTAN FIRE & MARINE INSURANCE COMPANY; MOTOR VEHICLE CASUALTY COMPANY; OLD REPUBLIC INSURANCE COMPANY; PANTRY PRIDE INC; PROMETHEAN INSURANCE LTD.; PRUDENTIAL REINSURANCE COMPANY; PURITAN INSURANCE COMPANY; REVLON INC; TWIN CITY INSURANCE COMPANY; LONDON MARKET CO.; JOHN BARRINGTON HUME, AS REPRESENTATIVE OF UNDERWRITERS AT LLOYDS; INSURANCE COMPANY OF NORTH AMERICA; NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PENNSYLVANIA; ALL CITY INSURANCE COMPANY; EMPLOYER'S MUTUAL CASUALTY; GIBRALAR CASUALTY COMPANY; LANDMARK INSURANCE COMPANY; NEW ENGLAND INSURANCE COMPANY; ROYAL INSURANCE COMPANY; REPUBLIC INSURANCE COMPANY; INTERNATIONAL INSURANCE COMPANY; PACIFIC INSURANCE COMPANY LTD; ATLANTA INTERNATIONAL INSURANCE COMPANY; CENTURY INDEMNITY COMPANY; LIBERTY MUTUAL INSURANCE COMPANY; TRANSPORT INSURANCE COMPANY; MIDLAND INSURANCE COMPANY; INTEGRITY INSURANCE COMPANY; UNION INDEMNITY INSURANCE; TRANSIT CASUALTY COMPANY; CITY INSURANCE COMPANY; DRAKE INSURANCE COMPANY; EXCESS INSURANCE COMPANY; HOME INSURANCE COMPANY; PACIFIC EMPLOYER'S INSURANCE COMPANY; ROYAL INDEMNITY COMPANY; ZURICH INTERNATIONAL INSURANCE COMPANY; HENRIJEAN; ILLINOIS NATIONAL INSURANCE COMPANY; NORTH STAR REINSURANCE COMPANY; AND NATIONAL CASUALTY INSURANCE COMPANY, RESPONDENTS, AND THE HONORABLE JAMES MCGIRR KELLY, UNITED STATES DISTRICT THE HONORABLE JUDGE FOR THE EASTERN DISTRICT OF PENNSYLVANIA, NOMINAL RESPONDENT MORGAN, LEWIS & BOCKIUS; REED SMITH SHAW & MCCLAY; SHANLEY & FISHER, P.C.; HUGHES HUBBARD & REED; MONTGOMERY MCCRACKEN WALKER & RHOADS; SKADDEN ARPS SLATE MEAGHER & FLOM; AND COOPERS & LYBRAND, INTERVENORS IN SUPPORT OF PETITIONERS. RHONE-POULENC RORER INC. AND ARMOUR PHARMACEUTICAL COMPANY, APPELLANTS, V. THE HOME INDEMNITY COMPANY, A NEW HAMPSHIRE CORPORATION, V. AETNA CASUALTY & SURETY INSURANCE; AIU INSURANCE COMPANY; AMERICAN CENTENNIAL INSURANCE COMPANY; BIRMINGHAM FIRE INSURANCE COMPANY; TRANSPORTATION INSURANCE COMPANY; FIRST STATE INSURANCE COMPANY; GRANITE STATE INSURANCE COMPANY; HARTFORD INSURANCE COMPANY; ILLINOIS NATIONAL INSURANCE CO.; INSCO, LTD; INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA; LEXINGTON INSURANCE COMPANY; MANHATTAN FIRE & MARINE INSURANCE COMPANY; MOTOR VEHICLE CASUALTY COMPANY; NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA; NEW ENGLAND REINSURANCE COMPANY; NEW HAMPSHIRE INSURANCE COMPANY; OLD REPUBLIC INSURANCE COMPANY; PACIFIC EMPLOYERS INSURANCE COMPANY; PANTRY PRIDE, INC.; PROMETHEAN INSURANCE, LTD.; PRUDENTIAL REINSURANCE COMPANY; PURITAN INSURANCE COMPANY; REVLON, INC; TWIN CITY INSURANCE COMPANY; THE LONDON MARKET COMPANIES; AND JOHN BARRINGTON HUME A REPRESENTATIVE OF UNDERWRITERS AT LLOYDS OF LONDON; AND REVLON, INC.; V. CITY INSURANCE COMPANY; DRAKE INSURANCE COMPANY; EXCESS INSURANCE COMPANY; HENRIJEAN; THE HOME INSURANCE COMPANY; PACIFIC EMPLOYER'S INSURANCE COMPANY; ROYAL INDEMNITY COMPANY; ZURICH INTERNATIONAL INSURANCE COMPANY; INSURANCE COMPANY OF NORTH AMERICA; NATIONAL UNION FIRE INSURANCE OF PITTSBURGH, PA; ALL CITY INSURANCE COMPANY; EMPLOYERS MUTUAL CASUALTY COMPANY; GIBRALTER CASUALTY COMPANY; LANDMARK INSURANCE COMPANY; NEW ENGLAND INSURANCE COMPANY; ROYAL INSURANCE COMPANY; REPUBLIC INSURANCE COMPANY; INTERNATIONAL INSURANCE COMPANY; PACIFIC INSURANCE COMPANY, LTD.; ATLANTA INTERNATIONAL INSURANCE CO.; CENTURY INDEMNITY COMPANY; LIBERTY MUTUAL INSURANCE COMPANY; TRANSPORTION INSURANCE COMPANY; MIDLAND INSURANCE COMPANY; PACIFIC INSURANCE COMPANY LTD.; ATLANTA INSURANCE COMPANY LTD.; CENTURY INDEMNITY COMPANY; LIBERTY MUTUAL INSURANCE; MIDLAND INSURANCE COMPANY; INTEGRITY INSURANCE COMPANY; UNION INDEMNITY INSURANCE COMPANY; TRANSIT CASUALTY COMPANY; ROYAL INSURANCE COMPANY; ROYAL INDEMNITY COMPANY; NEW ENGLAND INSURANCE COMPANY; INSURANCE COMPANY OF NORTH AMERICA; NORTH STAR REINSURANCE COMPANY; AND NATIONAL CASUALTY INSURANCE COMPANY, APPELLEES, MORGAN, LEWIS & BOCKIUS; REED SMITH SHAW & MCCLAY; SHANLEY & FISHER, P.C.; HUGHES HUBBARD & REED; MONTGOMERY MCCRACKEN WALKER & RHOADS; SKADDEN ARPS SLATE MEAGHER & FLOM; AND COOPERS & LYBRAND, INTERVENORS-APPELLANTS.

