Source: https://law.justia.com/cases/federal/appellate-courts/F3/128/430/525196/
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Matched Legal Cases: ['§ 1332', '§ 3935', '§ 1651', '§ 450', '§ 450', '§ 2327', '§ 2000', '§ 26']

In Re Perrigo Company, Petitioner, 128 F.3d 430 (6th Cir. 1997) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Sixth Circuit › 1997 › In Re Perrigo Company, Petitioner
In Re Perrigo Company, Petitioner, 128 F.3d 430 (6th Cir. 1997)
US Court of Appeals for the Sixth Circuit - 128 F.3d 430 (6th Cir. 1997) Argued June 11, 1997. Decided Oct. 23, 1997
Plaintiffs filed a stockholder's derivative action on behalf of the corporation involved in this controversy, Perrigo Company ("Perrigo"), which has its principal place of business in Allegan County, Michigan. Plaintiffs, non-residents of Michigan, brought this suit based on diversity of citizenship. See 28 U.S.C. § 1332(a) (2). The principal defendants are present or former directors, officers, or controlling shareholders of Perrigo. Other defendants are securities investment companies designated "underwriter defendants." Perrigo now petitions this court to issue a writ of mandamus vacating a previous order of the district court and preventing the district court from ordering production of a report which Perrigo claims is privileged material. The following background information is necessary to the disposition of this petition.
In the underlying derivative suit, plaintiffs claim (among other things) that the defendants' actions constituted concealment of true facts regarding the corporation and its financial condition, breach of fiduciary duty, wrongful insider trading of Perrigo stock, and absence of good faith with respect to a large sale ("a registered public offering") of Perrigo shares listed on a public stock exchange. It is asserted that those actions profited the individual selling shareholders, directors, and officers at the expense of the corporation and, consequently, to the detriment of the shareholders generally. The complaint refers to a related but separate securities fraud lawsuit, which was brought as a class action and involves substantially the same parties and the same alleged misconduct at issue here. Picard Chemical Inc. Plan v. Perrigo Co., No. 95-CV-141 (W.D. Mich.) (hereinafter referred to as "the class action" or "the securities action").
(1) The court shall dismiss a derivative proceeding if, on motion by the corporation, the court finds that 1 of the groups specified in subsection (2) has made a determination in good faith after conducting a reasonable investigation upon which its conclusions are based that the maintenance of the derivative proceeding is not in the best interests of the corporation ... If the determination is made pursuant to subsection (2) (c) or (d), the plaintiff shall have the burden of proving that the determination was not made in good faith or that the investigation was not reasonable.(2) A determination under subsection (1) may be made by any 1 of the following:
Perrigo relied on Formanek's recommendation as the basis for its motion to dismiss. Faced with having to prove that Formanek's decision was not in good faith or was not based on a reasonable investigation, plaintiffs sought production of the Report. Perrigo refused to produce it, however, claiming that it was protected by work-product immunity and the attorney-client privilege. The district court addressed the issue for the first time in its opinion dated July 22, 1996. See Kearney v. Jandernoa, 934 F. Supp. 863 (W.D. Mich. 1996). It held that any attorney-client privilege was waived when Perrigo relied upon the Report in seeking dismissal. However, the court further held that the waiver did not extend to other parties, such as the plaintiffs in the class action lawsuit. Therefore, the Report could be used only by the derivative plaintiffs in responding to the motion to dismiss.
Perrigo moved to clarify and modify the July order and opinion. On November 8, 1996, the district court entered an order modifying in part the July order by vacating the "waiver" analysis and finding instead that the plaintiffs had established a substantial need for the Report and that undue hardship would result from the court denying the plaintiffs the Report.1 Kearney v. Jandernoa, 949 F. Supp. 510 (W.D. Mich. 1996). The court referred to and incorporated its analysis in an opinion entered at about the same time in the class action. Picard Chemical Inc. Profit Sharing Plan v. Perrigo Co., 951 F. Supp. 679 (W.D. Mich. 1996). Because the Picard opinion is the basis for the holding in the derivative action, a brief summary is pertinent to the instant petition for mandamus.
The court went on, however, to discuss the policies behind public access to court records, reasoning that " [a] judicial record must have a role in the adjudication process in order to be accessed by the public." Id. at 690 (citing Joy v. North, 692 F.2d 880, 893 (2d Cir. 1982)). After reviewing the pertinent case law, the court said:
Id. at 692. The court determined that " [t]his ruling gives Perrigo control of whether and when the Report will be submitted and become part of the public record." Id. The district court opined that Perrigo could withdraw its motion to dismiss if it feared public access, or it could wait until the conclusion of all discovery in the derivative action in determining whether it chose to submit the Report to the court in the class action. Id.
As stated before, the district court altered its reasoning in the instant derivative action "for the reasons set forth" in the Picard order. Kearney, 949 F. Supp. at 511. It maintained its holding that the Report was protected by the attorney-client privilege and work product immunity, but it found that the derivative plaintiffs were entitled to the Report because, unlike the class action plaintiffs, they could establish substantial need and undue hardship. In vacating the "waiver" analysis, the court found that a determination regarding waiver was unnecessary in light of its finding of hardship. The court concluded that the derivative "plaintiffs, and only [the derivative] plaintiffs are entitled access to the Report." Id. at 512.
