Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_14-cv-02033/USCOURTS-azd-2_14-cv-02033-2/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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UNITED STATES DISTRICT COURT

DISTRICT OF ARIZONA

Gateway Deliveries, LLC )

)

Plaintiff, ) 2:14-cv-02033 JWS

)

vs. ) ORDER AND OPINION

)

Mattress Liquidators, Inc., et al. ) [Re: Motion at Docket 89]

)

Defendants. )

)

I. MOTION PRESENTED

At docket 89 plaintiff Gateway Deliveries, LLC (“Gateway”) moves pursuant to

Rule 37 of the Federal Rules of Civil Procedure for an order compelling defendants

Mattress Liquidators, Inc. (“Liquidators”) and Mattress Firm, Inc. (“Firm”) (collectively,

“Defendants”) to produce documents they are withholding based on the attorney-client

privilege and work product doctrine. Exhibits 1-3 to Gateway’s motion are filed under

seal at docket 92. Defendants oppose Gateway’s motion at docket 98; Gateway replies

at docket 100. Exhibits 22 and 23 to Gateway’s reply are filed under seal in a nonelectronic format. Oral argument was requested but would not assist the court.

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II. BACKGROUND

Gateway entered into an exclusive mattress delivery agreement (Athe

Independent Contractor Agreement or ICA”) with third-party Bed Mart, Inc. (ABed Mart@)

in 2011. After Bed Mart’s assets were acquired by Liquidators, Liquidators continued to

use Gateway for mattress deliveries. Liquidators’ assets were then acquired by Firm

pursuant to an asset purchase agreement (“APA”). One of the APA’s conditions

required Liquidators to prove before closing that Liquidators’ “arrangement” with

Gateway had been terminated. Defendants also entered into a “letter agreement,”

which Gateway refers to as the “side letter” to the APA, whereby Firm agreed to try to

“negotiate and enter into a non-exclusive delivery agreement with Gateway” and

Liquidators agreed to indemnify Firm if Gateway sued.1

Before the APA’s closing date Defendants= former attorney, Gary Rosser

(“Rosser”), wrote a November 4, 2013 opinion letter (Athe Opinion Letter@) that was

disclosed to Gateway. The letter concludes that the ICA was not binding on Liquidators

and that Liquidators’ relationship with Gateway was terminable at will.2 With this green

light, Liquidators terminated its relationship with Gateway. Gateway describes the

Opinion Letter as not only Awrong@ but also “result-oriented.@

3

 According to Gateway,

Defendants knew at the time that the ICA was binding on Liquidators.4

Gateway’s action alleges bad faith against Liquidators and tortious interference

with a contract or business expectancy against Firm. In its present motion Gateway

argues that by disclosing various communications with counsel “Defendants have

waived the attorney-client privilege concerning the subject matter of the APA, the

1Doc. 89-2 at 25-28.

2

Id. at 2-6.

3Doc. 89 at 4.

4

Id. at 5.

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existence and validity of a contract between Gateway and Liquidators, and how to

address potential liability to Gateway through the APA and side letter thereto.”5

III. STANDARD OF REVIEW

Evidence Rule (“Rule”) 502, adopted on September 19, 2008, sets out the

circumstances under which the disclosure of a communication or information in a

federal proceeding acts as a subject matter waiver of the attorney-client privilege or

work-product protection. Rule 502’s protections against waiver apply in all federal court

proceedings, even in diversity-of-citizenship-jurisdiction cases where state law provides

the rule of decision.6

 Rule 502 does not, however, “alter the substantive law regarding

attorney-client privilege or work-product protection in any other respect, including the

burden on the party invoking the privilege (or protection) to prove that the particular

information or communication qualifies for it.”7 One element that the asserting party

must establish to satisfy its burden is that it has not waived the privilege.8

IV. DISCUSSION

Gateway argues that a subject matter waiver occurred as a result of two

separate productions. The first is Defendants’ production of five privileged emails on

October 2, 2015. And the second is Defendants’ production of privileged emails in

response to Gateway’s initial requests for production.9 

A. Defendants’ October 2, 2015 Production

Gateway focuses its first argument on Liquidators’ October 2, 2015 disclosure of

5

Id. at 15.

6Fed. R. Evid. 502(f).

71-502 4 JACK B. WEINSTEIN & MARGARET A. BERGER, WEINSTEIN’S FEDERAL EVIDENCE §

502.02 (2d ed. 2009).