[6] ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA. (D.C. Civ. No. 88-9752).

[7] Stephen J. Mathes (Argued), William R. Herman, Hoyle, Morris & Kerr, One Liberty Place, Suite 4900, 1650 Market Street, Philadelphia, PA 19103, Attorneys for Appellants/Petitioners Rhone-Poulenc Rorer Inc. and Armour Pharmaceutical Company.

[8] Jeffrey B. Albert, Fox, Rothschild, O'Brien & Frankel, 2000 Market Street, 10th Floor, Philadelphia, PA 19103. James W. Christie, Christie, Pabarue, Mortensen and Young, 1880 Jfk Boulevard, 10th Floor, Philadelphia, PA 19103. Roy L. Reardon, James P. Barrett, Robert F. Cusumano (Argued), David J. Woll, Kevin G. Lauri, Simpson, Thacher & Bartlett, 425 Lexington Avenue, New York, NY 10017, Attorneys for Appellee/Respondent The Home Indemnity Company.

[9] H. Marc Tepper, Margolis, Edelstein & Scherlis, Sixth and Walnut Streets, The Curtis Center, 4th Floor, Philadelphia, PA 19106, Attorney for Appellees/Respondents Aiu Insurance Company, Birmingham Fire Insurance, Granite State Insurance Company, Illinois National Insurance Company, Lexington Insurance Company, National Union Fire Insurance Company of Pittsburgh, Pennsylvania, New Hampshire Insurance Company and Landmark Insurance Company.

[10] Joseph M. Oberlies, Connor & Weber, 2401 Pennsylvania Avenue, Suite 1c-47, Philadelphia, PA 19130, Attorney for Appellee/Respondent American Centennial Insurance Company.