Although the court found here that it was questionable "whether the Report [would] be submitted by either side," the court made plain in the Picard order that Perrigo's submission of the Report "must occur at some point before this Court rules on Perrigo's motion," and that Perrigo's submission will "make the Report part of this Court's judicial records," i.e., Perrigo will have waived its rights at that time. Picard, 951 F. Supp. at 691. Consequently, Perrigo was faced with choosing to maintain its motion to dismiss but waive any rights in the Report, or withdraw its motion to protect its privilege and immunity in the Report. Perrigo moved for an interlocutory appeal or to stay the proceedings pending a petition for a writ of mandamus. The district court's final order denying those motions was entered on March 31, 1997. The court ordered Perrigo either to deliver the Report to plaintiffs within 14 days or its motions to dismiss would be stricken. The instant petition and emergency motion for stay followed. We granted the stay pending the disposition of the merits of the petition for mandamus relief.ANALYSIS
Mandamus relief is an extraordinary remedy, only infrequently utilized by this court. Our review of petitions for mandamus relief are usually limited to "questions of unusual importance necessary to the economical and efficient administration of justice," or "important issues of first impression." EEOC v. K-Mart Corp., 694 F.2d 1055, 1061 (6th Cir. 1982); see also FDIC v. Ernst & Whinney, 921 F.2d 83, 85 (6th Cir. 1990). We have recently discussed the framework to apply in cases such as this one in In Re Chimenti, 79 F.3d 534 (6th Cir. 1996). There, quoting from In re School Asbestos Litigation, 977 F.2d 764, 773 (3d Cir. 1992), we stated that we were in favor of a "flexible" rather than a "rigid" approach:
Chimenti, 79 F.3d at 539 (quoting In re School Asbestos Litigation, 977 F.2d at 773). Chimenti reiterated now familiar factors to consider set forth in In re Bendectin Products Liability Litigation, 749 F.2d 300, 304 (6th Cir. 1984):
Chimenti, 79 F.3d at 540. Chimenti, however, pointed out that "Bendectin did not require that every element be met, observing that the factors would often be balanced in opposition to each other." Id.; see also In re NLO Inc., 5 F.3d 154, 156 (6th Cir. 1993).
Kearney v. Jandernoa, 934 F. Supp. 863, 865 (W.D. Mich. 1996). The district court made the following observations as to whether the Report was privileged within the meaning of the statute:
We note that several cases involving discovery issues have determined that this extraordinary remedy was warranted. In one somewhat analogous case, the court issued a petitioner mandamus relief to vacate a district court order which permitted plaintiffs' counsel to examine documents protected by attorney-client privilege. Chase Manhattan Bank, N.A. v. Turner & Newall, 964 F.2d 159 (2d Cir. 1992). Among other things, Turner & Newall stated:
Unlike other circuits, we have rarely used the extraordinary writ of mandamus to overturn a discovery order involving a claim of privilege. See In re Weisman, 835 F.2d 23, 26 n. 3 (2d Cir. 1987); see also 16 C. Wright, A. Miller, & E. Cooper et al., Federal Practice and Procedure § 3935, at n. 20 (1977 & Supp.1991) (citing cases that used mandamus to review claims of privilege).
Mandamus may properly be used as a means of immediate appellate review of orders compelling the disclosure of documents and information claimed to be protected from disclosure by privilege or other interests in confidentiality. Haines v. Liggett Group Inc., 975 F.2d 81, 89 (3d Cir. 1992); Cipollone v. Liggett Group, Inc., 785 F.2d 1108, 1118 (3d Cir. 1986); Sporck v. Peil, 759 F.2d 312, 314, 315 (3d Cir. 1985), cert. denied, 474 U.S. 903, 106 S. Ct. 232, 88 L. Ed. 2d 230; Bogosian v. Gulf Oil Corp., 738 F.2d 587, 592 (3d Cir. 1984). See also, Chase Manhattan Bank, N.A. v. Turner & Newall, PLC, 964 F.2d 159 (2d Cir. 1992); In re von Bulow, 828 F.2d 94 (2d Cir. 1987). We find that the petitioners have no other adequate means to attain relief from the district court's order that compels the disclosure of privileged information and work product.
Rhone-Poulenc Rorer Inc. v. Home Indem. Co., 32 F.3d 851, 861 (3d Cir. 1994).
The plaintiffs, on the other hand, rely upon another case which involved a shareholder's derivative action and the effect of the recommendation of a "special litigation committee" that the corporation not pursue a shareholder suit. Joy v. North, 692 F.2d 880 (2d Cir. 1982). The Joy court discussed the business judgment rule and held for a broad role for judicial inquiry in reviewing such a recommendation, not limiting scrutiny "to the good faith, thoroughness and independence of the special litigation committee." Id. at 889. We note, however, that the court in Joy applied Connecticut law, which emphasizes "traditional fiduciary obligation." Connecticut had not adopted the Michigan statute which is presently before us.
