United States v. Dobco Inc.

• Docket Number: 22-cv-9599 (CS) (VR)
• Decision Date: 22 December 2023
• Parties: United States of America, for the use and benefit of M. Frank Higgins & Co., Inc., M. Frank Higgins & Co., Inc. Plaintiffs-Counter Defendants, v. Dobco Inc., Defendant-Third-Party Plaintiff-Counter Claimant, Liberty Mutual Insurance Company, Defendant, Merchants National Bonding, Inc., Third-Party Defendant.
• Court: U.S. District Court — Southern District of New York

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United States of America, for the use and benefit of M. Frank Higgins & Co., Inc., M. Frank Higgins & Co., Inc. Plaintiffs-Counter Defendants, v. Dobco Inc., Defendant-Third-Party Plaintiff-Counter Claimant, Liberty Mutual Insurance Company, Defendant, Merchants National Bonding, Inc., Third-Party Defendant.

No. 22-cv-9599 (CS) (VR)

United States District Court, S.D. New York

December 22, 2023

OPINION AND ORDER

VICTORIA REZNIK, UNITED STATES MAGISTRATE JUDGE:

The parties dispute whether M. Frank Higgins & Co., Inc. (Higgins) and Merchants National Bonding, Inc. (Merchants) may shield from discovery: (1) documents and communications shared between them and their attorneys under the common interest doctrine; and (2) documents and communications exchanged between them and (i) Partner Engineering, (ii) J.S Held, (iii) North S. Tarr, (iv) Niagara Research Associates and (v) the International Masonry Institute, under the consulting expert privilege. (ECF No. 42).

Because the Court required additional facts and information from the parties regarding the application of the common interest doctrine, the nature of Merchants' investigation, and the consulting expert privilege, the Court directed the parties to respond by letter to a series of questions proffered by the Court. (ECF Nos. 55, 65, 66, 67, 70). In November 2023 the Court heard oral argument on the parties' pending disputes. (ECF 11/16/2023 Minute Entry). The Court now addresses these issues below.

I. Higgins' and Merchants' Invocation of the Common Interest Doctrine

Higgins and Merchants assert that their communications are subject to the common interest privilege and therefore not subject to discovery by Dobco. (ECF No. 42 at 1-2).^[1] The common interest doctrine is “an extension of the attorney client privilege,” United States v. Schwimmer, 892 F.2d 237, 243 (2d Cir. 1989), and the work-product doctrine, Smith v. Pergola 36 LLC, No. 22-cv-4052, 2022 WL 17832506, at *7 (S.D.N.Y. Dec. 21, 2022). Thus, any document or communication potentially protected by the common interest doctrine must first satisfy the elements of the attorney-client privilege or work-product doctrine. Smith, 2022 WL 17832506, at *7. “[T]he attorney-client privilege protects communications (1) between a client and his or her attorney (2) that are intended to be, and in fact were, kept confidential (3) for the purpose of obtaining or providing legal advice.” United States v. Krug, 868 F.3d 82, 86 (2d Cir. 2017). The work-product doctrine protects materials “prepared in anticipation of litigation or for trial by or for another party or its representative.” Fed.R.Civ.P. 26(b)(3)(A).

Under the common interest doctrine, communications voluntarily made among different parties and their attorneys (which would ordinarily waive the privilege) are not waived “where a joint defense effort or strategy has been decided upon and undertaken by the parties and their respective counsel in the course of an ongoing common enterprise and multiple clients share a common interest about a legal matter.” Schaeffler v. United States, 806 F.3d 34, 40 (2d Cir. 2015) (alterations omitted). “Parties may share a ‘common legal interest' even if they are not parties in ongoing litigation.” Id. The doctrine “serves to protect the confidentiality of communications passing from one party to the attorney for another party where a joint defense effort or strategy has been decided upon and undertaken by the parties and their respective counsel.” Id. (internal quotation marks omitted). “However, only those communications made in the course of an ongoing common enterprise and intended to further the enterprise are protected.” Id. (alterations and internal quotation marks omitted). Also, the attorney representing the communicating party need not be present when the communication is made. Schwimmer, 892 F.2d at 244.

The application of the common interest doctrine to the surety-principal relationship is complicated because “the surety and principal are at war and in alliance at the same time.”^[2]Ultimately, the interests of the surety and principal align when the surety decides to stand behind its principal. See Granite Comput. Leasing Corp. v. Travelers Indem. Co., 894 F.2d 547, 551 (2d Cir. 1990) (“Under basic suretyship law, a surety's obligations cannot be more burdensome than those of its principal, and where the principal is not liable on the obligation, neither is the guarantor.”) (internal quotation marks omitted); Restatement (Third) of Suretyship & Guaranty § 34 cmt. a (1996) (“The purpose of the secondary obligation is to stand behind the obligation of the principal obligor to perform the underlying obligation, thereby assuring the obligee of the performance to which it is entitled.”); Fischer, supra note 2, at 1040 (“At some point in the surety's investigation of an obligee's claim, the surety may decide to stand behind the principal, and thus create a common interest to the extent that the surety endorses the principal's position or is subrogated to the principal's rights and claims.”).

