American Nat. Bank and Trust Co. v. Equitable Life
| Decision Date | 04 May 2005 |
| Docket Number | No. 04-3120.,No. 04-2992.,04-2992.,04-3120. |
| Citation | 406 F.3d 867 |
| Parties | AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, as Trustee f/b/o Emerald Investments LP; and Emerald Investments LP, an Illinois Partnership, Plaintiffs-Appellees/Cross-Appellants, v. EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, Defendant-Appellant/Cross-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Charles S. Bergen, George R. Dougherty (argued), Grippo & Elden, Chicago, IL, for Plaintiffs-Appellees/Cross-Appellants.
Michele Odorizzi (argued), Mayer, Brown, Rowe & Maw, Chicago, IL, for Defendant-Appellant/Cross-Appellee.
Before RIPPLE, MANION, and KANNE, Circuit Judges.
The Equitable Life Assurance Society of the United States invoked the attorney-client privilege to protect a large number of documents during discovery and used a privilege log to inform its opponent, Emerald Investments LP, of the documents being withheld. On Emerald's motion, however, a magistrate judge struck Equitable's entire privilege log as a discovery sanction because Equitable left five non-privileged documents on its log, which included more than 400 documents. The sanction forced Equitable to disclose all the log documents irrespective of whether the attorney-client privilege actually applied. Equitable filed objections, but the district court overruled them. After the action was dismissed, Equitable appealed the sanction. Because the imposition of the sanction constitutes an abuse of discretion, we reverse the sanction and remand the matter with instructions for Emerald to return the pertinent documents to Equitable. We affirm, on the other hand, the district court's denial of Emerald's separate motion for additional discovery sanctions, in the form of attorneys' fees and costs, against Equitable.
Relying on diversity jurisdiction, Emerald sued Equitable in the Northern District of Illinois, alleging a number of state contract and tort claims. There are additional parties on both sides, but there is no need in this appeal to discuss them. Equitable and Emerald entered into a contract under which Equitable sold annuities to Emerald. Emerald then traded these annuities with third parties. Displeased, Equitable then took steps to restrict Emerald's sub-trading. The core dispute was whether the contract gave Emerald the unlimited right to engage in such subtrading. This appeal, however, only concerns a discovery sanction and not the underlying claims.
The district court referred all discovery matters to a magistrate judge under Federal Rule of Civil Procedure 72(a). The discovery proceedings that form the basis of this appeal are cumbersome, but the detailed discussion of those proceedings that follows is a prerequisite to explaining why and how the magistrate judge (and thereby the district court) abused his discretion in sanctioning Equitable.
During discovery, Equitable produced more than 20,000 documents but initially withheld approximately 750 documents, asserting the attorney-client privilege. Equitable submitted a privilege log listing the withheld documents. Based on Equitable's descriptions of the withheld documents, Emerald challenged the privilege log, suspecting that some documents were not privileged. Specifically, on December 6, 2001, Emerald moved to strike the log and requested that all non-privileged documents on the log be disclosed. At a hearing on December 11, 2001, the magistrate judge expressed concern about having to review a large number of documents in camera,1 and Equitable conceded the need to improve its document descriptions and revise the log.
Equitable submitted an amended privilege log on December 27, 2001. Unsatisfied, Emerald moved, on January 4, 2002, to strike the amended log and to compel production of all non-privileged documents on the log. Shortly before the January 9, 2002, hearing on the motion, Equitable volunteered a second-amended privilege log to address Emerald's concerns. In these logs, Equitable was tackling privilege issues involving in-house counsels, their notes, their e-mails, and fine line distinctions between legal and nonlegal (i.e., business) advice. At the hearing, Emerald balked at the second-amended log, and the magistrate judge required Equitable to produce a third-amended privilege log.
Five days later, Equitable submitted the third-amended log. At a status hearing on January 18, 2002, Emerald informed the magistrate judge that it had some qualms about the third-amended log but reported that it was pleased with Equitable's willingness to work with Emerald to resolve its remaining concerns. The magistrate judge therefore instructed the parties to continue to meet and confer on the matter. By this juncture, Equitable had reduced the log to some 465 entries, about a half box of documents.