When the client is a corporation, special problems arise in applying the privilege. As fictitious entities, corporations can seek and receive legal advice and communicate with counsel only through individuals empowered to act on behalf of the corporation. See Commodity Futures Trading Commission v. Weintraub, 471 U.S. 343, 348, 105 S. Ct. 1986, 1990, 85 L. Ed. 2d 372 (1985).
In Upjohn v. United States, 449 U.S. 383, 101 S. Ct. 677, 66 L. Ed. 2d 584 (1981), the Supreme Court addressed the issue of the proper scope of the attorney-client privilege in the corporate setting. Rejecting the "control group" test, the Court held that the privilege applies to communications by any corporate employee regardless of position when the communications concern matters within the scope of the employee's corporate duties and the employee is aware that the information is being furnished to enable the attorney to provide legal advice to the corporation. 449 U.S. at 394, 101 S. Ct. at 685.
Admiral Ins. Co. v. U.S. Dist. Court for Dist. of Ariz., 881 F.2d 1486, 1492 (9th Cir. 1989). Admiral Ins. Co. also brought out the difference between this attorney-client privilege and the work-product rule:
In ordering production of a privileged statement on the facts of plaintiffs' assertion that they could not otherwise obtain the information contained in the statement, the district court confused the attorney-client privilege with the work-product rule. The work-product rule is not a privilege but a qualified immunity protecting from discovery documents and tangible things prepared by a party or his representative in anticipation of litigation. Fed. R. Civ. P. 26(b) (3). Although the rule affords special protections for work-product that reveals an attorney's mental impressions and opinions, 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 Upjohn, 449 U.S. at 401, 101 S. Ct. at 688.
We discern no appropriate mandamus relief with respect to the district court's finding that the derivative plaintiffs are entitled to the Report based on substantial need and undue hardship only for purposes of responding to Perrigo's motion to dismiss. Though we have found no cases dealing with this particular issue in Michigan, we agree that the purposes of the Michigan statute will be furthered by allowing the plaintiffs access to the Report. As a matter of fairness and practicality, the derivative plaintiffs (unlike the class action plaintiffs) will need the Report in order to "rebut the presumption that Formanek acted in good faith and made a reasonable investigation." Picard, 951 F. Supp. at 687. Further, there was no error in ordering disclosure of the Report to the district court under seal. Even if Perrigo were correct that the court's only function under the Michigan statute is to determine whether Formanek's recommendation of dismissal represents a good faith determination based upon a reasonable investigation by all disinterested independent directors of Perrigo, the court must have the Report before it can properly rule on Perrigo's motion and perform its judicial function. We make no judgment at this juncture about the district court's actual function under the Michigan statute.3
(Footnote omitted). When read together with the Picard order, the effect of this mandate is apparent. Perrigo must produce the Report and waive all of its rights thereto if it chooses to maintain its motion to dismiss. In the Picard order, however, the court found specifically that Perrigo has not voluntarily waived either its attorney-client privilege or work product immunity. See Picard, 951 F. Supp. at 688-90. Also, it noted that Perrigo did not use the Report in its motion, nor did it disclose any of the contents to the Perrigo Board and counsel. Id. at 689.
This circuit has found that a corporation's submission of portions of a report does not waive the attorney-client privilege if the report is not released in "significant part." See In re Grand Jury Proceedings October 12, 1995, 78 F.3d 251, 254 (6th Cir. 1996) (relying on In re Dayco Corp. Derivative Securities Litigation, 99 F.R.D. 616, 619 (S.D. Ohio 1983)). In the instant case, Perrigo did not release even a small portion of the Report to support its claim that Formanek's recommendation was made in good faith or that his investigation was reasonable. Although Perrigo requested that it be allowed to submit a redacted version of the Report for that purpose, the court rejected that request.4 Kearney, 949 F. Supp. at 511.
The dissent should recognize that a kind of automatic public disclosure of the Report upon the filing of a motion to dismiss under the Michigan statute will hinder future communications between the independent directors and attorneys reviewing whether a derivative action is in the corporation's interest. Requiring public disclosure in this and similar derivative suits would cause future disinterested independent directors in Michigan reviewing whether a derivative litigation is in the corporate interest not to produce extensive written materials. These concerns constitute additional reasons for our conclusion that the Michigan legislature could not have intended the effect of the district court's order. Those valid interests, which most certainly are important to Michigan lawmakers, provide a "reasoned basis" for our decision.5 Michigan would surely not wish to discourage disinterested independent directors from working candidly with counsel in discharging their duties under the statute. See Cyril Moscow et al., Michigan's Independent Director, 46 Bus. Law 57, 59 (1990) (" [T]he statute is structured to be an effective monitor of management, particularly in the area of managerial integrity."). A finding that would force Perrigo to waive all of its rights with respect to the privileged material would have such an effect.6
The district court's order also has the effect of giving the derivative plaintiffs, representing a tiny fraction of Perrigo's shareholders, the untrammeled power to waive Perrigo's protections in the Report if Perrigo does not first do so.7 By doing so, they could reveal the entire Report, which may contain highly confidential information, business trade practices or secrets, or other materials helpful to competitors and prejudicial to Perrigo itself. Although the district court purports to "give [ ] Perrigo control of whether and when the Report will be submitted and become part of the public record," Picard, 951 F. Supp. at 692, that control can be exercised only by its decision to pursue or withdraw the motion to dismiss. If Perrigo pursues the motion, then the district court has given the derivative plaintiffs the option of submitting the Report in defense of the motion and thereby publicizing its contents. We find that such a result would be contrary to Michigan law, which holds that "it is not within the power of the court or any party to waive the privilege for [the client]." Agee v. Williams, 17 Mich.App. 417, 169 N.W.2d 676, 679 (1969) (citing Schaibly v. Vinton, 338 Mich. 191, 61 N.W.2d 122, 124 (1953)).
