United States v. Duke Energy Corp., 1:00CV1262

• Decision Date: 30 April 2012
• Docket Number: 1:00CV1262
• Court: U.S. District Court — Middle District of North Carolina
• Parties: UNITED STATES OF AMERICA, Plaintiff, ENVIRONMENTAL DEFENSE, NORTH CAROLINA SIERRA CLUB, and NORTH CAROLINA PUBLIC INTEREST RESEARCH GROUP, Plaintiff-Intervenors, v. DUKE ENERGY CORPORATION, Defendant.

UNITED STATES OF AMERICA, Plaintiff,ENVIRONMENTAL DEFENSE, NORTH CAROLINA SIERRA CLUB,and NORTH CAROLINA PUBLIC INTEREST RESEARCH GROUP, Plaintiff-Intervenors,

v.DUKE ENERGY CORPORATION, Defendant.

1:00CV1262

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

Dated: April 30, 2012

MEMORANDUM OPINION AND ORDER

Osteen, Jr., District Judge

I. FACTS

In response to Plaintiffs' motion to compel Defendant Duke Energy to produce communications with the Utility Air Regulatory Group ("UARG"), Duke Energy filed a cross motion for a protective order, arguing that the requested information was irrelevant, protected by attorney-client privilege and work product protection, and covered by the joint defense/common interest rule. UARG moved to intervene¹ and, in anticipation of beingallowed to intervene, also moved for a protective order, claiming that disclosure would violate UARG's First Amendment rights, and argued that the documents in question were protected by attorney-client privilege and work product protection. In an April 11, 2003, Order (Doc. 164), an October 22, 2003, Order (Doc. 244), and a November 3, 2003, Order (Doc. 250) ("2003 Orders"), Magistrate Judge Eliason addressed both Duke Energy's and UARG's arguments. He denied UARG's motion to intervene² and found that Duke Energy had attempted to establish attorney-client privilege and work product protection by offering conclusory affidavits. The Magistrate Judge observed that the affidavits of Kris W. Knudson (Senior Technical Consultant for Air Quality at Duke Power), Jim M. Holloway III (attorney with Hunton & Williams), and Jeffrey F. Cherry (attorney with Hunton & Williams), proffered by Duke Energy, failed: 1) to show that "UARG and all of its members have any common litigation interest with respect to a specific litigation or anticipated litigation"³ or 2) toshow that the "requisite common interest," necessary for the common interest rule to apply, existed. (Doc. 164 at 20-21.) He explained:

In summary, the UARG appears to be a trade association/lobbying group which at times perhaps engages in litigation, but no specific litigation has been identified for the documents at issue. Also, Duke Energy does not show that the UARG members vote or otherwise agree to take a specific litigation stance. Nor has Duke Energy shown that the communications were only with respect to the agreed common shared litigation interest. It was incumbent upon Duke Energy to come forward with specific facts showing these matters. Conclusory statements and ambiguous evidence will not satisfy that burden.

As a result, the Magistrate Judge granted Plaintiffs' motion to compel and denied Duke Energy's motion for a protective order. Duke Energy objected and appealed those Orders to this court. For the reasons set forth hereafter, this court finds that the stay of the Magistrate Judge's 2003 Orders should be lifted and the Orders should be affirmed.

II. STANDARD OF REVIEW

Upon a timely objection, this court must modify or set aside any part of a magistrate judge's order on a non-dispositive matter that "is clearly erroneous or is contrary to law." Fed. R. Civ. P. 72(a). Here, the parties agree that the Magistrate Judge's 2003 Orders should be reviewed by this court under aclearly erroneous standard. (See Doc. 413 at 4.) "A factual finding is clearly erroneous when [the court is] left with the definite and firm conviction that a mistake has been committed. Although the contrary to law standard permits plenary review of legal conclusions, decisions related to discovery disputes . . . are accorded greater deference." Stonecrest Partners, LLC v. Bank of Hampton Roads, 770 F.Supp.2d 778, 782 (E.D.N.C. 2011) (internal quotation marks and citations omitted). A district court in the Eastern District of Virginia explained,

[M]any courts have noted that decisions of a magistrate judge concerning discovery disputes and scheduling should be afforded 'great deference.' Indeed, the fact-specific character of most discovery disputes and the discretionary standard for resolution of discovery disputes under the Federal Rules suggest that magistrate judges ordinarily have ample discretionary latitude in disposition of those matters.

In re Outsidewall Tire Litigation, 267 F.R.D. 466, 470 (E.D.Va. 2010).

