Picard Chemical Inc. Profit Sharing v. Perrigo Co.
| Decision Date | 05 November 1996 |
| Docket Number | No. 1:95-CV-141.,1:95-CV-141. |
| Citation | 951 F.Supp. 679 |
| Parties | PICARD CHEMICAL INC. PROFIT SHARING PLAN, et al., on behalf of themselves and all others similarly situated, Plaintiffs, v. PERRIGO COMPANY, et al., Defendants. |
| Court | U.S. District Court — Western District of Michigan |
Stephen C. Bransdorfer, Bransdorfer & Bransdorfer, PC, Grand Rapids, MI, Reed Richard Kathrein, Milberg, Weiss, Bershad, Hynes, LLP, San Francisco, CA, Ellen A. Gusikoff, Spector & Roseman, P.C., San Diego, CA, for Plaintiffs.
Stephen D. Turner, Law, Weathers & Richardson, Grand Rapids, MI, Joe A. Sutherland, Gardner, Carton & Douglas, Chicago, IL, Bruce W. Neckers, Rhoades, McKee, Boer, Goodrich & Titta, Grand Rapids, MI, Michael B. Reuben, Gordon, Altman, Butowsky, Weitzen, Shalov & Wein, New York City, William K. Holmes, Warner, Norcross & Judd, LLP, Grand Rapids, MI, Dennis E. Glazer, Davis, Polk & Wardwell, New York City, for Defendants.
TABLE OF CONTENTS
Facts ................................................................................. 683
Discussion ............................................................................ 684
1. Attorney-Client Privilege ..................................................... 684
2. Work Product Immunity ......................................................... 686
3. Abrogations of the Attorney-Client Privilege and Work Product Immunity ........ 686
a. Fiduciary Exception to the Attorney-Client Privilege ....................... 686
b. Fiduciary Exception to Work Product Immunity ............................... 687
c. Substantial Need and Undue Hardship ........................................ 687
4. Waiver......................................................................... 688
a. Attorney-Client Privilege .................................................. 688
(1) In Camera Review ....................................................... 688
(2) "At Issue" Waiver ...................................................... 688
(3) Disclosure to Third Parties ............................................ 689
b. Work Product Immunity ...................................................... 689
5. Public Access to Court Records ................................................ 690
Conclusion ............................................................................ 693
This case arises out of the secondary public offering of Perrigo Company ("Perrigo") common stock held in October of 1993. Plaintiffs allege in their First Amended Consolidated Class Action Complaint that defendants perpetrated a "fraud on the market." This matter is before the Court on plaintiffs' opposition to defendant Perrigo's claim of privilege regarding a 198-page report ("Report") submitted by Peter Formanek to Perrigo's Board of Directors ("Board").
Most of the pertinent facts of this case are set forth in this Court's Opinion dated July 25, 1996. Picard Chemical Inc. Profit Sharing Plan v. Perrigo Co., 940 F.Supp. 1101 (W.D.Mich.1996). Perrigo is also a nominal defendant in a derivative action pending before this Court in Kearney v. Jandernoa, No. 1:95CV823 (W.D.Mich.1995). Kearney was filed on behalf of Perrigo shareholders by Keith Kearney, a shareholder of Perrigo in his custodial capacity for his children. On May 22, 1995, Kearney sent a letter to Perrigo demanding that Perrigo: 1) commence litigation against all other named defendants in the class action, 2) void the indemnification agreement between Perrigo and other defendants in the class action, and 3) commence litigation against each officer and director and their beneficiaries and trusts who sold stock in the October 1993 public offering. Kearney included a draft derivative complaint with his letter accompanied by a statement informing the Board that the complaint would be filed if Kearney's demands were not met.
On June 12, 1995, the Board authorized Peter Formanek, who is said to be Perrigo's only disinterested independent director, to investigate all issues raised by Kearney's demand letter and to recommend to the Board the best course of action. The Board expressly authorized Formanek to retain independent legal counsel to assist him with the Report if he thought it necessary or appropriate. On August 15, 1995, the Board adopted a resolution which stated that whatever conclusion Formanek reached as a result of his investigation would be "final in all aspects and binding on the Company."
