Gutter v. E.I. Dupont De Nemours

• Decision Date: 20 September 2000
• Docket Number: No. 95-2152-CIV.,95-2152-CIV.
• Citation: 124 F.Supp.2d 1291
• Parties: Steven J. GUTTER, et al., Plaintiffs, v. E.I. DUPONT DE NEMOURS, et al., Defendants.
• Court: U.S. District Court — Southern District of Florida

Page 1291

124 F.Supp.2d 1291

Steven J. GUTTER, et al., Plaintiffs, v. E.I. DUPONT DE NEMOURS, et al., Defendants.

No. 95-2152-CIV.

United States District Court, S.D. Florida.

September 20, 2000.

COPYRIGHT MATERIAL OMITTED

Oliver Burt, Burt & Pucillo, LLP, West Palm Beach, FL, Bruce E. Gerstein, Noah Silverman, Garwin, Bronzaft, Gerstein & Fisher, New York City, Marvin Miller, Miller, Faucher, Chertow, Cafferty and Wexler, Chicago, IL, Elwood S. Simon, John Zucarrini, Bloomfield, MI, for plaintiffs.

Angelika Hunnefeld, Greenberg, Traurig, Miami, FL, David Boies, Boies & Schiller, Armonk, NY, Darin McAtte, Evan R. Chesler, Crabath, Swaine & Moore, New York City, Thomas Scott, Edward Moss, Eileen Tilghman, Shook, Hardy & Bacon, LLP, Miami, FL, A. Stephens Clay, James Bogan, III, C. Allen Garrett, Jr., Kilpatrick, Stockton, LLP, Atlanta, GA, for defendants.

ORDER AFFIRMING REPORTS AND RECOMMENDATIONS RE: CRIME/FRAUD EXCEPTION

GOLD, District Judge.

I. Introduction

THIS CAUSE is before the court upon the parties' objections to the Special Master's Reports and Recommendations Re: the Crime-Fraud Exception [D.E. 363 & 367]. On April 28, 2000, the court heard oral argument upon the objections to the Special Master's reports and recommendations regarding the crime fraud exception¹ and upon Plaintiff's motion for attorney's fees and costs. This order disposes of the objections to the reports and recommendations. The effect of this Order is to remove the attorney-client and work product² privileges with respect to 280 documents listed on Defendants' January 17, 1997 partial preliminary privilege log [D.E. # 192]. The documents identified in the Log fit into three general categories: (i) communications between DuPont and Alta relating to the testing and analysis performed in the Bush Ranch and/or Kawamata actions; (ii) subsequently prepared, internal DuPont documents which refer to prior communications between DuPont and Ala regarding the Bush Ranch and/or Kawamata soils tests, and (iii) documents prepared in subsequent Benlate actions where Alta's testing in the Bush Ranch and/or Kawamata cases was at issue. A final ruling on the issue of attorney's fees related to the crime/fraud hearings will follow shortly.

Defendants E.I. du Pont de Nemours and Company and Edgar S. Woolard, Jr. (collectively, "DuPont") have asserted the following five objections to the Special Master's Reports and Recommendations: (1) the Special Master applied an erroneous legal standard and burden of proof; (2) the theories suggested by the Special Master are based on erroneous principles of imputed knowledge; (3) the Special Master relied on theories of possible fraud that failed to demonstrate that the client intended or even contemplated any fraud; (4) the eighteen documents at issue in this appeal were not prepared or used in furtherance of theories of fraud at issue in this case; and (5) it was error to recommend unsealing the transcript from the crime/fraud hearing. Plaintiff responded and also asserted additional errors in: (1) the Special Master's ruling that the plaintiffs could not take discovery regarding whether Dupont was actually denied the opportunity to present evidence at the Rule 60(b) hearing in Hawaii; (2) the Special Master's finding that plaintiff may not use evidence developed in the crime fraud hearings for the remainder of the case; and (3) the Special Master's finding that Dupont need not produce certain documents that were listed on another Dupont privilege log that was not part of the crime-fraud motion.

After careful consideration of the parties' arguments, the relevant case law, and the record as a whole, the court concludes that the recommendation that the transcript of the crime/fraud hearing should be unsealed should be set aside, but that all of the Special Master's other reports and recommendations should be affirmed.

II. Factual and Procedural Background

This case is a federal securities law class action lawsuit, filed on September 29, 1995, and brought by plaintiff on behalf of himself and all other persons who purchased E.I. Dupont de Nemours common stock during the period from June 19, 1993 to January 27, 1995, inclusive (the "Class Period").³ Plaintiff alleges that DuPont and its former CEO, Defendant Edgar J. Woolard, Jr., violated §§ 10(b) and 20(a) of the Securities Exchange Act of 1934, by concealing and misrepresenting material facts regarding the likelihood and magnitude of DuPont's potential liability in connection with thousands of product liability lawsuits regarding a DuPont agricultural product called Benlate.

In order to understand the nature of the issues involved in the crime/fraud exception motion that forms the basis for this Order, it is necessary to consider the background litigation that led to the commencement of this case.