Here, Higgins and Merchants appear to seek a blanket application of the common interest doctrine so that all their communications are shielded from discovery. Although a common interest privilege may apply to some communications between Higgins and Merchants because of their surety relationship, it does not automatically apply to every communication exchanged between them at every point in time and for all purposes. Indeed, the common interest privilege does not transform an otherwise non-privileged communication, or a document prepared in the ordinary course of business, into a protected one simply because it was exchanged between a principal and its surety. See, e.g., United States v. Adlman, 134 F.3d 1194, 1202 (2d Cir. 1998) (noting that work product protection will be withheld from “documents that are prepared in the ordinary course of business or that would have been created in essentially similar form irrespective of the litigation”); accord In re Grand Jury Subpoena Dated Oct. 22, 2021, 282 F.3d 156, 161 (2d Cir. 2002) (“Broad categorical statements about the scope of the work product privilege are risky, as individual applications are highly fact specific.”). Rather, as a prerequisite, Higgins and Merchants have the burden to show how the attorney-client and workproduct privileges apply. Am. Oversight v. U.S. Dep't of Just., 45 F.4th 579, 593 (2d Cir. 2022) (“[T]he party invoking work-product protection . . . bears the burden of demonstrating that a withheld document qualifies as such ....”); Krug, 868 F.3d at 86 (“The parties asserting [attorney-client] privilege . . . bear the burden of establishing its essential elements.”) (alterations omitted).

A. Communications Subject to Attorney-Client Privilege (Prerequisite to Common-Interest Doctrine)

The communications Higgins and Merchants each had with their own attorneys would be protected by attorney-client privilege if those communications were intended to be, and were in fact, kept confidential, and were communicated to obtain or provide legal advice. Krug, 868 F.3d at 86. Any communications that Higgins and Merchants seek to shield on this basis must be logged on their privilege logs. The Court separately addresses whether attorney-client privileged documents shared between Higgins and Merchants would continue to be privileged under the common interest doctrine in Section C below.

B. Documents Subject to Work-Product Doctrine (Prerequisite to Common-Interest Doctrine)

For documents created by Higgins and Merchants to be protected under the work-product doctrine, those documents must have been “prepared in anticipation of litigation” and not “in the ordinary course of business.” Adlman, 134 F.3d at 1199, 1202 (emphasis added); Fed.R.Civ.P. 26(b)(3)(A). Thus, the Court must first determine when Higgins and Merchants reasonably anticipated litigation.

Between April 13, 2021, and February 6, 2023, Dobco sent Higgins at least ten notices of default. (See ECF Nos. 65 at 2-5 (identifying ten notices of default and six “additional notices”); 66 at 2-4 (identifying 14 notices of default). While Merchants was not copied on the initial default notice, sent on April 13, 2021 (see ECF No. 70-1 at 3-4), Merchants learned of that default notice on August 9, 2021, in a letter Dobco sent to Higgins that copied Merchants.^[3] On August 13, 2021, Merchants responded to Dobco's August 9 letter, stating that Dobco's “allegation of default is respectfully denied.” (ECF No. 70-17 at 2). Then, on October 8 and 26, 2021, Dobco sent Higgins two additional notices of default, with increasingly adversarial language. (ECF No. 70-2 at 3-5, 63-67). At least 16 more letters followed, all of which copied outside counsel.^[4] Those letters led to Dobco's notice of “principal default” on April 27, 2022, in which Dobco stated that “[t]his correspondence shall serve as Dobco's formal declaration, pursuant to paragraph 3 of the Bond, of a Principal Default and demand, pursuant to paragraph 4 of the Bond, from prompt action by Merchants.” (ECF No. 70-10 at 3).

Higgins and Merchants argue that they reasonably anticipated litigation either on April 13, when Higgins received the April 13 default notice (ECF No. 42 at 2), or on August 13, when Merchants denied Dobco's allegation of default (ECF No. 66 at 4-6). Dobco instead argues that litigation was not reasonably anticipated until April 27, 2022, when it sent its notice of principal default. (ECF No. 67 at 1-2). According to Dobco, it was not until that April 2022 notice that Merchants was officially required to deny Dobco's claim for performance under the Subcontract. (Id.).

On the one hand, the dates proposed by Higgins and Merchants (in April and August,...