Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_09-cv-00009/USCOURTS-caed-2_09-cv-00009-4/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

PATRIOT RAIL CORP., 

a Delaware Corporation,

Plaintiff, No. CIV S-09-0009 MCE EFB

vs.

SIERRA RAILROAD COMPANY, 

a California Corporation, 

Defendant. ORDER

 /

AND RELATED COUNTERCLAIMS

 /

This matter was before the court on August 5, 2009, for hearing on: (1) plaintiff’s motion

to compel production of a document which defendant had inadvertently disclosed and then

withdrew from disclosure, Dckt. No. 26; (2) plaintiff’s motion to file under seal the unredacted

declaration of plaintiff’s counsel, Dckt. No. 27; and (3) the request of each party for attorney

fees and costs in pursuing and defending these matters. Lisa Halko, Esq., and Sarah Asplin,

Esq., appeared on behalf of plaintiff Patriot Rail Corporation (“Patriot”); and Scott Cameron,

Esq., appeared on behalf of defendant Sierra Railroad Company (“Sierra”). After consideration

of the moving and opposing papers and the arguments of counsel, and for the reasons that

follow, the court denies plaintiff’s motions to compel and to file under seal, and denies each

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party request for attorney fees.

BACKGROUND

This motion address the first three pages of a ten-page document which defendant

disclosed. However, defendant contends that the first three pages (the pages now in dispute) are

protected by attorney-client privilege and the work product doctrine. Copies of these pages were

inadvertently disclosed by defendant to plaintiff’s counsel but were either returned or destroyed

upon notification by defendant of the claim of privilege. There is no claim of waiver because of

the inadvertent disclosure and the defendant appears to have acted timely in correcting the error. 

Rather, the only dispute is whether the content of three pages are subject to either the attorneyclient privilege and/or work product doctrine. The last seven pages of the document have been

fully disclosed and are not in issue. 

On April 1, 2009, plaintiff Patriot Rail Corporation propounded its Request for

Production, Set Two, upon defendant Sierra Railroad Company. Request Number One sought

“[a]ll documents and other tangible things illustrating Defendant’s relationship and

communications with McClellan Business Park.” Defendant produced relevant documents the

morning of June 4, 2009, immediately prior to plaintiff’s deposition of Michael Hart, President

of Sierra. After commencement of the deposition, during the lunchbreak, plaintiff’s counsel

reviewed the newly produced documents, including a ten-page document responsive to the

above-noted production request, identified as Bates Number SRR 6786-6795. The document

generally describes Sierra’s business relationship with third party McClellan Business Park

(“MCP” or “McClellan”). When the deposition resumed, plaintiff’s counsel, Lisa Halko, asked

Mr. Hart about the document. Mr. Hart responded initially, but defendant’s counsel, Mr.

Gonzalez, objected on the ground of inadvertent disclosure, stating that the first three pages,

Bates Number SRR 6786-88, were drafted by Mr. Torgny Nilsson, Sierra’s in-house counsel,

and subject to attorney-client privilege. Plaintiff thereafter destroyed its copies of the disputed

pages. 

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 While the document does not bear a date, and Mr. Nilsson does not provide one, Mr.

Hart testified that he believed the document was written mid-2007. 

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On June 9, 2009, defendant provided a privilege log, Ex. E to Halko Decl., which

provides the following information as to the assertion a attorney client privilege: 

Date Doc. Type/

Bates No.

Author Recipient Description Privilege

Undated SRR 006786-

SRR 006788

T. Nilsson M. Hart, T. Nilsson

and Sierra Railroad

management team

Summary of Sierra

Railroad’s operations

at McClellan Park and

opinions of T. Nilsson

re. same

Attorney-Client

Privilege;

Attorney Work

Product Doctrine

Plaintiff filed this motion on June 16, 2009. On July 13, 2009, the court ordered

defendant to produce the disputed pages for in camera review. The court deferred consideration

of plaintiff’s motion to file under seal the unredacted declaration of plaintiff’s counsel, but

directed that “[t]he parties may share the unredacted document pursuant to the provisions of their

protective order approved by the district judge on May 21, 2009.” Dckt. No. 28.

Defendant timely submitted the disputed pages on July 16, 2009, and the court has

reviewed them in camera. On July 29, 2009, the parties filed their joint statement addressing

this narrow discovery dispute.