[11] Richard B. Marrin, Ford, Marrin, Esposito & Witmeyer, 88 Pine Street, Wall Street Plaza, 23rd Floor, New York, NY 10005. William G. Scarborough, Stradley, Ronon, Stevens & Young, 2600 One Commerce Square, Philadelphia, PA 19103, Attorneys for Appellee/Respondent Transport Insurance Company.

[12] E. Douglas Sederholm (Argued), Richard J. Bortnick, White and Williams, One Liberty Place, Suite 1800, 1650 Market Street, Philadelphia, PA 19103, Attorneys for Appellees/Respondents Pacific Employers Insurance Company, Century Indemnity Company and Insurance Company of North America.

[13] Walter A. Stewart, Manta & Welge, 2005 Market Street, One Commerce Square, 37th Floor, Philadelphia, PA 19103, Attorney for Appellees/Respondents Liberty Mutual Insurance Company, Liberty Mutual Insurance and Royal Indemnity Company.

[14] Edward M. Dunham, Jr., Miller, Dunham, Doering & Munson, 1515 Market Street, 13th Floor, Philadelphia, PA 19102, Attorney for Appellee/Respondent Aetna Casualty & Surety Company.

[15] Susan M. Danielski, Cozen & O'Connor, The Atrium, 1900 Market Street, Philadelphia, PA 19103, Attorney for Appellees/Respondents Pantry Pride Inc. and Revlon Inc.

[16] Thomas C. Delorenzo, Marshall, Dennehey, Warner, Coleman & Goggin, 1845 Walnut Street, Philadelphia, PA 19103, Attorney for Appellees/Respondents Prudential Reinsurance Company and Gibraltar Casualty Company.

[17] David F. Abernethy, Drinker, Biddle & Reath, 1345 Chestnut Street, Philadelphia National Bank Building, Philadelphia, PA 19107-3496, Attorney for Appellee/Respondent International Insurance Company.

[18] Ronald P. Schiller, Piper & Marbury, Two Penn Center Plaza, Suite 1500, Philadelphia, PA 19102, Attorney for Appellee/Respondent North Star Reinsurance Company.

[19] Thomas M. Kittredge (Argued), Morgan, Lewis & Bockius, 2000 One Logan Square, Philadelphia, PA 19103, Attorney for Intervenor Morgan, Lewis & Bokius.

[20] Kerry A. Kearney, Reed Smith Shaw & McClay, Mellon Square, 435 Sixth Avenue, Pittsburgh, PA 15219, Attorney for Intervenor Reed Smith Shaw & McClay.

[21] Raymond M. Tierney, Jr., Susan Sharko, Shanley & Fisher, 131 Madison Avenue, Morristown, NJ 07962, Attorneys for Intervenor Shanley & Fisher.

[22] Jeff H. Galloway, Hughes, Hubbard & Reed, One Battery Park Plaza, New York, NY 10004, Attorney for Intervenor Hughes, Hubbard & Reed.

[23] Jeremy D. Mishkin, Montgomery, McCracken, Walker & Rhoads, Three Parkway, 20th Floor, Philadelphia, PA 19103, Attorney for Intervenor Montgomery, McCracken, Walker & Rhoads.

[24] ED Yodowitz, Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, NY 10022, Attorney for Intervenor Skadden, Arps, Slate, Meagher & Flom.

[25] Matthew J. Broderick, Dechert Price & Rhoads, 4000 Bell Atlantic Tower, 1717 Arch Street, Philadelphia, PA 19103, Attorney for Intervenor Coopers & Lybrand.

[26] Before: Mansmann, Lewis, Circuit Judges McKELVIE, District Judge*

[27] The opinion of the court was delivered by: Mckelvie

[28] McKELVIE, District Judge.

[29] In this insurance coverage case, the district court has ordered the insureds, their attorneys and their accountants to produce documents that would normally be protected from disclosure by the attorney client privilege, by the accountant client privilege, or as attorney work product. The documents to be produced were created before the insureds purchased coverage, and contain evaluations of the insureds' potential liability to consumers of their products.

