Opus Corp. v. Intern. Business Machines Corp.

• Decision Date: 14 August 1996
• Docket Number: Civ. No. 3-95-28.
• Citation: 956 F.Supp. 1503
• Parties: OPUS CORPORATION, a Minnesota corporation, Plaintiff, v. INTERNATIONAL BUSINESS MACHINES CORPORATION, a New York corporation, Defendant.
• Court: U.S. District Court — District of Minnesota

956 F.Supp. 1503

OPUS CORPORATION, a Minnesota corporation, Plaintiff, v. INTERNATIONAL BUSINESS MACHINES CORPORATION, a New York corporation, Defendant.

Civ. No. 3-95-28.

United States District Court, D. Minnesota.

August 14, 1996.

Charles B. Rogers, Minneapolis, MN, for Opus Corp.

Creighton R. Magid, Minneapolis, MN, for Intern. Business Machines Corp.

MEMORANDUM ORDER

ERICKSON, United States Magistrate Judge.

I. Introduction

This matter came before the undersigned United States Magistrate Judge pursuant to a general assignment, made in accordance with the provisions of Title 28 U.S.C. § 636(b)(1)(A), upon the Motion of the Plaintiff Opus Corporation ("Opus") to Compel Discovery.

A Hearing on the Motion was conducted on June 6, 1996, at which time Opus appeared by Charles B. Rogers, Esq., and the Defendant International Business Machines Corporation ("IBM") appeared by Creighton R. Magid, Esq.

For reasons which follow, the Motion is denied.

II. Factual and Procedural Background

This case involves a dispute concerning the formation and operation of IBM Associates Limited Partnership (the "Partnership"), an entity that was formed, in 1989, by IBM, which served as the managing general partner, and with Opus as the sole limited partner. The Partnership's purpose was the development of First Bank Place (the "Project") — an office and retail complex that is located in downtown Minneapolis.

In the negotiations which led to the formation of the Partnership, IBM was represented by its in-house counsel, F. Maureen Duffy, and by three attorneys from the law firm of Faegre & Benson ("Faegre") — namely, Charles Ferrell, John Wheaton and Terri Simard. Opus was represented in these negotiations by its own in-house counsel, James Tucker. On June 30, 1989, the Partnership was formally established by a written agreement and, thereafter, Faegre served as the Partnership's legal counsel.

As a condition precedent to the formation of the Partnership, Opus was obligated to secure First Bank Systems, Inc. ("First Bank"), as the Project's anchor tenant. In order to accomplish this goal, Opus commenced negotiations with First Bank, which ultimately proved to be successful, in order to induce First Bank to vacate its then-existing offices in downtown Minneapolis, and to relocate its operations in the Project. In these negotiations, Opus was represented by James Dueholm ("Dueholm"), who was another lawyer at Faegre, with whom Opus had a long-standing attorney-client relationship. Apparently, Dueholm's representation of Opus did not continue after the formation of the Partnership, and an informal "Chinese wall" was established within Faegre, so as to isolate Dueholm from the attorneys in the firm who were representing IBM in the Partnership negotiations, and vice versa. On the Record before us, it is not disputed that all of the parties to these paralleling negotiations were fully aware that Faegre was representing various interests during the period in which the Partnership was in its formative stages.

As noted, after the Partnership was formed, Faegre assumed the role as the Partnership's counsel, as well as continuing to represent IBM in IBM's capacity as a the general partner and as an investor in the Partnership. In this latter capacity, Faegre represented IBM, on certain occasions, in a manner that was adverse to the interests of Opus. For example, Faegre advised IBM with respect to IBM's contemplated termination of several of the Project's contracts, which related to the construction, leasing and management of the Project, and which extended between the Partnership and Opus or one of Opus' affiliates. In addition, Faegre represented IBM in its negotiation of a settlement between Opus and IBM, which related to Opus' claim that IBM had improperly authorized certain payments to outside consultants who had been retained to provide Project services. Finally, Faegre provided legal counsel when IBM was contemplating the issuance of a substantial capital call to Opus and, subsequently, Faegre provided IBM with legal advices in connection with IBM's exercise of the "cram down" provision, which is contained within the Partnership Agreement, upon Opus' refusal to honor the capital call.¹ In exercising this "cram down" provision, IBM effectively eliminated Opus' interests in both the Partnership, and in the Project.

