Opinion ID: 676508
Heading Depth: 2
Heading Rank: 2

Heading: The Discovery Sought by Home and Pacific Employers

Text: 36 In connection with these defenses, Home and Pacific Employers have sought discovery from the plaintiffs on what information they may have had prior to purchasing the policies that would have suggested that Armour's products might transmit the HIV virus and that Armour would be subject to claims for injuries suffered as a result of transmitting that virus. 37 During a September, 1992 deposition, Robert E. Cawthorn, Rhone-Poulenc Rorer's chairman and chief executive officer, testified to the investigation and analysis undertaken by Rorer in connection with its decision to purchase Armour. Cawthorn testified that at the time Rorer was negotiating to purchase Armour he and others at Rorer were aware of reports in the press that blood products might have transmitted the AIDS virus and had sought and obtained advice from counsel with regard to liabilities for claims alleging damages for transmitting the virus. He testified: 38 We had got the advice of outside counsel on the potential legal liabilities in this area and had learned that blood products are not considered in most states as products, per se, and are not subject to the same liability laws as regular pharmaceutical products. We had learned that there was some precedence [sic] in terms of transmission of the hepatitis virus which these plasma products had transmitted to hemophiliacs. And that, in fact, my recollection is we were told that there had been no successful cases against the fractionaters [sic] and hepatitis because of the particular legal situation. And the opinion was that that should hold, also, for the AIDS virus. 39 After the deposition, Home and Pacific Employers moved for an order extending the time for completion of discovery and compelling Rhone-Poulenc and Armour to produce all evaluations of their potential liability for AIDS-related claims, including any documents confirming the advice described by Cawthorn. In response to the motion, Rhone-Poulenc and Armour produced copies of four documents, subject to an agreement with the insurers that the production would not waive any privilege with respect to any other communication. 40 The first of the four documents produced is the minutes of the November 26, 1985, meeting of the Board of Directors of Rorer Group Inc. During this meeting the Board considered the Armour acquisition. Those minutes show that John W. Eckman chaired the meeting, and that Cawthorn and Rorer's general counsel, Richard H. Lange, were present. Also present were representatives of the accounting firm of Coopers & Lybrand and the investment banking firm of First Boston Corporation, as were attorneys from the law firms of Hughes, Hubbard & Reed; Skadden, Arps, Slate, Meagher & Flom; and Montgomery, McCracken, Walker & Rhoads. The following summary is included in the minutes: 41 In response to a question by Mr. Eckman concerning Armour's product liability exposure, Mr. Lange said that Armour's products are not regarded as drug products, with associated strict liability, and that it has been necessary to prove negligence by the manufacturer as a basis for liability. In addition, many states have legislation limiting liability for blood products. There have been only about six to eight AIDS contamination suits to date in the industry, none of them against Armour. Revlon has carried an umbrella excess liability policy of $60 million, and the benefits of a substantial portion of this coverage will be available for USV/Armour product claims arising during the pre-acquisition period. 42 The second document produced by the insureds is a copy of an April 10, 1986, letter from John S. Allee, an attorney with Hughes, Hubbard & Reed, to Richard Lange, forwarding to Lange a copy of the third document produced, a memorandum by Hughes Hubbard titled Survey of Blood Immunity Statutes and Case Law. This survey provides a state-by-state analysis of the law applicable to entities engaged in the preparation, distribution and use of human blood and blood products. 43 The fourth document is a copy of an April 18, 1986, letter from Allee to Lange following up on the April 10 letter and suggesting steps Lange should consider as a part of his risk assessment and reduction efforts. In producing a copy of this seven page letter, Rhone-Poulenc and Armour redacted approximately one half of the typed material on the fifth page and the entire sixth page, and reported to the insurers that the deleted material contained very general advice of a legal nature as well as Allee's mental impressions. 44 On receiving copies of these documents, Home and Pacific Employers continued to pursue their motion to compel, and asked the court to enter an order directing the plaintiffs to produce all documents in their possession, custody or control relating to the 1985 and early 1986 assessments of potential AIDS-related claims. 45 In the briefing in support of their motion, the insurers argued that these documents would disclose what information the insureds had about the AIDS-related claims at the time they obtained the coverage, the advice they received on whether those claims would be asserted, and their intent or expectation as to whether they would become obligated to pay damages as a result of those claims. Home and Pacific Employers argued that this information would be relevant to a number of issues in the litigation, including whether the AIDS-related claims fell within the definition of an occurrence under the policy, whether Rorer and Armour had sufficient knowledge of the probability of the AIDS-related claims so that in obtaining the coverage they had breached duties owed the insurers by failing to disclose facts relating to the risk that Armour's products transmitted the HIV virus, and whether or not the probability of the AIDS-related claims was sufficiently clear at the time the insureds obtained the cover 46 age that they would not be insurable as fortuitous claims. 