Defendant’s in-house counsel, Mr. Torgny Nilsson, filed a declaration in support of

defendant’s assertions of privilege, in which he states that he is, and “at all relevant times was,

the General Counsel for Sierra Railroad Company and its subsidiaries Sierra Northern Railway

and Sierra Entertainment.” Nilsson Decl., Dckt. No. 32, at p. 1. Mr. Nilsson states that he wrote

the disputed pages for the purposes of providing legal advice and in anticipation of possible

litigation with McClellan,1

 and describes these circumstances as follows: 

¶ 2. I prepared the first three pages of the document entitled “Sierra Benefits to

MCP,” which is now Bates labeled SRR 6786 through SRR 6788, when it became

apparent that a dispute, which might lead to litigation, was arising between Sierra

Northern Railway and the management of McClellan Business Park concerning

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Sierra Northern Railway’s operation of the railroad facilities at McClellan

Business Park.

¶ 3. In order for me to provide upper management at Sierra Northern Railway

and Sierra Railroad Company with the best analysis of the arising dispute, and in

order to decide the best course of action if and when that dispute led to litigation,

I obtained information from those people in our company involved in obtaining

and overseeing Sierra Northern Railway’s operations at McClellan Business Park

as to the history of Sierra Northern Railway’s operations at McClellan Business

Park, the benefits Sierra Northern Railway had brought to McClellan Business

Park, and the arguments that might be made by both McClellan Business Park and

Sierra Northern Railway in the event of any litigation. I also analyzed the

potential merits and drawbacks of the arguments that might be made and the

potential impact of those arguments.

¶ 4. I at all times considered the document to be privileged as it was prepared in

anticipation of litigation and its distribution was limited to those of Sierra’s upper

management who had a need to know the information so that they could best

direct my actions in the growing dispute with the management of McClellan

Business Park and in any resulting litigation. I am informed and believe that the

document was never, prior to the instant litigation with Patriot, provided to

anyone other than Mike Hart, President of Sierra Railroad Company, and David

Magaw, Vice-President of Sierra Railroad Company and President of Sierra

Northern Railway. In the document, I attempted to play “devil’s advocate” by

presenting what I anticipated would be McClellan Business Park’s side of the

growing dispute in an effort to communicate to Sierra’s senior management the

issues that were involved in the dispute.

¶ 5. I provided the document to the firm of Weintraub Genshlea Chediak, Sierra

Railroad Company's counsel in the instant litigation with Patriot, as the document

appeared to be responsive to Patriot's request for the production of documents in

conjunction with Mike Hart's deposition. But at the time I did so, I believed the

document to be protected by the attorney-client privilege and I did not expect the

document to be produced to Patriot. The fact that the documents were prepared in

addressing a potential growing dispute with McClellan Business Park, rather than

Patriot, did not, in my opinion, in any way affect the privileged nature of the

documents in the litigation with Patriot.

Nilsson Decl., at pp. 2-3; see also Jt. Stmt. at 14. 

Plaintiff responds that the “dominant purpose” test should control the court’s analysis of

defendant’s asserted privilege, and that the dominant purpose of the disputed document was to

provide business, not legal, advice. According to plaintiff, the document, including the three

pages in issue, were prepared in the ordinary course of business, rather than in anticipation of

litigation, and that plaintiff has a substantial need for the document because the information

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contained therein (in particular, information upon which to impeach the testimony of Mr. Hart

regarding the true nature of defendant’s relationship with McClellan) cannot be obtained

elsewhere. 

DISCUSSION

“The party asserting attorney-client privilege has the burden of establishing all of the

elements of the privilege.” United States v. Munoz, 233 F.3d 1117, 1128 (9th Cir. 2000). “[T]he

essential elements of the attorney-client privilege [are]: (1) [w]here legal advice of any kind is

sought, (2) from a professional legal adviser in his capacity as such, (3) the communications

relating to the purpose, (4) made in confidence (5) by the client, (6) are at this instance

permanently protected (7) from disclosure by himself or by the legal adviser, (8) unless the

protection be waived.” Admiral Ins. v. United States District Court for District of Arizona, 881

F.2d 1486, 1492 (9th Cir. 1989). “[B]ecause the privilege has the effect of withholding relevant

information from the fact-finder, it applies only where necessary to achieve its purpose.” Fisher

v. United States, 425 U.S. 391, 403 [] (1976); United States v. Gray, 876 F.2d 1411, 1415 (9th

Cir. 1989) (the privilege is ‘narrowly and strictly construed’). Nevertheless, the attorney client

privilege, once properly asserted, is absolute. See Westinghouse Elec. Corp. v. Republic of the

Philippines, 951 F.2d 1414, 1429, (3d Cir. 1991).” Modesto Irrigation District v. Gutierrez,

2007 WL 763370, 13 (E.D. Cal. 2007).

In contrast, “[t]he work product doctrine, codified in Federal Rule of Civil Procedure

26(b)(3), protects ‘from discovery documents and tangible things prepared by a party or his

representative in anticipation of litigation.’ Admiral Ins. Co. v. United States District Court, 881

F.2d 1486, 1494 (9th Cir.1989). Such documents may only be ordered produced upon an

adverse party’s demonstration of ‘substantial need [for] the materials’ and ‘undue hardship [in

obtaining] the substantial equivalent of the materials by other means.’ Fed. R. Civ. P. 26(b)(3).”