8Weil v. Inv./Indicators, Research & Mgmt., Inc., 647 F.2d 18, 25 (9th Cir. 1981).

9Gateway also argues in its original motion that Rosser’s pre-litigation disclosure of the

Opinion Letter functions as a subject matter waiver and that Defendants waived by failing to

timely produce a privilege log. Gateway expressly abandons these two arguments in its reply.

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“a number of . . . formerly-privileged documents and communications concerning” the

Opinion Letter.10 Specifically, Gateway points to the following five emails:

1. An email containing an attachment that Rosser sent to Liquidators’

executives Joe Partsch (“Partsch”) and David Dolan (“Dolan”) on October

30, 2013;11

2. An email that Partsch sent to Rosser on November 1, 2013 at either 12:04

pm or 7:03 pm;

12

3. An email that Rosser sent to Partsch on November 1, 2013 at 11:16 pm;

13

4. An email containing an attachment that Rosser sent to Dolan and Partsch

on November 4, 2013;14 and

5. An email that Partsch sent to Rosser on March 3, 2014. 15

These emails do not appear on Defendants’ Privilege Log.

16

 Gateway contends that

Defendants disclosed them intentionally, thereby waiving the attorney-client privilege. 

By not responding to Gateway’s arguments concerning these emails in their opposition,

Defendants effectively concede that they waived the privilege through intentional

disclosure. The only remaining dispute is whether this waiver extends to all undisclosed

materials that concern the same subject matter.

Citing authority that predates Rule 502, Gateway’s argument relies on the former

10Doc. 89 at 6.

11Doc. 89-2 at 71-74. A duplicate of this email is found at id. at 81-84. Rosser sent the

same email to Partsch and Dolan without the attachment on October 29, 2013 at 6:15 pm. See

id. at 48-49, 58-59, 67-68, 75-76, at 78-79.

12The version at doc. 89-2 at 48, 58, 67, and 78 shows that it was sent at 12:04 pm.

The version at doc. 89-2 at 75 shows that it was sent at 7:03 pm.

13Doc. 89-2 at 47. Duplicates of this email are found at id. at 57, 66, and 77.

14

Id. at 51-55. Duplicates of this email are found at id. at 61-65, and 85-89.

15

Id. at 56. A duplicate of this email is found at id. at 70.

16

Id. at 91-180.

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general rule that “‘the voluntary disclosure of privileged attorney-client communications .

. . waives the privilege as to all other communications on the same subject.’”17 This 

rule was modified when Rule 502(a) was adopted in 2008. Rule 502(a) now provides

as follows:

When [a] disclosure is made in a federal proceeding . . . and waives the

attorney-client privilege or work-product protection, the waiver extends to

an undisclosed communication or information in a federal or state

proceeding only if: 

(1) the waiver is intentional; 

(2) the disclosed and undisclosed communications or information

concern the same subject matter; and 

(3) they ought in fairness to be considered together.18

The Advisory Committee’s Notes state that Rule 502(a) establishes the new general

rule that an intentional disclosure “results in a waiver only of the communication or

information disclosed.”19

 An exception to this general rule exists, and a subject matter

waiver will be found, where the disclosed and undisclosed communications “ought in

fairness to be considered together.”20

 A subject matter waiver is therefore “reserved for

those unusual situations in which fairness requires a further disclosure of related,

protected information, in order to prevent a selective and misleading presentation of

evidence to the disadvantage of the adversary.”21

 To determine whether a given case

17Doc. 89 at 7 (quoting Katz v. AT&T Corp., 191 F.R.D. 433, 439 (E.D. Pa. 2000)).

Gateway also cites Weil, 647 F.2d at 25; and United States v. Plache, 913 F.2d 1375, 1380 (9th

Cir. 1990).

18Fed. R. Evid. 502(a).

19Fed. R. Evid. 502(a) advisory committee’s explanatory note (emphasis added).

20Fed. R. Evid. 502(a)(3).

21Fed. R. Evid. 502(a) advisory committee’s explanatory note. See also 23 CHARLES

ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE & PROCEDURE § 5444 (1st ed. 2015)

(stating that Rule 502 “creates an exception allowing subject matter waiver only under unusual

circumstances.”); 3-502 JACK B. WEINSTEIN & MARGARET A. BERGER, WEINSTEIN’S FEDERAL

EVIDENCE § 502.02A (2d ed. 2009) (“[I]f intentional waiver is found, it applies only to the

information disclosed, unless a broader subject-matter waiver is made necessary by the

holder’s intentional and misleading use of privileged or protected information.”); Trs. of Elec.