We recognize that the public has a right to copy and inspect judicial records. See Nixon v. Warner Communications, Inc., 435 U.S. 589, 597, 98 S. Ct. 1306, 1311, 55 L. Ed. 2d 570 (1978); Richmond Newspapers, Inc. v. Virginia, 448 U.S. 555, 569-73, 100 S. Ct. 2814, 2823-25, 65 L. Ed. 2d 973 (1980). " [That right], however, is not absolute; district courts have the discretion to deny or permit access to judicial records." Picard, 951 F. Supp. at 691 (citing Nixon, 435 U.S. at 598, 98 S. Ct. at 1312). This Report should not become a part of the "judicial record" until the district court has read the Report and has adequately weighed the interests of public against the interests of Perrigo in maintaining its privilege as to all or part of the Report.8 If and when the district court intends to rely on the Report in making a decision in this case, then at that time it should conduct a hearing regarding whether the Report or parts thereof should be disclosed to the public, or whether that information should remained sealed. We look to language of a case cited by the dissent in connection with this holding:
We have indicated that mandamus relief is not warranted with respect to that part of the district court's order making the Report available to the plaintiffs subject to the protective order. We have also indicated that mandamus relief is not warranted with respect to the district court's examination, under seal, of said Report. As the district court found, Perrigo did not waive its attorney-client privilege by submitting the Report to the Court for its in camera review. Picard, 951 F. Supp. at 688 (quoting United States v. Zolin, 491 U.S. 554, 568-69, 109 S. Ct. 2619, 2628-29, 105 L. Ed. 2d 469 (1989)). We are concerned, however, with that part of the March 14, 1997, order holding that the Report, if submitted by either party "to induce reliance" by the district court, automatically "become [s] a public record." That condition, we believe, requires mandamus relief, because it would force Perrigo to choose between maintaining its motion to dismiss or waiving its privilege to the Report, and it would give the plaintiffs the power to waive Perrigo's protections and reveal the entire Report to the public. We make this judgment based on the purposes behind the Michigan statute, and we are bound to determine what we believe a Michigan court would do under the same circumstances.
It may be that for good and sufficient reasons at some point in the proceedings, after a full hearing on the matter, the district court may conclude that public disclosure of the Report or certain portions thereof is necessary and appropriate for limited purposes. We deem it clear error, however, to direct that simply by "submitting" the Formanek Report, in purported compliance with the Michigan statute, to "induce reliance" by the court (which will undoubtedly occur), automatically places it in the public domain. "To hold otherwise may have the effect of thwarting the developing procedure of corporations to employ independent outside counsel to investigate and advise them in order to protect stockholders, potential stockholders and customers." Diversified Indus., Inc. v. Meredith, 572 F.2d 596, 611 (8th Cir. 1978) (en banc).9 The district court itself may study, examine, interpret, and inspect the Report without making it public property in connection with the disposition of the motion to dismiss.
I agree that a petition for a writ of mandamus is an appropriate vehicle for obtaining immediate appellate review of a lower court's order compelling the production of documents claimed to be protected by privilege. See 28 U.S.C. § 1651(a); Glenmede Trust Co. v. Thompson, 56 F.3d 476, 482 (3d Cir. 1995). In the instant petition, however, Perrigo has failed to make a convincing case that it has a clear and indisputable entitlement to such extraordinary relief.
* For the purposes of the instant petition for mandamus, I am willing to assume that the Formanek Report was initially entitled to the protections afforded by the attorney-client privilege and work-product immunity doctrines. These doctrines together serve vital needs in the orderly administration of justice through enriching the dialogue between attorney and client and safeguarding a sound adversary system by enabling attorneys to prepare for litigation sheltered by a certain degree of privacy. See Upjohn Co. v. United States, 449 U.S. 383, 389, 397-98, 101 S. Ct. 677, 682, 686-87, 66 L. Ed. 2d 584 (1981); United States v. Nobles, 422 U.S. 225, 236-39, 95 S. Ct. 2160, 2169-71, 45 L. Ed. 2d 141 (1975).