In mid-1993, the United States District Court, Middle District of Georgia, Elliot, J., heard the first Benlate case to proceed to trial in the United States. That action was entitled Bush Ranch v. Du Pont. The primary issue at trial was whether Benlate, a fungicide manufactured by DuPont and sold to the plaintiffs for use in their nurseries, was contaminated with highly toxic herbicides known as solfonylureas ("SUs"). As part of their preparation for trial, DuPont retained a sophisticated and specialized lab called Alta Analytical Labs, Inc. ("Alta") to analyze soil samples from the Bush Ranch plaintiffs' premises for the presence of SUs. After the case was submitted to the jury, the plaintiffs in the Bush Ranch litigation offered to settle their claims, and DuPont agreed. Accordingly, on August 16, 1993, the plaintiffs in the Bush Ranch litigation voluntarily dismissed their claims with prejudice.

After the settlement, the plaintiffs in another Benlate trial against DuPont, Kawamata Farms v. DuPont, Civil Action No. 91-437 (Kona) and 92-247K (Kona), Circuit Court of the Third Circuit, State of Hawaii, requested documents related to the testing of Benlate from the Bush Ranch litigation. DuPont resisted, but eventually produced the documents pursuant to a court order. Among the documents produced were some of the Alta documents, which DuPont had not produced in the Bush Ranch litigation. These documents included analytical findings that some experts would construe as evidence that the soil samples taken from the Bush Ranch plaintiffs' soil contained Benlate that was contaminated with SUs.

As a result of the production of the Alta documents in Hawaii, the Bush Ranch plaintiffs returned to the federal district court in Georgia on March 22, 1995, more than a year and a half after the settlement of the Bush Ranch litigation, with a petition seeking sanctions against DuPont. The Bush Ranch plaintiffs alleged that DuPont had engaged in acts of misrepresentation and concealment as to critical evidence which constituted a fraud on the court and a contempt of the court's orders. The alleged violations included intentionally withholding evidence of SU contamination that DuPont had in its possession and that the district court had ordered it to produce, and falsely representing to the district court and the plaintiffs that the Alta documents that were withheld contained no evidence of SU contamination. On August 21, 1995, the district court issued an order agreeing with the Bush Ranch plaintiffs and sanctioning DuPont by, among other things, ordering DuPont to either pay $101 million to the court or publish a judicially approved confession of guilt in selected newspapers across the United States. See In re E.I. du Pont de Nemours and Co., 918 F.Supp. 1524 (M.D.Ga.1995). Fourteen months later, on October 17, 1996, the Eleventh Circuit reversed the Georgia court on the ground that the sanctions were punitive and that the court had not followed applicable criminal procedure. See In re E.I. DuPont De Nemours and Co.-Benlate Litigation, 99 F.3d 363 (11th Cir.1996), cert. denied by E.I. du Pont de Nemours and Co. v. Bush Ranch, Inc., 522 U.S. 906, 118 S.Ct. 263, 139 L.Ed.2d 190 (1997). In ordering a remand "even though DuPont and its counsel may very well have engaged in criminal acts," the Eleventh Circuit noted the "serious nature of the allegations" and stated that it assumed the U.S. Attorney would conduct an investigation. In re E.I. DuPont, 99 F.3d at 369. On remand, the district court asked the United States Attorney to investigate and prosecute DuPont for criminal contempt, but the court ultimately approved a civil settlement resolving the matter, which required DuPont and Alston & Bird to make payments totaling $11.25 million. Matsuura v. Alston & Bird, 166 F.3d 1006, 1007-08 (9th Cir. 1999) (citing In re E.I. du Pont, No. 4:95-CV-36 (HL) (M.D.Ga. Nov. 4, 1998) (order referring matter to U.S. Attorney) and (M.D.Ga. Dec. 31, 1998) (consent order and final judgment)).

Meanwhile, the Kawamata case in Hawaii proceeded to trial, with the jury returning verdicts in favor of the plaintiffs on all the causes of action on January 26, 1995. However, after learning about the developments in the Bush Ranch litigation, the plaintiffs and declaratory defendants in the Kawamata case returned to the circuit court and filed motions, pursuant to Rule 60(b)(3) of the Hawaii Rules of Civil Procedure ("HRCP"), seeking to alter or amend the judgment based upon the newly discovered evidence of fraud, intentional misrepresentation, and other misconduct by DuPont, and to have sanctions imposed. The Hawaii Circuit Court, Ibarra, J., issued an opinion on August 19, 1996, finding that DuPont had engaged in fraud and intentional misconduct which abused the judicial process. See "Findings of Fact; Conclusions of Law; Order Re: Plaintiffs' and Declaratory Relief Defendants' Motions for Rule 60(b), H.R.C.P. Relief and for Sanctions Against Defendant E.I. DuPont de Nemours and Company, Inc. Filed August 31, 1995 and September 12, 1995; Exhibits `A'-`X'," August 19, 1996, in Kawamata Farms...