[30] The district court found the information in the documents relevant to matters in issue in the action in that it may tend to show whether or not the insureds expected or intended the claims for which they seek coverage. The court held the insureds had waived any right to maintain confidentiality of these documents by filing this action for coverage and by putting in issue the matter of their knowledge of facts relating to the claims.

[31] The insureds have appealed from that order. They have also filed a petition for a writ of mandamus directing the district court to vacate and reverse the order. The six law firms and the accounting firm that have been subpoenaed to produce documents have moved to intervene and join in the insureds' requests for relief.

[32] For the reasons set out below, we will grant the petitioners' request for relief and issue a writ of mandamus to the district court and direct it to vacate its order that these documents be produced.

[33] I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

[34] A.

[35] The Parties and the Nature of the Proceedings...

[36] Rhone-Poulenc Rorer Inc. is the successor to the Rorer Group Inc. In the fall of 1985, soon after Pantry Pride, Inc. had acquired Revlon, Inc., Rorer entered into an agreement with Pantry Pride to purchase Revlon's ethical pharmaceutical businesses, including USV and Armour Pharmaceutical Company. One of Armour's products was Factorate, a blood clotting product processed by Armour and sold principally for use by hemophiliacs.

[37] Rorer formally acquired Armour on January 7, 1986. On April 21, 1986, Armour was named in the first of a series of lawsuits filed by individuals who claimed Factorate had infected them with the Human Immunodeficiency Virus (HIV), which is thought to be the cause of Acquired Immunodeficiency Syndrome (AIDS). To date, Armour has been joined as a defendant in more than two hundred AIDS-related cases.

[38] Rorer had purchased a general liability insurance policy from The Home Indemnity Company on December 31, 1985, and looked to it for coverage for the claims against Armour. In addition, it sought coverage under a blanket excess policy it purchased from Pacific Employers Insurance Company on July 29, 1986. Home denied coverage for these AIDS-related claims.

[39] In December of 1988, Rorer and Armour brought this suit in the United States District Court for the Eastern District of Pennsylvania. In the complaint, they allege they are insureds under a primary comprehensive general liability insurance policy provided by The Home Indemnity Company. They contend Home has failed and refused to honor its obligations to defend and indemnify them from liability for the AIDS-related claims. They contend the district court has subject matter jurisdiction based on diversity of citizenship of the parties under 28 U.S.C. Section 1332. Rhone-Poulenc and Armour seek, among other things, a declaration that Home accepted coverage for these claims.

[40] Home answered the complaint by denying that Rhone-Poulenc Rorer and Armour are entitled to the relief sought. In addition, it has asserted a number of affirmative defenses and has filed a counterclaim for a declaration that it does not owe a duty to indemnify or defend the plaintiffs for the claims identified in the complaint. Home has also filed a third party complaint against Pantry Pride, Inc., Revlon, Inc. and a number of insurance companies, including Pacific Employers Insurance Company. Certain of the third-party defendant insurers have filed fourth-party complaints against other insurers.

[41] One of Home and Pacific Employers' affirmative defenses is that the claims identified in the complaint are excluded from coverage because they do not result from "occurrences." The insurers agreed to indemnify and defend against claims relating to bodily injury that is caused by an occurrence. An occurrence is defined in the Home policy as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insureds." The insurers argue that the alleged transmission of HIV from Factorate was known when the insurance policies were purchased, that the resulting injuries were not "neither expected nor intended," and that the resulting claims are not insured.

[42] A second affirmative defense asserted by the insurers is that Rorer and Armour wrongfully obtained the coverage by intentionally failing to disclose their knowledge of the potential for these claims. A third defense is that Armour sold the products knowing that they would create an unreasonable risk of harm to others and that the resulting claims are, therefore, uninsurable.

[43] B.

[44] The Discovery Sought by Home and Pacific Employers

[45] In connection with these defenses, Home and Pacific Employers have sought discovery from the plaintiffs on what information they may have had prior to purchasing the policies that would have suggested that Armour's products might transmit the HIV virus and that Armour would be subject to claims for injuries suffered as a result of transmitting that virus.