Id. 487 N.W.2d at 382, 383-84 (quoting Greater Newburyport Clamshell Alliance v. Public Serv. Co. of New Hampshire, 838 F.2d 13, 20 (1st Cir. 1988)). Thus, under Michigan law, general notions of fairness are central to resolving whether a party has impliedly waived privilege protection. Applying Michigan law to this case, I believe Perrigo has waived its right to claim a privilege.
Although the Michigan Supreme Court failed to provide explicit guidelines explaining which interests courts should look to in balancing fairness considerations in determining waiver of privilege, the Howe decision, as well as Clamshell, the case providing the basis for the Howe decision, clearly indicate several important factors. The Michigan Supreme Court in Howe began its analysis by noting that the Michigan Court Rules provide for broad discovery in civil cases. See Howe, 487 N.W.2d at 383. The court also emphasized the trial judge's finding that the privileged report sought by the defendants was relevant to their defense. See id. 487 N.W.2d at 383-84; see also Clamshell, 838 F.2d at 22 (" [D]efendants should demonstrate that the material to be discovered is relevant to their case."). Similarly, the district judge in the Perrigo derivative suit concluded that the Formanek Report is extremely relevant to the plaintiff's ability to respond to Perrigo's motion to dismiss pursuant to MICH. COMP. LAWS ANN. § 450.1495. See Kearney v. Jandernoa, 934 F. Supp. 863, 866 (W.D. Mich. 1996) (concluding that "the report will probably be the best evidence of Mr. Formanek's good faith and the adequacy of his investigation, or lack thereof"). Perrigo itself has acknowledged the Report's importance to its motion, stating that "the Independent Director submitted a 198-page Report to the Board that explains in detail his findings and conclusions that maintenance of the derivative claims would not be in Perrigo's best interests." Mot. to Dismiss at 8-9 (emphasis added).
Howe, 487 N.W.2d at 381(quoting Hearn v. Rhay, 68 F.R.D. 574, 581 (E.D. Wash. 1975)).1 Perrigo's actions clearly satisfy these three conditions.
By moving to dismiss on the basis of the disinterested independent director's reasonable investigation and conclusion that the maintenance of the suit is not in the best interests of the corporation, see MICH. COMP. LAWS. ANN. § 450.1495 (West 1990), Perrigo has itself made the Formanek Report particularly relevant and probative to its motion. Despite acknowledging the Report's singular importance to its motion, Perrigo did not submit the actual Report. Perrigo thus superficially tries to rely solely on the Report's bottom line while at the same time evading exposure of its 198 pages, which contain the real ammunition behind Perrigo's motion. Such selective disclosure creates an aura of unfairness and is generally disfavored. See, e.g., United States v. Bilzerian, 926 F.2d 1285, 1292 (2d Cir.) ("A defendant may not use the [attorney-client] privilege to prejudice his opponent's case or to disclose some selected communications for self-serving purposes."), cert. denied, 502 U.S. 813, 112 S. Ct. 63, 116 L. Ed. 2d 39 (1991); Houston, 532 N.W.2d at 516 (" [A party] cannot be allowed, after disclosing as much as he pleases, to withhold the remainder.") (quoting 8 Wigmore, Evidence (McNaughton rev.) § 2327, pp. 636-38). The corporation's claim of entitlement to dismissal is enmeshed in the Report itself. It is the Report that might, in the end, permit Perrigo to dismiss the suit because the Report, not its conclusions, details the disinterested independent director's good faith and reasonable investigation. Perrigo has therefore effectively placed the substance of the Report into issue in the litigation.
Fairness considerations also require an assessment of the importance of the privilege to its holder. See Howe, 487 N.W.2d at 383 (stating that "plaintiffs are entitled to stand by their claim of statutory privilege and have their interests carefully weighed against those of the defendants"); Clamshell, 838 F.2d at 20 ("The court should ... balanc [e] the importance of the privilege asserted against the defending party's need for the information to construct its most effective defense."). The courts have long recognized that protecting the private dialogue between clients and their attorneys encourages full and frank communications between clients and their attorneys, thereby promoting sound legal advice and advocacy. See, e.g., Upjohn, 449 U.S. at 389, 101 S. Ct. at 682. Removing the cloak of confidentiality afforded the Formanek Report may hinder future communications between the independent directors and attorneys reviewing whether a derivative action is in the corporation's interest. However, no one has compelled Perrigo to forego its privilege. Perrigo may freely amend its motion to dismiss to lessen the need for the Report, or it may forego its motion entirely should disclosure of the Report prove too damaging. Cf. Clamshell, 838 F.2d at 21 (" [P]laintiffs are not being compelled to forego their privilege. Having control of their lawsuit, they can always drop the case if disclosure of the privileged information is too high a price, ... [or] they could amend their complaint to lessen the defendants' need for the privileged information."). I therefore believe the privilege afforded Perrigo and the Report carries relatively little weight when balanced against the considerations favoring disclosure of the Report, according to the Michigan waiver standard.