III. CLAIM & ISSUE PRECLUSION

In addition to directly challenging the substance of the Magistrate Judge's 2003 Orders under a clearly erroneous standard of review, Duke Energy alleges that claim and issue preclusion bar this court from lifting the stay and enforcing the Magistrate Judge's Orders in light of a third-party subpoena enforcement action in the United States District Court for the District of Columbia (described further below). Neither claim preclusion nor issue preclusion were directly addressed by the MagistrateJudge.⁴

A. D.C. Litigation

On April 8, 2002, the United States served non-party UARG through its counsel Hunton & Williams with two subpoenas duces tecum, which requested documents related to cases pending in the Southern District of Ohio against Ohio Edison and in the Middle District of North Carolina against Duke Energy.⁵ Both Ohio Edison and Duke Energy are UARG members. (Doc. 394-3 at 4.) At issue were 20 boxes of documents (containing approximately 3,800 documents and 74,000 pages of material). (Doc. 394-3 at 9.) UARG objected that the subpoenas were unduly burdensome, that they sought irrelevant and/or privileged information, and that production would infringe on UARG's First Amendment rights. (Doc. 394-3 at 5.)

The D.C. Magistrate Judge appointed a Special Master,selected by both parties, to determine if the documents were protected. Recognizing the potential for overlap in the requested documents and those requested in the suits against Ohio Edison and Duke Energy, the D.C. Magistrate Judge recommended that if "the Special Master examines any documents that were subject to the rulings by the Ohio and North Carolina District Courts, the Special Master should defer to the rulings of those District Courts."⁶ (Doc. 394-3 at 15-16.) In his Report and Recommendation, the D.C. Magistrate Judge observed that, after the 2003 Orders, "any documents concerning UARG that are listed on Duke's privilege log will be turned over to the Government, unless UARG successfully intervenes in that case and its request for reconsideration is granted." (Doc. 394-3 at 6-7.)

The Special Master randomly selected 227 documents to examine; because twenty-one of these documents were subject to the rulings in the Ohio Edison or Duke Energy cases, the Special Master set them aside (along with six other documents, therefore reviewing an even 200 documents). (Doc. 368-14 at 4.) He recommended sustaining the claims of privilege, although therewere "several groups of documents" for which he recommended overruling the privilege claims or claims of work product protection.⁷ (Doc. 368-14 at 6.) Because of the burden of separating the protected and non-protected documents, however, the Special Master explained that the court might, as "a practical matter," decline to order production of the documents. (Id.) Based on the D.C. Magistrate Judge's recommendation that the Special Master's report be adopted, the district court adopted the report and quashed the subpoenas for all 3,800 documents except for one "clearly not privileged" Prevention of Significant Deterioration ("PSD") modification outline.

B. Claim Preclusion (Res Judicata)

"Res judicata, also known as claim preclusion, bars a party from relitigating a claim that was decided or could have been decided in an original suit" and was "designed to protect 'litigants from the burden of relitigating an identical issue with the same party or his privy and [to promote] judicial economy by preventing needless litigation.'" Laurel Sand &Gravel, Inc. v. Wilson, 519 F.3d 156, 161-62 (4th Cir. 2008) (quoting Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 (1979)). The Fourth Circuit has explained,

Generally, claim preclusion occurs when three conditions are satisfied: 1) the prior judgment was final and on the merits, and rendered by a court of competent jurisdiction in accordance with the requirements of due process; 2) the parties are identical, or in privity, in the two actions; and, 3) the claims in the second matter are based upon the same cause of action involved in the earlier proceeding.

In re Varat Enterprises, Inc., 81 F.3d 1310, 1315 (4th Cir. 1996). Whether two causes of action are identical for claim preclusion purposes depends on "whether the claim presented in the new litigation arises out of the same transaction or series of transactions as the claim resolved by the prior judgment." Laurel Sand & Gravel, Inc., 519 F.3d at 162 (internal quotation marks omitted).

As the proponent of claim preclusion, Duke Energy bears the burden of establishing all of its elements. First, Duke Energy must establish that there was a final judgment on the merits. Courts that have addressed the issue agree that a magistrate judge's order, before its adoption by a district court, does not qualify as a final judgment.⁸ Because the Magistrate Judge's2003 Orders have yet to be adopted by a district court, they were not final for purposes of claim preclusion when the D.C. litigation occurred. Therefore, the D.C. litigation is the prior final judgment on the merits. See Jewish War Veterans of the United States of America, Inc. v. Gates, 506 F.Supp.2d 30, 41 (D.D.C. 2007) (referencing a line of authority that has "declined to treat a Magistrate Judge's order as final until 'the district court makes it final'"); Stripling v. Jordan Production Co., LLC, 234 F.3d 863, 868 (5th Cir. 2000) ("We conclude that the magistrate judge's order did not qualify as a final judgment, such that it would provide a preclusive collateral estoppel effect."). For purposes of claim preclusion, the order in which two actions are commenced is irrelevant. Westwood Chemical Co., Inc. v. Kulick, ...