Workers Local No. 26 Pension Tr. Fund v. Tr. Fund Advisors, Inc., 266 F.R.D. 1, 11 (D.D.C.

2010) (holding that Rule 502(a) “abolishe[d] the dreaded subject-matter waiver, i.e., that any

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presents such an unusual situation, courts must engage in “a case-specific analysis of

the subject matter and adversaries.”22

Gateway argues that the disclosed emails and the undisclosed materials

concerning the same subject matter ought in fairness to be considered together

because “otherwise Gateway is impeded from receiving full discovery on the merits of

its claims, and Liquidators’ witnesses would be insulated from cross-examination.”23

Specifically, Gateway argues that it should be allowed to discover Defendants’

privileged communications because whether Liquidators knew that the ICA was binding

while it was negotiating the APA is a relevant question of fact.24

 

But even if Liquidators’ state of mind is relevant to Gateway’s claims, Rule 502

protects against a subject matter waiver where the party asserting the privilege is not

selectively and misleadingly presenting the disclosed materials as evidence.25 Here,

Defendants assert that they will not present evidence of their counsel’s advice because

they are not pursuing an advice-of-counsel defense.26 The court will hold Defendants to

this commitment and, accordingly, Defendants will not be using the attorney-client

disclosure of privileged matter worked a forfeiture of any other privileged information that

pertained to the same subject matter.”).

22Appleton Papers, Inc. v. E.P.A., 702 F.3d 1018, 1026 (7th Cir. 2012) (citing Fed. R.

Evid. 502 advisory committee notes).

23Doc. 89 at 8.

24

Id. at 5; Doc. 100 at 6.

25Fed. R. Evid. 502(a) advisory committee’s explanatory note. See also 23 Charles Alan

Wright & Arthur R. Miller, FEDERAL PRACTICE & PROCEDURE § 5444 (1st ed. 2015); 3-502 Jack

B. Weinstein & Margaret A. Berger, WEINSTEIN’S FEDERAL EVIDENCE § 502.02A (2d ed. 2009);

Seyler v. T-Sys. N. Am., Inc., 771 F. Supp. 2d 284, 288 (S.D.N.Y. 2011) (“[T]he plaintiff’s

counsel made it clear at argument that the plaintiff will not use this email. Thus, this is not a

case where a party intends to use the privileged communication and undisclosed attorney client

communications ought in fairness to be considered together. Therefore, the plaintiff has not

waived her privilege as to heretofore undisclosed communications.”).

26Doc. 98 at 8-9 (“Liquidators is not asserting an advice-of-counsel defense, using the

Opinion Letter or not.”).

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privilege as both a shield and a sword.27

 Considerations of fairness do not justify a

subject matter waiver.

B. Defendants’ Initial Production

Gateway states that Liquidators’ response to its initial request for production

included ten privileged emails, and Firm’s initial production included 16 privileged

emails.28 Gateway argues that these privileged emails were intentionally produced,

resulting in a subject matter wavier that extends to all privileged communications

regarding the Contract, the APA, and the so-called side letter. 29 Defendants dispute

that the emails were intentionally disclosed, in which case Rule 502(a) would apply,

arguing instead that they were inadvertently disclosed, in which case Rule 502(b) would

apply. If the emails were inadvertently disclosed, as Defendants argue, there can be no

subject matter waiver.30

There is no need for the court to resolve this dispute because even if the emails

were intentionally disclosed, a subject matter waiver is not supported by the fairness

considerations mentioned above. Defendants assert that they will not present the

disclosed emails as evidence because they “have nothing to do with this lawsuit.”31 In

light of this assertion, a subject matter waiver is not justified.

27See, e.g., Chevron Corp. v. Pennzoil Co., 974 F.2d 1156, 1162 (9th Cir.1992) (“The

privilege which protects attorney-client communications may not be used both as a sword and a

shield.”).

28Doc. 89 at 12.

29

Id. at 13.

30Fed. R. Evid. 502(a) advisory committee’s explanatory note (“an inadvertent disclosure

of protected information can never result in a subject matter waiver.”).

31Doc. 98 at 12.

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V. CONCLUSION

Based on the preceding discussion, Gateway’s motion to compel at docket 89 is

DENIED. 

DATED this 19th day of January, 2016.

 /s/ 

JOHN W. SEDWICK

UNITED STATES DISTRICT JUDGE

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