Having examined the competing interests of the parties with respect to the Formanek Report, I believe fairness considerations require the conclusion that Perrigo has surrendered the attorney-client privilege.2 The Report's relevance and its singular importance to Perrigo's motion as shown by Perrigo's reliance on the Report demonstrates that Perrigo's motion to dismiss, "and the probable defenses thereto, are enmeshed in important evidence that will be unavailable to the [derivative plaintiff] if the privilege prevails." Howe, 487 N.W.2d at 383-84 (quoting Clamshell, 838 F.2d at 20). A similar waiver was found in Harding v. Dana Transport, Inc., 914 F. Supp. 1084, 1096 (D.N.J. 1996), where an employer relied upon the reasonable investigation by its attorney as a defense to employer liability for a hostile work environment sexual discrimination case arising under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e, et seq., and state law. As under Michigan law, fairness was a central element to the court's determination of waiver in Harding. See id. at 1092. Because there the investigation itself provided a defense to liability, fairness dictated that the employer be deemed to have waived disclosure protections for all documents produced in the investigation. See Harding, 914 F. Supp. at 1096. Similar fairness concerns arise in this case, for Perrigo stands in a comparable position to the employer in Harding. Given that fairness is a central component of Michigan's waiver law, I would hold that Perrigo impliedly surrendered any attorney-client privilege protection for the Report when Perrigo relied upon the investigation and conclusions embodied in the Report in seeking dismissal of the derivative action.
Similarly, I believe that such reliance on the Report by Perrigo in its motion to dismiss impliedly waives any work-product immunity protection derived from federal statutory or common law. See Fed. R. Civ. P. 26(b) (3); Hickman v. Taylor, 329 U.S. 495, 67 S. Ct. 385, 91 L. Ed. 451 (1947). Like the attorney-client privilege, work-product immunity may be implicitly waived by, for example, affirmative testimonial use of the work product to advance the claimant's interests. United States v. Nobles, 422 U.S. 225, 239-40, 95 S. Ct. 2160, 2170-71, 45 L. Ed. 2d 141 (1975) (finding waiver where criminal defendant presented investigator as witness); see also 6 Moore's Federal Practice § 26.70 [c] at 26-226 (3d ed. 1997) ("A party also impliedly waives work product protection if it places the substance of the documents for which the protection is claimed at issue."). In Harding, the court found that the company impliedly waived work-product protection when it placed an internal investigation into issue by asserting a Title VII defense based in part upon the company's reasonable investigation into the plaintiffs' claims. Harding, 914 F. Supp. at 1099. In that situation, justice demanded that the plaintiffs be permitted to respond to the allegation of reasonable investigation "with a full spectrum of information." Id. As in Harding, Perrigo's affirmative act of moving to dismiss on the basis of Formanek's investigation and conclusions, which are detailed in his Report, makes it unfair for the corporation thereafter to assert work-product protection for the Report.3
Perrigo protests that it will face a Hobson's choice if it is held to have impliedly waived disclosure protections--either the corporation moves to dismiss, relies on the Report, and thereby forfeits protections for the Report, or the corporation suffers through potentially unmeritorious litigation but protects the confidentiality of the Report. See Pet. for Mandamus at 38. Perrigo has assumed this risk by moving to dismiss on the basis of Formanek's investigation and conclusions, and certainly cannot claim to be surprised by such a dilemma. Since a corporation owes a fiduciary duty to its shareholders, other courts have softened a corporation's right to assert the attorney-client privilege against its shareholders, requiring, upon a showing of good cause, that a corporation disclose corporate records to its shareholders. See Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970), cert. denied, 401 U.S. 974, 91 S. Ct. 1191, 28 L. Ed. 2d 323 (1971); Fausek v. White, 965 F.2d 126 (6th Cir.) (extending Garner beyond shareholder derivative suit), cert. denied sub nom. Selox, Inc. v. Fausek, 506 U.S. 1034, 113 S. Ct. 814, 121 L. Ed. 2d 686 (1992). Perrigo's Board could anticipate from the outset that any report produced by the disinterested independent director would in all likelihood eventually underlie a motion to dismiss and thus become enmeshed in a dispositive court ruling. This, in itself, largely undermines any expectation of perpetual confidentiality.
Judicial records are presumptively open to the public. Like the public's right to monitor the functioning of courts by observing trials, the public has a presumptive right to inspect and copy judicial records. See Nixon v. Warner Communications, Inc., 435 U.S. 589, 597, 98 S. Ct. 1306, 1311, 55 L. Ed. 2d 570 (1978); Richmond Newspapers, Inc. v. Virginia, 448 U.S. 555, 569-73, 100 S. Ct. 2814, 2823-25, 65 L. Ed. 2d 973 (1980). The strong presumption of public access to materials used in the adjudicative process fosters confidence in the administration of justice by assuring that courts are fairly run and that disputes presented for resolution in a public forum are open and understandable to the public. See Brown & Williamson Tobacco Corp. v. FTC, 710 F.2d 1165 (6th Cir. 1983), cert. denied, 465 U.S. 1100, 104 S. Ct. 1595, 80 L. Ed. 2d 127 (1984). There are, of course, limited common-law exceptions to the potent presumption in favor of maintaining openness to the courtroom and court documents. As explained in Brown & Williamson, the presumption may be overcome by the need to keep order and dignity in the courtroom or by a particularized special need for confidentiality, such as when trade secrets, national security, and certain privacy rights of trial participants or third parties are implicated. Id. at 1179.