To assist in his investigation and ultimate report, Formanek hired an attorney, Anton Valukas. Formanek and Valukas investigated all issues raised by Kearney's demand letter, the draft shareholder derivative complaint, and the class action lawsuit now before the Court. On November 11, 1995, the derivative plaintiffs filed a verified derivative complaint in Kearney. One month later, on December 15, 1995, Formanek submitted a 198-page report to the Board detailing the factual and legal basis for his decision that maintenance of the derivative suit would not be in Perrigo's best interests.
On March 26, 1996, Perrigo moved to dismiss the verified derivative complaint in Kearney. In its motion, Perrigo asserted that because Formanek, as the sole independent disinterested director, had conducted a reasonable investigation in good faith and determined that pursuing a lawsuit was not in Perrigo's best interests, Perrigo was insulated from liability pursuant to M.C.L. § 450.1495. Perrigo intentionally chose not to submit a copy of the Report to the Court with its motion to dismiss.
On July 22, 1996, this Court issued an Opinion and Order in Kearney granting the derivative plaintiffs' motion to compel production of the Report over Perrigo's objections that the Report was protected by both attorney-client privilege and work product immunity. See Kearney v. Jandernoa, 934 F.Supp. 863 (W.D.Mich.1996). This Court determined that whether Formanek made an adequate investigation and acted in good faith are questions which are difficult, if not impossible, to answer without the Report. Id. As a result, this Court held that it could not rule on defendant Perrigo's motion to dismiss in the derivative suit without first perusing the Report, and more importantly, without first allowing the derivative plaintiffs to read and comment upon the Report. Id.
Plaintiffs in the instant securities fraud class action also claim that they should have access to the Report. Perrigo claims that the Report is protected by both the attorney-client privilege and work product immunity.
If Perrigo can establish that the attorney-client privilege applies, then plaintiffs need to show that either the fiduciary exception applies or that Perrigo waived the attorney-client privilege. Additionally, if Perrigo can establish that work product immunity applies, then plaintiffs must show that there is substantial need for disclosure of the Report and that undue hardship would result if there were nondisclosure. Otherwise, plaintiffs must show that Perrigo waived work product immunity.
However, if Perrigo can show that both the attorney-client privilege and work product immunity apply to the Report, then only the test of substantial need and undue burden applies. See In re Dayco Corp. Derivative Sec. Litig., 99 F.R.D. 616, 621 (S.D.Ohio 1983). If plaintiffs are not successful in showing substantial need and undue burden, then, as stated earlier, they must show that Perrigo waived the privilege and the immunity in order to prevail.
This Court now holds that the Report is protected by both the attorney-client privilege and work product immunity.
The attorney-client privilege is derived from the common law and is the oldest of the privileges for confidential communications. Upjohn Co. v. United States, 449 U.S. 383, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981). The Supreme Court stated:
Its purpose is to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice. The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer's being fully informed by the client.
Id. at 389, 101 S.Ct. at 682. Moreover, the privilege applies when the client is a corporation. Id. at 390, 101 S.Ct. at 683. The United States Court of Appeals for the Sixth Circuit noted that the Supreme Court in Upjohn recognized the importance of the attorney-client privilege, however "[it] is not absolute; it applies only to the extent that it serves the `broader public interests.'" Fausek v. White, 965 F.2d 126, 129 (6th Cir.1992). The Sixth Circuit set forth essential elements of the privilege as follows:
(1) Where legal advice of any kind is sought (2) from a professional legal adviser in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from disclosure by himself or by the legal advisor, (8) except the protection be waived.
Id. (citing United States v. Goldfarb, 328 F.2d 280, 281 (6th Cir.1964)).
This Court holds that the Report satisfies the elements of the attorney-client privilege. Furthermore, failure to accord the Report attorney-client privilege would undermine the policy behind the privilege. As noted earlier, the Supreme Court in Upjohn recognized that full and frank communication between attorneys and their clients promotes the broader public interest. If the confidentiality of an internal investigation is not protected, especially for use in class actions, the corporation would be far less likely to allow the investigation to take place or would be far more...
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