In re Grand Jury Subpoena (Mark Torf/Torf Environmental Management), 357 F.3d 900, 906

(9th Cir. 2004). However, such weighing of interests does not apply to work product containing

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 As set forth in Hickman v. Taylor, 329 U.S. 495, 511-512 (1947):

We do not mean to say that all written materials obtained or prepared by an

adversary’s counsel with an eye toward litigation are necessarily free from

discovery in all cases. Where relevant and non-privileged facts remain hidden in

an attorney’s file and where production of those facts is essential to the

preparation of one’s case, discovery may properly be had. Such written

statements and documents might, under certain circumstances, be admissible in

evidence or give clues as to the existence or location of relevant facts. Or they

might be useful for purposes of impeachment or corroboration. And production

might be justified where the witnesses are no longer available or can be reached

only with difficulty. Were production of written statements and documents to be

precluded under such circumstances, the liberal ideals of the deposition-discovery

portions of the Federal Rules of Civil Procedure would be stripped of much of

their meaning. 

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an attorney’s mental impressions and opinions, which remain inviolate. See Admiral Ins. Co.,

supra, 881 F.2d 1486, 1494 (9th Cir. 1989) (citing Upjohn v. United States, 449 U.S. 383, 401

(1981) (work product doctrine accords special protections against disclosing an attorney's mental

impressions and opinions, but “other work-product materials nonetheless may be ordered

produced upon an adverse party’s demonstration of substantial need or inability to obtain the

equivalent without undue hardship”); see also Hickman v. Taylor, 329 U.S. 495, 511-512

(1947).2

The “‘dominant purpose’ test,” on which plaintiff relies, was well summarized by the

California Court of Appeal, Fourth District, in 2,022 Ranch, L.L.C. v. Superior Court, 113

Cal.App.4th 1377, 1390-1395 (4th Dist. 2003). The court explained:

In certain instances it is difficult to determine if the attorney-client privilege (or

work product privilege) attaches to a communication, particularly where there

may be more than one purpose for that communication: Where it is clear that the

communication has but a single purpose, there is little difficulty in concluding

that the privilege should be applied or withheld accordingly. If it appears that the

communication is to serve a dual purpose, one for transmittal to an attorney in the

course of professional employment and one not related to that purpose, the

question presented to the trial court is as to which purpose predominates. This

“dominant purpose” test not only looks to the dominant purpose for the

communication, but also to the dominant purpose of the attorney's work. Thus,

the attorney-client privilege would not apply without qualification where the

attorney was merely acting as a negotiator for the client, or merely gave business

advice, or was merely acting as a trustee for the client.

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2,022 Ranch, supra, 113 Cal.App.4th at 1390-1391 (citations and internal quotations omitted).

The court’s in camera review supports the declaration of Mr. Nilsson. The document,

including the three pages in question, demonstrates that its purpose was to provide legal advice. 

The disputed pages were written by Mr. Nilsson in his capacity as in-house counsel for

defendant Sierra Railroad Company, during a period of conflict between Sierra and McClellan

Business Park. The document was directed to Sierra management, and addressed the parameters

of Sierra’s contract with McClellan and Sierra’s obligations thereunder. The document was

disclosed in confidence, and was not further disclosed except for its inadvertent disclosure to

plaintiff. Given the legal purpose and content of the document, and its preparation by Sierra’s

in-house counsel for management’s eyes only, defendant’s assertion of attorney-client privilege

was proper and should be upheld.

Defendant’s inadvertent disclosure did not effect a waiver of the attorney-client privilege. 

Courts commonly consider five factors to evaluate waiver of privilege by inadvertent disclosure: 

“(1) the reasonableness of the precautions taken against disclosure; (2) the time taken to rectify

the error; (3) the scope of the discovery; (4) the extent of the disclosure; and (5) the overriding

issue of fairness.” In re Sause Bros. Ocean Towing, 144 F.R.D. 111, 115 (D. Or. 1991)

(citations omitted). The court’s consideration of these factors demonstrates that, while greater

precautions could initially have been taken to protect the document, disclosure was minimal, the

scope of information contained therein was narrow, and the error was immediately rectified;

defendant’s quick efforts to secure and protect the document render its continued protection a

fair result. Thus, based on the relevant factors, the court finds no waiver of the attorney-client

privilege by inadvertent disclosure. 