Sealing court records, however, is a drastic step, and only the most compelling reasons should ever justify non-disclosure of judicial records. See In re Knoxville News-Sentinel Co., 723 F.2d 470, 476 (6th Cir. 1983). "The public has a strong interest in obtaining the information contained in the court record," including ascertaining what evidence the court relied upon in reaching its decision. Brown & Williamson, 710 F.2d at 1180, 1181. If absolutely necessary, however, trial courts do have the power to seal court records and files when interests of privacy and confidentiality outweigh the public's presumptively paramount right to know. See Fed. R. Civ. P. 26(c). In the instant petition, Perrigo has not made a persuasive case that overriding confidentiality concerns should prevent the public from having access to the Formanek Report should it become part of the judicial record.5
In Joy v. North, 692 F.2d 880 (2d Cir. 1982), cert. denied sub nom. Citytrust v. Joy, 460 U.S. 1051, 103 S. Ct. 1498, 75 L. Ed. 2d 930 (1983), the Second Circuit held that the report of a special litigation committee recommending termination (and settlement as to some defendants) of a shareholder derivative suit was improperly placed under seal by the trial court. Rather than just being used in discovery, the report played an essential role in the corporation's moving for summary judgment: "An adjudication is a formal act of government, the basis of which should, absent exceptional circumstances, be subject to public scrutiny. We simply do not understand the argument that derivative actions may be routinely dismissed on the basis of secret documents." Id. at 893. The Second Circuit went even further and required the company to disclose not only the report, portions of which had been produced under a protective order, but also "all underlying data." Id. "To the extent that communications arguably protected by the attorney-client privilege may be involved in that data, a motion for judgment based on the report waives the privilege." Id. (footnote omitted). Similarly, materials communicated from independent counsel to the committee were not entitled to work-product immunity protection, "since the papers may be part of the basis for the committee's recommendations." Id. at 894.
The Seventh Circuit has likewise concluded that the strong presumption of public access overcomes a corporation's interest in confidentiality when a special litigation committee report is submitted in support of a motion to terminate a derivative action. Matter of Continental Illinois Sec. Litig., 732 F.2d 1302 (7th Cir. 1984). " [W]hen the report is used in an adjudicative procedure to advance the corporate interest, there is a strong presumption that confidentiality must be surrendered." Id. at 1315. Two circuits have thus valued public scrutiny of special litigation committee reports as a grave public concern that generally overcomes a corporation's asserted need to place such records under seal.
Otherwise, the July 1996 order remained in full force and effect. Kearney, 949 F. Supp. at 512
The district court denied that request because Perrigo could cite to no authority allowing it to take such an action. Kearney, 949 F. Supp. at 511. We see cannot discern from the opinion why the court would not allow Perrigo voluntarily to waive its rights to portions of the Report
See also the district court's discussion in Picard, 951 F. Supp. at 692, recognizing the probable consequences of a ruling that the public should have access to the Report, including the potential for increased bargaining leverage for stockholders, invitation of unscrupulous attempts to "graymail" the corporation into settlement, and misuse of the derivative action by attorneys who hope to gain handsome fees
The dissent claims that we have misconstrued the district court's opinion, in that the district court did not effectively give the plaintiffs the power to waive Perrigo's privilege. On the contrary, however, the district court's meaning is apparent from language in its decisions. In its March 14, 1997, order, the district court stated that " [o]nce Plaintiffs obtain the Formanek Report, they will determine whether or not the Report will be submitted to the Court with their response to either or both of Perrigo's pending motions [to dismiss]." Notably, in the district court's July, 1996, opinion, the court specifically contemplated that the plaintiffs would be able to disclose portions of the Report by submitting it in defense of the motion to dismiss. The court even explained in a footnote that the plaintiffs should confer with the court regarding the portion of the Report that they would be entitled to disclose in order to make their arguments. Kearney, 934 F. Supp. at 867 n. 2. Although that order was later vacated, the court's final conclusion creates the same result. Under these circumstances, we disagree with the dissent's interpretation of the district court's orders
