McKesson HBOC, Inc. v. Adler

• Decision Date: 27 March 2002
• Docket Number: No. A01A1836.,A01A1836.
• Citation: 254 Ga. App. 500,562 S.E.2d 809
• Parties: McKESSON HBOC, INC. et al. v. ADLER.
• Court: Georgia Court of Appeals

562 S.E.2d 809

254 Ga. App. 500

McKESSON HBOC, INC. et al. v. ADLER.

No. A01A1836.

Court of Appeals of Georgia.

March 27, 2002.

Morris, Manning & Martin, Joseph R. Manning, John H. Williamson, Atlanta, Claudia M. Anders, Henderson & Lipscomb, David S. Lipscomb, Duluth, for appellants.

Bondurant, Mixson & Elmore, H. Lamar Mixson, Jill A. Pryor, Jason M. Freier, Paul, Hastings, Janofsky & Walker, John G. Parker, Kirkley & Payne, Dorothy Y. Kirkley, Atlanta, Julie R. Schwartz, Davidson & Tucker, Gerald Davidson, Jr., Lawrenceville, for appellee.

William P. Hicks, Marietta, amicus curiae.

SMITH, Presiding Judge.

We granted this application for interlocutory appeal in order to consider the trial court's order directing McKesson HBOC, Inc. and HBO & Company ("McKesson") to produce documents McKesson contends are privileged and protected by the work-product doctrine. Because we conclude that the trial court failed to conduct the required investigation and analysis of McKesson's work-product claim or to rule on the merits of that claim, we vacate and remand for a determination of that issue. We affirm the trial court's decision, however, with respect to the attorney-client privilege, the denial of McKesson's motion for a protective order, and the denial of McKesson's motion to add a counterclaim.

This action was brought by Melvin Adler seeking damages from McKesson HBOC and HBO & Company after a merger in which HBO became a subsidiary of McKesson. Adler alleges that McKesson and HBO filed false financial statements in connection with their merger and that these false reports induced Adler to invest to his detriment.¹ During the litigation, Adler sought to obtain documents generated by McKesson during an investigation of the financial reports by McKesson's "audit committee," and McKesson objected. According to McKesson, these documents (which remain under seal) consist of interviews of 37 present and former employees, legal memoranda, and an audit committee report with supporting documents created from the interviews and memoranda.

The federal Securities and Exchange Commission, which filed briefs in this action here and below as amicus curiae, became involved in this matter shortly after the merger and McKesson's revision of its financial statements. According to the SEC's representative, it began an informal inquiry, and McKesson's audit committee authorized its counsel and accountants to cooperate fully with the SEC, "provided that a suitable confidentiality agreement was in place." A confidentiality agreement and supplemental agreement were entered into by McKesson, the audit committee, and the SEC.

In this litigation, the trial court ordered that McKesson produce "any and all materials sent to the Securities and Exchange Commission." Specifically, the trial court held that transmittal of the documents to the SEC waived the attorney-client privilege, that the accountant-client privilege "is against the interest of fairness and justice in this case and is void as it is against public policy," and that the accountant-client privilege had been "waived or is otherwise not applicable."² But the trial court did not address McKesson's claim of work-product protection, although that issue was raised below by McKesson as well as by the SEC amicus curiae.³

1. McKesson's enumeration of error concerning the work-product doctrine is dispositive of this appeal. McKesson complains that the trial court did not address its claim of work-product protection, that the trial court found no factual basis for waiver of the work-product doctrine, and that the findings required for waiver of work-product protection were not made. We agree.

The standard of protection under the work-product doctrine is high and contains very specific requirements for the trial court in considering such a claim. OCGA § 9-11-26(b)(3) provides:

Trial preparation; materials. Subject to paragraph (4) of this subsection, a party may obtain discovery of documents and tangible things otherwise discoverable under paragraph (1) of this subsection and prepared in anticipation of litigation or for trial by or for another party or by or for that other party's representative (including his attorney, consultant, surety, indemnitor, insurer, or agent) only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of his case and that he is unable without undue hardship to obtain the substantial equivalent of the materials by other means.