[46] During a September, 1992 deposition, Robert E. Cawthorn, Rhone-Poulenc Rorer's chairman and chief executive officer, testified to the investigation and analysis undertaken by Rorer in connection with its decision to purchase Armour. Cawthorn testified that at the time Rorer was negotiating to purchase Armour he and others at Rorer were aware of reports in the press that blood products might have transmitted the AIDS virus and had sought and obtained advice from counsel with regard to liabilities for claims alleging damages for transmitting the virus. He testified:

[47] We had got the advice of outside counsel on the potential legal liabilities in this area and had learned that blood products are not considered in most states as products, per se, and are not subject to the same liability laws as regular pharmaceutical products. We had learned that there was some precedence in terms of transmission of the hepatitis virus which these plasma products had transmitted to hemophiliacs. And that, in fact, my recollection is we were told that there had been no successful cases against the fractionaters and hepatitis because of the particular legal situation. And the opinion was that that should hold, also, for the AIDS virus.

[48] After the deposition, Home and Pacific Employers moved for an order extending the time for completion of discovery and compelling Rhone-Poulenc and Armour to produce all evaluations of their potential liability for AIDS-related claims, including any documents confirming the advice described by Cawthorn. In response to the motion, Rhone-Poulenc and Armour produced copies of four documents, subject to an agreement with the insurers that the production would not waive any privilege with respect to any other communication.

[49] The first of the four documents produced is the minutes of the November 26, 1985, meeting of the Board of Directors of Rorer Group Inc. During this meeting the Board considered the Armour acquisition. Those minutes show that John W. Eckman chaired the meeting, and that Cawthorn and Rorer's general counsel, Richard H. Lange, were present. Also present were representatives of the accounting firm of Coopers & Lybrand and the investment banking firm of First Boston Corporation, as were attorneys from the law firms of Hughes, Hubbard & Reed; Skadden, Arps, Slate, Meagher & Flom; and Montgomery, McCracken, Walker & Rhoads. The following summary is included in the minutes:

[50] In response to a question by Mr. Eckman concerning Armour's product liability exposure, Mr. Lange said that Armour's products are not regarded as drug products, with associated strict liability, and that it has been necessary to prove negligence by the manufacturer as a basis for liability. In addition, many states have legislation limiting liability for blood products. There have been only about six to eight AIDS contamination suits to date in the industry, none of them against Armour. Revlon has carried an umbrella excess liability policy of $60 million, and the benefits of a substantial portion of this coverage will be available for USV/Armour product claims arising during the pre-acquisition period.

[51] The second document produced by the insureds is a copy of an April 10, 1986, letter from John S. Allee, an attorney with Hughes, Hubbard & Reed, to Richard Lange, forwarding to Lange a copy of the third document produced, a memorandum by Hughes Hubbard titled "Survey of Blood Immunity Statutes and Case Law." This survey provides a state-by-state analysis of the law applicable to entities engaged in the preparation, distribution and use of human blood and blood products.

[52] The fourth document is a copy of an April 18, 1986, letter from Allee to Lange following up on the April 10 letter and suggesting steps Lange should consider as a part of his risk assessment and reduction efforts. In producing a copy of this seven page letter, Rhone-Poulenc and Armour redacted approximately one half of the typed material on the fifth page and the entire sixth page, and , 15 U.S.P.Q.2d 1048, 1051 (E.D.Pa. 1989) (client waived privilege by asserting reliance upon advice of counsel as an essential element of his defense).

[53] In these cases, the client has made the decision and taken the affirmative step in the litigation to place the advice of the attorney in issue. Courts have found that by placing the advice in issue, the client has opened to examination facts relating to that advice. Advice is not in issue merely because it is relevant, and does not necessarily become in issue merely because the attorney's advice might affect the client's state of mind in a relevant manner. The advice of counsel is placed in issue where the client asserts a claim or defense, and attempts to prove that claim or defense by disclosing or describing an attorney client communication. North River Insurance Company v. Philadelphia Reinsurance Corporation, 797 F. Supp. 363, 370 (D.N.J. 1992); Pittston Company v. Allianz Insurance Co., 143 F.R.D. 66, 71 (D.N.J. 1992).