47 Home and Pacific Employers argued that by filing the suit and putting these matters in issue, Rhone-Poulenc and Armour had waived any right to object to the disclosure of the requested documents on the grounds of privilege or work product. The insurers also argued Rhone-Poulenc and Armour had waived any protection from disclosure by failing to file timely objections to the initial discovery requests seeking the disclosure of these documents and by failing to identify them on a list of documents being withheld as privileged or as work product. With regard to the redacted portion of the April 18 Hughes Hubbard letter, they argued Rorer had disclosed the letter to First Boston after the acquisition and thus had waived the privilege. They further argued that by producing a portion of the letter Rhone-Poulenc and Armour had waived the privilege as to the balance of the contents, including the advice that had been redacted. 48 The insurers asked the district court to enter an order compelling Rhone-Poulenc and Armour to produce all evaluations or assessments of their potential liability for AIDS-related claims arising from Armour's blood products, including those in their possession and those in the possession of their present and former agents and attorneys. This request includes documents in the possession of the law firms that had advised Rorer in connection with the acquisition of Armour: Hughes, Hubbard & Reed; Skadden, Arps, Slate, Meagher & Flom; and Montgomery, McCracken, Walker & Rhoads, as well as the accounting firm Coopers & Lybrand, and three law firms that have represented Armour in connection with the AIDS-related claims: Morgan, Lewis & Bockius; Shanley & Fisher; and Reed Smith Shaw & McClay. 49 C. The Magistrate Judge's Orders Providing for the Production of Documents 50 The district court referred the motion to a magistrate judge. By an opinion and order dated March 30, 1993, the magistrate judge found the advice in the April 18 Hughes Hubbard letter relevant to matters in issue in the litigation, including whether the underlying claims arose from a fortuitous event or circumstance and were not the result of a known loss, and whether the injuries giving rise to the claims were not expected or intended. The magistrate judge held that as Rhone-Poulenc and Armour had brought the action and had put their own conduct and the conduct of their counsel in issue, they had waived any right to object to the disclosure of the documents based on the attorney client privilege or the work product doctrine. 51 In addition, the magistrate judge noted that a related rationale for a finding of waiver is that the selective use of privileged information may garble the truth. In that situation, he noted, fairness demands a party be allowed to examine the whole picture. The magistrate judge therefore ordered the redacted portions of the April 18 letter produced and scheduled further argument on the balance of the documents sought by the insurers. 52 The magistrate judge heard further argument from the parties on April 13, 1993. During that argument, counsel for the insurers argued that Rhone-Poulenc and Armour had wrongfully failed to disclose the existence of the assessments in response to discovery requests. At the conclusion of the argument, the magistrate judge reviewed the basis for his March 30 opinion and found that the insurers had sought production of the documents long before the end of discovery. He directed Rhone-Poulenc and Armour to produce the liability assessments sought by the insurers and also directed counsel for the insurers to prepare and submit for approval subpoenas to be delivered to the law firms and accounting firm directing them to produce the documents sought by the insurers. 53 By letter dated April 20, 1993, counsel for the insurers submitted to the magistrate judge copies of proposed subpoenas addressed to the six law firms and the accounting firm. On April 21 the magistrate judge entered an order approving the subpoenas and providing that any objections to the subpoenas must be presented to the district court within five days from the date of the order. Thereafter, the insurers' counsel delivered subpoenas issued by the Southern District of New York on Hughes Hubbard, Skadden Arps, and Coopers & Lybrand at their offices in New York City and sought production of the documents at Simpson Thatcher & Bartlett's offices in New York on May 3, 1993. They delivered subpoenas issued by the Eastern District of Pennsylvania on Morgan Lewis, and Montgomery McCracken at their offices in Philadelphia and sought production of the documents at Fox, Rothschild, O'Brien & Frankel's offices in Philadelphia on May 3, 1993. They also delivered subpoenas issued by the Eastern District o 54 f Pennsylvania on Shanley & Fisher at its offices in Morristown, New Jersey and on Reed Smith at its offices in Philadelphia and sought production of the documents at White and Williams' offices in Philadelphia on May 3, 1993. The subpoenas sought production of the following documents: 55 1. All documents, including, but not limited to, time billing records, that reflect the date of your retention by plaintiffs and/or the purpose of your work for plaintiffs. 56 2. All documents concerning actual or potential AIDS-related claims against plaintiffs or against any other company or entity which manufactured and/or distributed blood products, to the extent that such documents were received or created, or are contained in files pertaining to, your work for plaintiffs. 