In Diversified Indus., Inc. v. Meredith, 572 F.2d 596, 611 (8th Cir. 1978) (en banc), a civil litigant sought production of privileged documents that a corporation had turned over to the SEC for as part of an internal fraud investigation. The litigant argued that the corporation had waived any privilege that had attached to the documents because of the voluntary disclosure to the SEC. The court held that the voluntary disclosure did not totally waive the privilege, given the "separate and nonpublic" nature of the SEC investigation. Diversified Indus., 572 F.2d at 611. Courts have been reluctant to extend that holding outside the facts of that case, reasoning that, under normal circumstances, waiver as to one party should be waiver as to all. See, e.g., Westinghouse Elec. Corp. v. Republic of the Philippines, 951 F.2d 1414, 1424-25 (3rd Cir. 1991) (rejecting Diversified Indus.); Permian Corp. v. United States, 665 F.2d 1214, 1221-22 (D.C. Cir. 1981) (same); United States v. Massachusetts Institute of Technology, 957 F. Supp. 301, 304 (D. Mass. 1997) (same); but see Byrnes v. IDS Realty Trust, 85 F.R.D. 679, 685 (S.D.N.Y. 1980) (following Diversified Indus. on similar facts); In re Grand Jury Subpoena Dated July 13, 1979, 478 F. Supp. 368, 372-73 (E.D. Wis. 1979) (same). Though we need not decide whether we would approve of a "selective" waiver in this case, we believe that some of the interests considered in Diversified Indus. are similar to those in the instant case
The majority asserts that the Michigan legislature could not have intended to put a corporate defendant on the horns of a dilemma of choosing between "waiving the protection of the Report or withdrawing its motion to dismiss." This argument ignores the basic framework of this case: Perrigo has referred to and relied on the Report in its motion to dismiss. Where a party faces the foreseeable dilemma of relinquishing its privilege because of its own affirmative reliance on confidential material or foregoing a complaint or defense, courts generally have resisted judicially created exceptions to the implied waiver doctrine even where failure to do so may weaken attorney-client communications. See, e.g., Glenmede Trust Co. v. Thompson, 56 F.3d 476 (3rd Cir. 1995) (finding implied waiver where trust company asserted reliance on advice of counsel as an affirmative defense to claim for breach of fiduciary duty); United States v. Bilzerian, 926 F.2d 1285 (2nd Cir. 1991) (defendant in securities fraud case impliedly waived attorney-client privilege where he asserted reliance on advice of attorney as a defense). While those facing a dilemma similar to Perrigo's may believe their predicament unfair, allowing one party to refer to and rely on privileged material that is kept secret from the opposing party also is unfair and inhibits the truth-seeking process. In this situation the Michigan legislature would be more likely to emphasize the importance of maintaining fair judicial proceedings, and would not be likely to direct the Michigan courts to abandon the traditional implied waiver doctrine
While it may be true that the Michigan legislature would be concerned about promoting candor between independent directors and attorneys assisting with internal investigations, the Michigan legislature has an explicit policy favoring open judicial proceedings. See MICH. COMP. LAWS ANN. 600.1420 ("The sitting of every court within this state shall be public...."). Nowhere do the provisions of the Michigan Business Corporation Act mention the importance of the attorney-client privilege held by corporations, let alone indicate that it is essential to fulfillment of the statutory goal of promoting effective monitoring of management by independent directors. I therefore see no reason to assume that the Michigan legislature intended to abandon the compelling public policies furthered by open adjudicative proceedings in favor of the policies served by candid discussions between independent directors and hired counsel. Consequently, unlike the majority, I would adhere to precedent and respect the strong presumption of public access to materials utilized in judicial proceedings. See Nixon, 435 U.S. at 597, 98 S. Ct. at 1311-12; Richmond Newspapers, 448 U.S. at 569-73, 100 S. Ct. at 2823-25. Once the Report is submitted to the district court and becomes part of the trial court record, the public's presumptive right to inspect and copy judicial records requires that the public have access to the portions of the Report in the trial court record. The potent presumption favoring open access to the courtroom and court documents should not yield to Perrigo's desire to conceal the Report absent Perrigo demonstrating a compelling reason, such as an actual trade-secret, to set aside the presumption. See Brown & Williamson, 710 F.2d at 1179; In re Knoxville News-Sentinel, 723 F.2d at 476.
Westinghouse Elec. Corp. v. Republic of the Philippines, 951 F.2d 1414, 1423 n. 7 (3rd Cir. 1991). The Howe decision simply addresses "partial waiver," and says nothing about granting "selective waiver," which shields from public view evidence examined by the court and the parties. Cf. Howe, 487 N.W.2d at 385 (directing that the trial court examine and, " [i]n keeping with our holding that discovery allowed under these circumstances should be narrowly confined," excise the "portions of the report, if any, which do not bear directly on the issues at hand"). The majority is thus left with no Michigan law supporting its action.
The majority states in footnote 9 that it refrains from deciding whether it would approve of a "selective" waiver in this case. The case that it relies on to support selective waiver, Diversified Indus., Inc. v. Meredith, 572 F.2d 596, 611 (1978) (en banc), has been strenuously criticized. See Westinghouse Elec., 951 F.2d at 1423-29 (3rd Cir. 1991) (arguing that limited or selective waiver fails to serve the interests underlying the attorney-client privilege, and that the privilege should not be converted into a tool for selective disclosure in order to thwart the truth-finding process); Permian Corp. v. United States, 665 F.2d 1214, 1219-21 (D.C. Cir. 1981) (rejecting Diversified and selective waiver theory).