Plaintiff’s remaining arguments seek to overcome defendant’s subsequent assertion of

work product protection. While the contested document was prepared in the midst of a growing

dispute between Sierra and McClellan, a dispute relevant to the instant litigation, it cannot

reasonably be said that the document was prepared in anticipation of litigation. Rather, the

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 See, e.g., QST Energy, Inc. v. Mervyn's, 2001 WL 777489, 5 (N.D. Cal. 2001):

The threshold inquiry is whether the material was prepared in anticipation of

litigation. Reavis v. Metropolitan Prop. & Liab. Ins. Co., 117 F.R.D. 160, 162

(S.D. Cal. 1987). If “but for” the litigation, the document would not have been

prepared, then the document is work product; if the document was prepared in the

ordinary course of business, regardless of any litigation, it is not work product.

See, e.g., First Pac. Networks, Inc. v. Atlantic Mut. Ins. Co., 163 F.R.D. 574, 582

(N.D. Cal. 1995) (communications between client or its counsel and insurance

carrier not protected when the documents would have been prepared independent

of any litigation); Fox v. California Sierra Fin. Serv., 120 F.R.D. 520, 528-529

(N.D. Cal. 1988) (legal opinion letters regarding securities offering that defendant

was required to provide not prepared in anticipation of litigation). While

litigation need not have already commenced, “there must be more than a remote

possibility of litigation.” Conner Peripherals v. Western Digital Corp., 1993 WL

726815 at *4 (N.D. Cal. June 8, 1993). The protection applies “if the prospect of

litigation is identifiable because of specific claims that have already arisen.” Id.

The test is whether “the document can fairly be said to have been prepared or

obtained because of the prospect of litigation.” Id. (citations omitted).

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document provides legal advice in the ordinary course of business, and is therefore not subject to

work product protection.3 Nonetheless, the disputed pages remain protected pursuant to the

attorney-client privilege. 

 Finally, plaintiff has filed an application fo file under seal the declaration of Lisa L.

Halko. The sealing order is sought because the declaration describes or characterizes the

disputed three pages. The court finds no compelling reason to file Ms. Halko’s declaration,

whether redacted or unredacted, and therefore denies plaintiff’s application for a sealing order. 

Plaintiff’s motion does not meet the requisite elements for sealing, a procedure narrowly tailored

to protect highly confidential information. The court appreciates counsel’s sensitivity to the

privilege issue and the efforts to avoid divulging defendant’s privileged information. However,

the information contained in, and attached to, Ms. Halko’s declaration, does not appear to

actually disclose the contents of the disputed pages. Nor does it appear to be the type of

information that is traditionally kept confidential, and plaintiff has not demonstrated a

compelling reason that it be sealed. See Kamakana v. City and County of Honolulu, 447 F.3d

1172, 1178-79 (9th Cir. 2006); Foltz v. State Farm Mut. Auto Ins. Co., 331 F.3d 1122, 1135 (9th

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Cir. 2003). Moreover, the parties have had full access to Ms. Halko’s declaration pursuant to

their protective order. The court’s rulings herein are based not on the contents of Ms. Halko’s

declaration, but on the contents of the disputed document itself, pursuant to the court’s in camera

review, as well as Mr. Nilsson’s declaration regarding the purpose and preparation of the

document, and the arguments of counsel in their consolidated joint statement and at the hearing

on this matter. Therefore plaintiff’s application for a sealing order is denied and the Clerk of

Court is directed to return the materials lodged with that application to Ms. Halko.

The requests of both parties for fees and costs are denied based on the court’s conclusion

that the positions of both parties were reasonable.

CONCLUSION

For the foregoing reasons, IT IS HEREBY ORDERED that:

1. Plaintiff’s motion to compel production of the three-page document withheld by

defendant based on attorney-client privilege, and identified as Bates Number SRR 6786-88,

Dckt. No. 26, is DENIED;

2. The Clerk of Court is directed to return to defendant’s counsel the court’s copy of the

document identified as Bates Number SRR 6786-88, submitted for in camera review on July 16,

2009.

3. Plaintiff’s motion to file under seal the unredacted declaration of plaintiff’s counsel,

Dckt. No. 27, is DENIED;

4. The Clerk of Court is directed to return to plaintiff’s counsel the court’s copy of Ms.

Halko’s declaration submitted in camera pursuant to her motion, Dckt. No. 27; and,

5. The request of each party for attorney fees and costs in pursuing and defending these

matters is DENIED.

SO ORDERED.

DATED: September 11, 2009.

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