Sandoz Inc. v. Lannett Co.

• Decision Date: 04 November 2021
• Docket Number: CIVIL ACTION NO. 20-3538
• Parties: SANDOZ INC. v. LANNETT COMPANY, INC.
• Court: U.S. District Court — Eastern District of Pennsylvania

570 F.Supp.3d 258

SANDOZ INC.

v.LANNETT COMPANY, INC.

CIVIL ACTION NO. 20-3538

United States District Court, E.D. Pennsylvania.

Filed November 4, 2021

Michael A. Schwartz, Robin P. Sumner, Troutman Pepper Hamilton Sanders LLP, Philadelphia, PA, Tamara Wiesebron, Jessica Kaufman, Morrison & Foerster LLP, Michael Ahern, Tiffani B. Figueroa, Morrison & Foerester, New York, NY, Virginia Choi, Morrison & Foerster LLP, Los Angeles, CA, Lisa Marie Phelan, Morrison & Foerster LLP, Washington, DC, for Sandoz Inc.

Devora W. Allon, Jay P. Lefkowitz, Kirkland & Ellis LLP, New York, NY, Karl Gunderson, Kirkland & Ellis LLP, Chicago, IL, for Lannett Company, Inc.

MEMORANDUM

McHugh, United States District Judge This matter involves claims of unfair competition and tortious interference between two pharmaceutical companies. The parties return with a discovery dispute rooted in issues of attorney-client privilege, one of which is when the "common interest" privilege can be asserted. This is exclusively a diversity action, and the various issues before the Court must therefore be resolved applying Pennsylvania precedent, including BouSamra v. Excela Health, 653 Pa. 365, 210 A.3d 967 (2019), a recent decision of some significance.

I. Factual and Procedural Background:

The factual posture of the case is important to an understanding of the privilege issues. Plaintiff Sandoz had contracted with Cediprof, a drug manufacturer, to serve as the exclusive distributor and marketer of Cediprof's levothyroxine sodium tablets until July 31, 2022. On July 3, 2019, Cediprof signed an agreement with a rival distributor, Lannett, which provided that upon the termination of Sandoz's rights, Cediprof would transition its levothyroxine rights to Lannett. ECF 21-2. In July 2019, Sandoz communicated to Cediprof that it intended to transfer its right to distribute Cediprof's levothyroxine to Aurobindo, an Indian pharmaceutical company. ECF 100-31, Ex. 10. On June 19, 2020, Cediprof terminated its agreement with Sandoz, claiming Sandoz had defaulted on its obligations. ECF 95-17. Lannett then began distribution of levothyroxine on August 1, 2020, two years earlier than it had expected under the original agreement.

Sandoz responded by filing suit against Cediprof in federal court and pursuing arbitration. It separately commenced this action against Lannett, alleging that Lannett had wrongfully induced Cediprof's cancellation of the agreement. Lannett responded with a counterclaim against Sandoz, averring that Sandoz has engaged in tortious interference and unfair competition. In July 2020, Lannett retained Kirkland & Ellis LLP, which also represents Cediprof. ECF 95-1 at 18; ECF 100 at 6.

Plaintiff Sandoz now moves to compel production of documents over which Defendant Lannett asserts attorney-client privilege or common interest privilege. I previously granted in part and denied in part Plaintiff's Motion to Compel and ordered a subset of documents be produced for in camera inspection to determine if any privilege applies (ECF 101, 105). Having carefully reviewed those documents, I conclude that some documents are privileged, while others are not.

II. Choice of Law:

As noted in my Order Granting in Part and Denying in Part Plaintiff's Motion to Compel, Pennsylvania law applies to this discovery dispute. ECF 101, at n.1. "In a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision." Fed. R. Evid. 501. The Third Circuit has further reiterated that where the claims and defenses arise under state law, " Federal Rules of Evidence 501 and 1101(c) provide that we should apply state law in determining the extent and scope of the attorney-client privilege." Rhone–Poulenc Rorer Inc. v. Home Indem. Co. , 32 F.3d 851, 861 (3d Cir. 1994) ; see also Samuelson v. Susen , 576 F.2d 546, 549 (3d Cir. 1978) (stating that " Rule 501 requires a district court exercising diversity jurisdiction to apply the law of privilege which would be applied by the courts of the state in which it sits."). Because Sandoz's complaint invoked this Court's diversity jurisdiction and the parties’ claims arise solely under Pennsylvania law, its privilege rules must be applied. For many years federal courts have been required to fill gaps in Pennsylvania privilege law and have understandably done so by looking to federal precedent. But the persuasive authority of those cases must be carefully re-evaluated where Pennsylvania law has been clarified.