[54] Thus, in a patent suit, where an infringer is alleged to have acted willfully, the advice of the infringer's lawyer may be relevant to the question of whether the infringer acted with a willful state of mind. However, the advice of the infringer's counsel is not placed in issue, and the privilege is not waived, unless the infringer seeks to limit its liability by describing that advice and by asserting that he relied on that advice. When the advice of counsel is asserted as a defense by the infringer, the patent owner may explore facts that would make it more probable than not that the infringer did not rely in good faith on that advice, including for example, what the advice was, when it was given, whether the alleged infringer's conduct suggests he had relied on the advice and whether he had knowledge of facts that would have led him to believe it would not be reasonable to rely on that advice. See, e.g., Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983).

[55] Finding a waiver of the attorney client privilege when the client puts the attorney's advice in issue is consistent with the essential elements of the privilege. That is, in leaving to the client the decision whether or not to waive the privilege by putting the attorney's advice in issue, we provide certainty that the client's confidential communications will not be disclosed unless the client takes an affirmative step to waive the privilege, and we provide predictability for the client concerning the circumstances by which the client will waive that privilege. This certainty and predictability as to the circumstances of a waiver encourage clients to consult with counsel free from the apprehension that the communications will be disclosed without their consent.

[56] Some decisions have extended the finding of a waiver of the privilege to cases in which the client's state of mind may be in issue in the litigation. These courts have allowed the opposing party discovery of confidential attorney client communications in order to test the client's contentions. See, e.g., Byers v. Burleson, 100 F.R.D. 436 (D.D.C. 1983); Hearn v. Rhay, 68 F.R.D. 574 (E.D.Wash. 1975). These decisions are of dubious validity. While the opinions dress up their analysis with a checklist of factors, they appear to rest on a conclusion that the information sought is relevant and should in fairness be disclosed. Relevance is not the standard for determining whether or not evidence should be protected from disclosure as privileged, and that remains the case even if one might conclude the facts to be disclosed are vital, highly probative, directly relevant or even go to the heart of an issue.

[57] As the attorney client privilege is intended to assure a client that he or she can consult with counsel in confidence, finding that confidentiality may be waived depending on the relevance of the communication completely undermines the interest to be served. Clients will face the greatest risk of disclosure for what may be the most important matters. Furthermore, because the definition of what may be relevant and discoverable from those consultations may depend on the facts and circumstances of as yet unfiled litigation, the client will have no sense of whether the communication may be relevant to some future issue, and will have no sense of certainty or assurance that the communication will remain confidential.

[58] A party does not lose the privilege to protect attorney client communications from disclosure in discovery when his or her state of mind is put in issue in the action. While the attorney's advice may be relevant to the matters in issue, the privilege applies as the interests it is intended to protect are still served by confidentiality.

[59] It appears that one matter in issue in this case is whether or not the insureds knew, before they obtained coverage, that Armour's pharmaceutical products were causing the transmission of HIV. Rhone-Poulenc has not waived the attorney client privilege by filing this lawsuit or by placing its state of mind in issue. As Rhone-Poulenc and Armour have not interjected the advice of counsel as an essential element of a claim in this case, the district court erred in affirming the magistrate judge's decision and in finding they must disclose documents relating to the AIDS-related evaluation that would otherwise be protected from disclosure by the attorney client privilege. Accord, Remington Arms Co. v. Liberty Mut. Ins. Co., 142 F.R.D. 408 (D.Del. 1992).

[60] In summary, we emphasize that our holding is not meant to preclude disclosure of the knowledge the insureds possessed at the time they obtained coverage. Facts are discoverable, the legal conclusions regarding those facts are not. A litigant cannot shield from discovery the knowledge it possessed by claiming it has been communicated to a lawyer; nor can a litigant refuse to disclose facts simply because that information came from a lawyer. Rather than separately review each subpoena served on the law firms, it should suffice to say that each subpoena seeks the production of both privileged and discoverable documents. Because some documents may contain both discoverable and privileged information it would be appropriate, if not too burdensome, to redact them accordingly. See Bogosian v. Gulf Oil Corp., 738 F.2d 587, 595 (3d Cir. 1984); In re Martin Marietta Corp., 856 F.2d 619, 626 (4th Cir. 1988). On remand the insurers may redraft the subpoenas in a manner consistent with this opinion.

[61] C.