The spirit of cooperation was short-lived. At a hearing on February 8, 2002, Equitable sought the return of certain documents that it had inadvertently produced, i.e., privileged documents mistakenly released to Emerald. That narrow issue spilled over into a larger debate about Equitable's third-amended log and about when e-mails to an in-house counsel are protected by the attorney-client privilege. One document sparked the debate (and is illustrative of the privilege issues that led to this appeal). The document was an e-mail to an in-house counsel recounting a high-level meeting between Equitable and Emerald. Equitable viewed the e-mail as a confidential communication seeking legal advice. The magistrate judge disagreed, ruling that the document was not privileged, and, as a result, denied the request for the document to be returned. Emerald seized this opportunity to raise concerns about Equitable's ability to evaluate the other documents still listed on the third-amended log. Emerald expressed a lack of confidence in Equitable and its log as a whole. However, at the previous hearing, the magistrate judge had again expressed reluctance at a full, document-by document, in camera review. Emerald thus asked the magistrate judge to review, not the half box of documents that remained, but rather a sample of the documents in camera to check and see if all non-privileged documents had been purged. Under the proposal, the magistrate judge would review every fifteenth document on the log until he reached a total of ten documents. The magistrate judge adopted the proposal.
The magistrate judge announced his results on March 20, 2002, in a written opinion. Equitable properly claimed the privilege in six of the ten documents and in portions of two others. However, the magistrate judge also found that two full documents were not privileged. The ten-document sample was composed of e-mails, handwritten notes, and the like, involving in-house counsels. The magistrate judge closely parsed these documents. For example, he found that one e-mail—authored by an in-house counsel and sent to several Equitable employees, including two other in-house counsels—was privileged but that nine handwritten words by an in-house counsel on a copy of the e-mail were not privileged because it appeared that the handwritten words were not shared with anyone and did not concern legal advice. The magistrate judge then ordered Equitable to disclose the non-privileged material.
At another status hearing on March 27, 2002, Emerald made an oral motion to strike the third-amended log and to order Equitable to disclose each document—non-privileged as well as privileged—on the log. Emerald argued for this global disclosure by again claiming that the log as a whole was unacceptably tainted by erroneous assertions of privilege, citing the February 8 and March 20 rulings for support. To further bolster its proposal, Emerald allied itself with the magistrate judge's previously expressed reluctance for full in camera review, claiming that inspecting all the documents would be an "outrageous task." R.181 at 13. The magistrate judge declined global disclosure but required Equitable to produce a fourth-amended privilege log, encouraging Equitable to reduce the number of log entries. However, with an eye on the future, the magistrate judge agreed with Emerald's comments about in camera review and stated: "I don't think I'm going to be prepared to go through 400 documents." Id. at 17.
Equitable submitted the fourth-amended log on April 19, 2002, and disclosed a number of additional documents, thereby reducing the number of log entries to 432. Unappeased, Emerald immediately began insisting on a global disclosure of each document on the log at the next status hearing on April 22, 2002. Emerald again claimed a lack of confidence in the log and orally moved to strike it based upon Equitable's past performance. Emerald's counsel requested additional sampling, telling the magistrate judge: "[O]bviously, I don't think you need or should sit down and go through 432 documents." R.147 at 11. To which the magistrate judge responded: "Well, I'm not going to." Id. Equitable countered Emerald's position by arguing that it should not be forced to disclose indisputably privileged material (such as the documents from the March 20 opinion that the magistrate judge found to be completely privileged) simply because the magistrate judge disagreed with Equitable's good-faith assertions of the privilege for another document. The magistrate judge, wanting to see if Emerald had concrete problems with the new log (as opposed to problems with Equitable's past performance), declined to sample or strike the log at that juncture and instead required both sides to confer with each other on any specific problems identified in the new log and report back.
At yet another status hearing on May 9, 2002, Emerald reported concerns over a number of entries on the fourth-amended log. Realizing that, in light of his prior comments, the magistrate judge was...
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