III. Discussion

A. Attorney-Client Privilege in Pennsylvania

In Pennsylvania, the attorney-client privilege is codified as follows: "In a civil matter counsel shall not be competent or permitted to testify to confidential communications made to him by his client, nor shall the client be compelled to disclose the same, unless in either case this privilege is waived upon the trial by the client." 42 Pa. C.S. § 5928. In 2019, the Pennsylvania Supreme Court re-examined the contours of attorney-client privilege. BouSamra v. Excela Health, 653 Pa. 365, 210 A.3d 967 (2019). A party invoking attorney-client privilege must prove that:

1) [t]he asserted holder of the privilege is or sought to become a client[;]

2) [t]he person to whom the communication was made is a member of the bar of a court, or his subordinate[;]

3) [t]he communication relates to a fact of which the attorney was informed by his client, without the presence of strangers, for the purpose of securing either an opinion of law, legal services or assistance in a legal matter, and not for the purpose of committing a crime or tort[;]

4) [t]he privilege has been claimed and is not waived.

Id. at 983. The Supreme Court had previously made clear that as to the third factor—the communications at issue must be made for the purposes of securing legal advice—"the privilege does not extend to business advice or protect clients from factual investigations." Gillard v. AIG Ins. Co., 609 Pa. 65, 15 A.3d 44, 52 n.8 (2011).¹ If this four-part test is satisfied, the burden shifts to the party seeking disclosure to explain why the communication should not be considered privileged.² Id. For corporations, "the attorney-client privilege ‘extends to communications between its attorney and agents or employees authorized to act on the corporation's behalf.’ " Id. (internal citation omitted).

a. Documents Protected by Attorney-Client Privilege: Direct Attorney Communication

Here, documents 3, 588, 622, 626, 824 and 826 are clearly protected by attorney-client privilege under Pennsylvania law. Each of the above are internal communications among Lannett employees and in-house or outside counsel for the purpose of legal advice. The privilege is being claimed and there is no evidence of waiver. Therefore, these documents are protected by the attorney-client privilege and need not be produced.

b. Documents Not Protected by Attorney-Client Privilege: Absence of Attorney

Document 46 is an email chain among only Lannett employees with no counsel copied passing on legal advice from outside counsel. Document 512 involves only Lannett non-attorney employees and is not for the purposes of legal advice. As no attorney is present on these communications, these email chains fail to satisfy the second prong that the communication be made to an attorney or their agent, and thus, are not protected by the attorney-client privilege.

Documents 649 and 829 involve email chains that have final emails between Lannett businesspeople only. For 649 , the earlier email and the attachment need not be produced, as they are privileged. Admittedly in this instance, production of the final email is a mere formality, as the forwarding lacks any meaningful content in the absence of the prior email and attachment. Technically, however, it is not privileged and must be produced. For 829 , the final email must be produced, as no attorney is copied, while the earlier emails with counsel copied may be redacted.

B. Waiver of Attorney-Client Privilege through Disclosure to Third Parties:

Attorney-client privilege will not ordinarily attach to communications made in the presence of a third party, and disclosing privileged communications to a third party waives the privilege. Id. at 982. In BouSamra , the Pennsylvania Supreme Court recognized an exception to waiver for third parties whose "presence was either indispensable to the lawyer giving legal advice or facilitated the lawyer's ability to give legal advice to the client." Id. at 985. In so doing, the Court reiterated that evidentiary privileges—such as the attorney-client privilege—are "highly disfavored in Pennsylvania," so "the scope of such [third-party] situations must remain narrowly tailored." Id. at 986 n.15 ; see also Off. of Disciplinary Couns. v. Baldwin, 225 A.3d 817, 850 (Pa. 2020) (noting that it is an "established proposition that evidentiary privileges are not favored because they are in derogation of the truth-determining process."). The facts of BouSamra illustrate the limited nature of the exception. There, the Court found that the attorney-client privilege was waived when an email from outside counsel was forwarded by in-house counsel to an employee of its outside consultant communications firm. 210 A.3d at 986.

a. Documents Protected by Attorney-Client Privilege: No Waiver Despite Involvement of Third Party

In considering documents where a third party is present on communications, I apply the test from BouSamra : attorney-client privilege will be waived unless the third party's "presence was either indispensable to the lawyer giving legal advice or facilitated the lawyer's ability to give legal advice to the client." Id. at 985.

Documents 297 and 357 are email chains involving Robert Jaffee, an outside third-party communications consultant. Lannett offers no explanation why Mr. Jaffee's presence is indispensable for legal advice and provides no substantive argument as to his role or necessity. Nevertheless, it is patent from the...