[62] Whether Rhone-Poulenc and Armour have Waived the Accountant Client Privilege by Filing this Suit to Establish Insurance Coverage

[63] In affirming the magistrate judge's decision approving the subpoena served on Coopers & Lybrand, the district court did not speak to the accountant client privilege recognized under Pennsylvania law. *fn3 On remand, the district court should determine the applicability of the accountant client privilege, and whether that privilege has been waived. If there has been a waiver, the district court should then determine the extent of that waiver. The district court should also examine the other objections to the subpoena.

[64] D.

[65] Whether Rhone-Poulenc and Armour have Waived the Attorney Client Privilege by Failing to Object to Discovery Requests and by Failing to Serve a Privilege Log

[66] In their motion to compel, Home and Pacific Employers also argued that Rhone-Poulenc and Armour had wrongfully failed to object to the disclosure of documents in their response to the insurers' discovery requests, and had wrongfully failed to serve a list identifying the documents they were withholding. Home and Pacific Employers sought an order from the magistrate judge finding that by failing to object and to supply a list of documents being withheld, Rhone-Poulenc and Armour had waived the protection of the attorney client privilege.

[67] It appears from the transcript of the April 13, 1993, hearing on their motion to compel that the magistrate judge did look to the plaintiffs' failure to list privileged documents as a basis for granting the insurers' motion to extend the time for discovery. The magistrate judge did not, however, find that the insureds' failure to object and to provide a list of privileged documents was a waiver of the privilege. The failure to object was not a basis for his decision to order these documents produced.

[68] As we noted above, in connection with the appeal to the district court from the magistrate judge's decision, Home and Pacific Employers abandoned this waiver argument after Rhone-Poulenc put on the record documents that suggest Home had agreed to defer the insureds' obligation to respond to certain discovery requests. In their briefing on the petition and this appeal, Home and Pacific Employers have sought to reintroduce this issue into the case and have suggested that the magistrate judge and district court concluded that a major factor warranting expedited disclosure of these documents was the petitioners' concealment of the documents. That argument is neither consistent with the facts nor supported by the record. Therefore, we find that the magistrate judge was correct in disregarding the failure to object.

[69] E.

[70] The Extent of Rhone-Poulenc and Armour's Waiver of the Attorney Client Privilege by Cawthorn's Testimony and the Disclosure of the Hughes Hubbard Correspondence

[71] Home and Pacific Employers also argued to the magistrate judge that Rhone-Poulenc and Armour had waived the protection of the privilege for the AIDS-related evaluation documents when Cawthorn testified about the investigation and when Rhone-Poulenc produced the First Hughes Hubbard report and all but a portion of the second. The magistrate judge apparently agreed, at least to the extent that he found in his March 30, 1993, memorandum opinion that in fairness the selective disclosure of privileged communications required disclosure of the whole picture and ordered the disclosure of the redacted portion of the second Hughes Hubbard letter. Rhone-Poulenc and Armour did not appeal that decision to the district court.

[72] Neither the magistrate judge nor the district court relied on this waiver by disclosure as a basis for granting the insurers' motion to compel the production of the documents relating to the AIDS-related evaluation. As this issue was never presented to the district court, we need not address its merits.

[73] F.

[74] Whether Rhone-Poulenc and Armour have Waived the Protection From Disclosure for Their Attorneys' Work Product

[75] There are numerous substantive and procedural errors with the subpoenas approved by the magistrate judge. In granting the petitioners the relief they seek and in finding they are not obligated to produce the documents identified in the subpoenas, we will not address each of these issues. Two principal matters lead us to the conclusion that the subpoenas should not have been approved or issued. First, it appears the magistrate judge and the district court's decisions to approve the subpoenas were based on their conclusion that Rhone-Poulenc and Armour's privilege to protect the disclosure of confidential attorney client communications had been waived as the insureds' state of mind was in issue in the action. As noted above, we have concluded that these decisions constituted an error of law.