This action was commenced on January 6, 1995, with the filing of Opus' Original Complaint. On May 15, 1996, with leave of the Court, Opus filed an Amended Complaint in which it asserted a claim against IBM for the breach of a fiduciary duty. As part of the pretrial discovery process, the parties have exchanged so-called "privilege logs," which register those documents which are claimed to be excepted from discovery, either because of an attorney-client or a work product privilege. IBM's privilege log lists some 509 documents, which are the subject of Opus' Motion to Compel.

In support of its Motion, Opus contends that IBM may not shield these documents from discovery on privilege grounds.² In this respect, Opus' position is somewhat unique, since it does not argue that these documents fail to satisfy the elements that are essential in invoking a privileged status.³ For example, Opus has not contended that the documents do not reflect communications between an attorney and client, or that the communications were not made in confidence. Rather, Opus maintains that IBM may not invoke a privilege against Opus for two reasons. First, Opus argues that, under the "common interest" doctrine, the parties were joint clients of Faegre, whose communications with Faegre must be mutually shared. Second, Opus maintains that IBM, in its role as the managing general partner of the Partnership, owed Opus a duty of full disclosure and complete candor and, consonant with this duty, IBM may not "hide behind the attorney-client privilege," so as to withhold Partnership documents, or any other information on Partnership matters.

For its part, IBM asserts that the common interest exception is inapplicable since, at all times during which Faegre represented IBM, Faegre was acting contrary to Opus' interests, and not compatibly with them. Therefore, IBM argues, there is no basis upon which the "common interest" doctrine may properly operate. Second, while acknowledging its fiduciary obligations to Opus, as a result of its engagement as the Partnership's managing general partner, IBM argues that, under the "fiduciary exception" to the attorney-client privilege, Opus is entitled to discover otherwise privileged documents only upon a showing of good cause which, IBM insists, has not been presented here.

III. Discussion

A. The "Common Interest" Exception.

1. Standard of Review. "When an attorney acts for two different clients who each have a common interest, communications of either party to the attorney are not necessarily privileged in subsequent litigation between the two clients." Bituminous Casualty Corp. v. Tonka Corp., 140 F.R.D. 381, 387 (D.Minn.1992); see also, Eureka Investment Corp. v. Chicago Title Insurance Co., 743 F.2d 932, 936-37 (D.C.Cir.1984). The parameters of the common interest exception are aptly illustrated by two hypotheticals from Wigmore's classic treatise on the law of evidence.⁴ As to the first, "a communication by A to X as the common attorney of A and B, who afterwards become party opponents, is not privileged as between A and B since there was no secrecy between them at the time of communication." 8 J. Wimore. Evidence 52312, at 605-06 (McNaughton rev. ed.1961). In such an instance, while the privilege may be asserted against a third party, it is unavailable in a dispute between A and B. Id. The policy behind this application of the common interest doctrine is "to encourage openness and cooperation between joint clients * * *." Eureka Investment Corp. v. Chicago Title Insurance Co., supra at 937.

As to the second hypothetical:

A communication by A to X as A's attorney, X being then also the attorney of B, [who] now become[s] the party opponent, is ordinarily privileged because of the relation of X toward A. Nor does the fact of A's knowledge that X is already B's attorney, nor the fact of B's being already adversely interested destroy the privilege. This is so because, although X ought not to undertake to act for both in any matter where there is a possibility of adverse interests, nonetheless A is protected by reason of the relation.

8 J. Wiamore, Evidence 62312, at 608.

As Wigmore has properly recognized, while these contrasting circumstances are easily portrayed on paper, "[i]n practice, difficulty will often arise in distinguishing" between the two scenarios. Id.; see also, Eureka Investment Corp. v. Chicago Title Insurance Co., supra.

2. Legal Analysis. In arguing that the common interest exception applies to defeat IBM's assertion of privilege, Opus maintains, that the situation presented in Wigmore's first hypothetical, is also presented here, with IBM, in its capacity as a potential partner and as an investor in the Partnership, acting as "A," with Opus serving as "B," and with Faegre functioning as attorney "X." We disagree, for absent from this portrayal is any recognition that, while the parties had clearly retained a common law firm, that retention frequently had individualized, and substantially diverse, goals.

During the negotiations which resulted in the formation of the Partnership, Faegre unmistakably represented each of the parties, since it served as Opus' counsel in the negotiations which ensued between Opus and First Bank, and it functioned as IBM's counsel during the pre-Partnership negotiations between IBM and Opus. In neither instance did Faegre serve the common or mutual interests of both IBM and Opus. While Faegre's efforts, in securing First Bank as a anchor tenant of the Project, furthered the interests of the Partnership, there is no showing that Faegre jointly counseled...