"As we read the language of this subsection, it is obvious that documents, statements and other tangible items of evidence developed by one party in preparation for litigation are discoverable by the other party only in carefully limited circumstances." Ga. Intl. Life Ins. Co. v. Boney, 139 Ga.App. 575, 580-581(3), 228 S.E.2d 731 (1976). The party seeking the trial preparation material must affirmatively show "a substantial need for the evidence and that undue hardship will result should the seeking party be required to develop the evidence by other means." McKinnon v. Smock, 264 Ga. 375, 376(2), 445 S.E.2d 526 (1994). The trial court then may order the production of the material "following an in camera examination to ensure against disclosure of mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation." (Citations and punctuation omitted.) Id. This complex and fact-intensive process differs substantially from the analysis required for a claim of attorney-client privilege, which is narrowly construed, Tenet Healthcare Corp. v. Louisiana Forum Corp., 273 Ga. 206, 208, 538 S.E.2d 441 (2000), and places the burden on the party asserting it to establish its applicability. Zielinski v. Clorox Co., 270 Ga. 38, 40(2), 504 S.E.2d 683 (1998). The trial court's ruling with respect to attorney-client privilege, therefore, sheds no light on whether the documents in question fall within the scope of the work-product doctrine.

Moreover, once the documents falling within the scope of work-product protection are determined, the trial court must consider the issue of waiver. While the trial court found that McKesson's claim of attorney-client privilege had been waived, once again the standards for determination of waiver are substantially different in the case of the work-product doctrine, with a much higher threshold than for waiver of attorney-client privilege. Compare Zielinski, supra at 40(2), 504 S.E.2d 683 (forwarding copy of document to district attorney waived attorney-client privilege), and Osborn v. State, 233 Ga.App. 257, 260(2)(b), 504 S.E.2d 74 (1998) (giving copy of statement to wife waived attorney-client privilege), with McKinnon v. Smock, 209 Ga.App. 647-648(2), 434 S.E.2d 92 (1993), aff'd, McKinnon v. Smock, supra (disclosure to testifying expert does not waive work-product protection). In McKinnon, we found the work-product doctrine applicable even to documents prepared by an attorney for transmission to a third party, in direct contrast to the limits of the attorney-client privilege. To the extent a communication is made for the purpose of disclosure to a third party, it is not protected by the attorney-client privilege in Georgia. Tenet Healthcare, supra at 209(1), 538 S.E.2d 441.

More specifically, the purpose of the work-product doctrine is different from that of the attorney-client privilege. While the attorney-client privilege is intended to protect the attorney-client relationship by protecting communications between clients and attorneys, the work-product doctrine directly protects the adversarial system by allowing attorneys to prepare cases without concern that their work will be used against their clients. Westinghouse Elec. Corp. v. Republic of the Philippines, 951 F.2d 1414, 1427-1428 (3rd Cir.1991). For this reason, the protection of work-product is not necessarily waived by disclosure to a third party. "Most courts hold that to waive the protection of the work-product doctrine, the disclosure must enable an adversary to gain access to the information." Id. at 1428(V); see also In re Steinhardt Partners, 9 F.3d 230, 235 (2nd Cir.1993); Bowne of New York City, Inc. v. AmBase Corp., 150 F.R.D. 465, 479 (S.D.N.Y.1993), and cases cited therein.⁴

McKesson argues that its cooperation with the SEC could not reasonably be construed as enabling an adversary to obtain the protected information, for three reasons: It was not adverse to the government; McKesson and the government "share a common interest in developing legal theories and analyzing information," Steinhardt Partners, supra at 236(II); and McKesson obtained a written confidentiality agreement. Id. McKesson has presented some evidence in support of these contentions. The SEC acknowledged that McKesson was not the focus of its investigation; rather, the SEC sought to investigate "potential wrongdoing by former officers and employees, rather than current management who obtained their positions largely in reaction to accounting irregularities." The United States Attorney's office apparently has stated that McKesson was not a subject or target of its investigation. The SEC acknowledges that it shares certain interests with McKesson. With respect to the confidentiality agreement, the SEC argues that Steinhardt Partners, supra, recognizes the effectiveness of and necessity for confidentiality agreements and that it engages in such agreements on rare occasions to expedite its investigations. In this case, a district administrator for the SEC concluded that the information developed in McKesson's internal investigation was reliable, expedited the SEC's investigation, provided information not readily obtainable otherwise, and significantly benefitted the SEC in its investigation. The SEC therefore urges that such agreements should not waive protection under the work-product doctrine for important public...