57 3. All documents that constitute, were reviewed in preparation for, or are contained in files concerning actual or potential AIDS-related claims. 58 4. All documents concerning insurance coverage for actual or potential AIDS-related claims against plaintiffs. 59 5. All documents concerning (i) blood shield statutes; (ii) the nature and scope of liability arising from the manufacture and/or sale and/or use of blood products generally; and (iii) the nature and scope of liability arising from the manufacture and/or sale and/or use of Armour's blood products in particular. 60 6. All documents concerning information and/or advice pertaining to plaintiffs' actual or potential liability for AIDS-related claims arising from the manufacture and/or sale and/or use of Armour's blood products communicated by Rorer or any agent or representative of Rorer to persons and/or entities interested in acquiring Armour or any of its assets in 1986. 61 7. All documents concerning information and/or advice pertaining to plaintiffs' actual or potential liability for AIDS-related claims arising from the manufacturer and/or sale and/or use of Armour's blood products communicated by you or others to Rorer in connection with the attempted sale of Armour in 1986. 62 8. All documents concerning information and/or advice pertaining to plaintiffs' actual or potential liability for AIDS-related claims arising from the manufacture and/or sale and/or use of Armour's blood products communicated by Rorer or any agent or representative of Rorer to others in connection with the attempted sale of Armour in 1986. 63 Rhone-Poulenc and Armour did not appeal the March 30 order directing them to produce the redacted portion of the April 18 Hughes Hubbard letter. They did, however, take an appeal to the district court from the magistrate judge's April 13 order, and moved to quash the subpoenas. Skadden Arps and Morgan Lewis also moved to quash and the district court granted their motions. In addition, all seven firms served objections to the subpoenas on the grounds that they sought documents protected from disclosure as privileged and as work product and on the grounds of relevance, vagueness and oppressiveness. The presentation of these matters resulted in a clarification of the status of certain discovery requests, of Rhone-Poulenc and Armour's responses to those requests, and of agreements that had apparently been reached by the parties but had not been filed with the court. The rediscovery of this information caused counsel for the insurers to abandon the argument that Rhone-Poulenc and Armour had wrongfu 64 lly failed to identify these documents in discovery or had waived objections to producing them by failing to respond to discovery requests or by failing to list the documents on a privilege log. Thereafter, the district court found that these procedural matters would not be controlling on an appeal from the magistrate judge's order, as it appeared the magistrate judge would have ordered production of the documents in any event. 65 D. The District Court's Order Denying Objections to the Magistrate Judge's Order and Denying Motions to Quash 66 The district court heard argument on the appeal and motions to quash on July 28, 1993. By an opinion and order dated August 6, 1993, and entered on August 9, the court found: 67 In accordance with [the magistrate judge's] findings, this court adjudges the subpoenas to pertain to directly relevant information. At issue is Plaintiffs' knowledge of the liabilities associated with the acquisition of Armour. The issues put into question by this lawsuit focus around Plaintiffs' knowledge of the underlying claims and when they became aware of such claims. This court finds that the documents The Home and PEIC seek will aide in disclosing what and when Plaintiffs knew of the underlying claims. Thus, the information contained in the requested documents is directly relevant. Therefore, in this instance this court finds it necessary to invade the attorney-client privilege. 68 The district court denied the insureds' objections to the magistrate judge's order and the motions to quash, and reinstated Skadden Arps and Morgan Lewis' obligations to produce documents identified in the subpoenas. By that decision, the district court held: (1) in filing the action for a declaration of insurance coverage, Rhone-Poulenc and Armour had put in issue the knowledge they had as to potential AIDS-related claims at the time they purchased the coverage; (2) by putting their knowledge of those matters in issue, they had waived the privilege to prevent the disclosure of attorney client and accountant client communications relevant to those matters; and (3) by putting their knowledge of these matters in issue, they had also waived the protection from disclosure of the work product of their attorneys. 69 Plaintiffs, their attorneys and accountants sought reargument on that decision and by an order dated October 4, 1993, the district court denied their motion. 70 E. The Appeal and Petition for a Writ of Mandamus 71 On October 15, 1993, Rhone-Poulenc and Armour filed petitions with this court for a stay of the August 6 order and for a writ of mandamus directing the district court to vacate and reverse the August 6 order. On October 19, 1993, Rhone-Poulenc and Armour filed a notice of appeal from that order and the court's order denying the motion for reargument. 72 We have entered orders staying the discovery, consolidating the proceedings on the petition and the appeal, and granting the petition to intervene filed by the six law firms and Coopers & Lybrand.