[76] Second, it appears the magistrate judge and the district court had concluded that a finding that the insureds had waived the attorney client privilege necessarily meant they had also waived the protection from disclosure for the work product of the firms that had represented and advised them. For a number of reasons, one does not lead to the other. As a factual matter, if the state of mind of the insureds is in issue, papers reflecting the work product of counsel that were not shared with or communicated to the clients are not relevant. Work product that was not communicated to the client cannot affect the client's state of mind. See Thorn EMI North America, Inc. v. Micron Technology, Inc., 837 F. Supp. 616 (D.Del. 1993). In approving the subpoenas and denying the motions to quash, the court failed to determine whether the documents sought were relevant to the matters in issue or were reasonably calculated to lead to the discovery of admissible evidence.

[77] More significantly, in ordering the broad range of documents produced, the magistrate judge and the district court failed to consider that the protection stemming from the work product doctrine belongs to the professional, rather than the client, and that efforts to obtain disclosure of opinion work product should be evaluated with particular care. See Fed. R. Civ. P. 26(b)(3); Hickman v. Taylor, 329 U.S. 495, 509, 67 S. Ct. 385, 91 L. Ed. 451 (1947) ("Not even the most liberal of discovery theories can justify unwarranted inquiries into the files and the mental impressions of an attorney."); Haines v. Liggett Group Inc., 975 F.2d at 94 ("This court has accorded an attorney's work product almost absolute protection from discovery."); In re Grand Jury Proceedings (FMC Corp.), 604. F.2d 798, 801 n. 4 (3d Cir. 1979) (right to assert the privilege belongs to the attorney).

[78] We find the district court erred in denying the motions to quash these subpoenas. While the subpoenas may identify certain documents that are discoverable, as drafted and served they appear to seek the production of documents that are protected from disclosure as the work product of attorneys or by the attorney client privilege.

[79] While Rhone-Poulenc and Armour's disclosure of the Hughes Hubbard reports may provide a basis for finding that certain of the documents identified by the subpoenas are discoverable, it appears that the subpoenas are generally directed to documents for which there is no basis for believing there had been or could be a waiver by the clients.

[80] III. HOLDING(S)

[81] We find that the district court erred in affirming the magistrate judge's decision finding Rhone-Poulenc and Armour had waived the attorney client privilege by putting their state of mind in issue, and erred in denying the motions to quash the subpoenas served on the law firms. The district court should reconsider its decision not to quash the subpoena served on the accounting firm. We will dismiss the appeal. We will issue a writ of mandamus, and direct the district court to vacate its Order of August 6, 1993, and to quash the subpoenas served on the law firms. We will remand the case for further proceedings.

Opinion Footnotes

[82] * Hon. Roderick R. McKelvie, United States District Judge for the District of Delaware, sitting by designation

[83] 1 Rule of Evidence 501 reads:

[84] Rule 501. General Rule

[85] Except as otherwise required by the Constitution of the United States or provided by Act of Congress or in rules prescribed by the Supreme Court pursuant to statutory authority, the privilege of a witness, person, government, State, or political subdivision thereof shall be governed by the principles of the common law as they may be interpreted by the courts of the United States in the light of reason and experience. However, in civil actions and proceedings, with respect to an element of a claim or defense as to which State law supplies the rule of decision, the privilege of a witness, person, government, State, or political subdivision thereof shall be determined in accordance with State law.

[86] Rule of Evidence 1101(c) reads:

[87] (c) Rule of privilege.

[88] The rule with respect to privileges applies at all stages of all actions, cases, and proceedings.

[89] 2 Pennsylvania has codified the attorney-client privilege at 42 Pa.C.S.A. Section 5928 (Purdon 1982) as follows:

[90] In a civil matter counsel shall not be competent or permitted to testify to confidential communications made to him by his client, nor shall the client be compelled to disclose the same, unless in either case this privilege is waived upon the trial by the client.

[91] 3 Pennsylvania has codified the accountant client privilege at 63 Pa.C.S.A. Section 9.11a (Purdon 1994) as follows:

[92] Except by permission of the client or person or entity engaging him . . . a certified public accountant . . . shall not be required to, and shall not voluntarily, disclose or divulge information of which he may have become possessed relative to and in connection with any professional services as a certified public accountant. . . . The information derived from or as the result of such professional services shall be deemed confidential and privileged[.]

Copyright (c) 1994 - VersusLaw Inc. Reproduced with permission of Joe Acton, CEO, VersusLaw, Inc.
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