Business and Commercial Litigation Newsletter

By Paul McDonald and Dan Murphy

Our December recap highlights cases that address limits on the attorney-client privilege and work product protection, a significant anti-trust victory for U.S. credit card issuers, and other news that will have an impact on business and litigation.

Privilege Held Not to Apply to Communications with Crisis Management Team

A federal court in Virginia has held that communications between counsel for Lumber Liquidators and the company’s crisis management firm are not subject to attorney-client privilege or work product protection. Earlier this year, Lumber Liquidators was hit with a number of class action suits based on allegations that it sold laminate flooring from China that contained highly toxic levels of formaldehyde. In June 2015, ten class-action suits against the company were consolidated into a Multidistrict Litigation panel in the Eastern District of Virginia. In the MDL proceeding, counsel for class plaintiffs challenged Lumber Liquidators’ claim of privilege and work product protection for its counsel’s communications with Mercury Public Affairs, a crisis management firm hired to deal with public relations fallout from the controversy. In support of its request to withhold production of documents, Lumber Liquidators argued that the crisis management team was tightly integrated into the company’s damage control operations and subject to protection from disclosure. The trial court agreed that the crisis management team was not an “outsider,” resulting in waiver of protections, but it rejected the claim of privilege and work product protection because the communications were not addressed to legal advice and otherwise were not prepared in relation to litigation or trial. In particular, the court found that the crisis management team was merely assisting counsel in the business activity of managing a public relations crisis.

In general, the attorney-client privilege applies only to confidential communications exchanged between privileged persons (including counsel) that are aimed at conveying or seeking legal advice. The separate work product doctrine protects documents and materials that are prepared in anticipation of litigation by or for a party or its representative. Significantly, attorney client privilege does not apply where counsel is seeking or providing confidential business advice, rather than legal advice. Where there is an overlap, a court will analyze the “predominant purpose” of the communication to determine whether privilege applies. Similarly, work product protections do not attach if the materials were prepared for an ordinary business purpose, rather than for litigation or trial. It is worth noting that in the First Circuit, the attorney-client privilege and work product protections have been applied in a narrow manner. See United States v. Textron Inc. and Subsidiaries, 577 F.3d 21, 27 (1st Cir. 2009) (holding that the test for work product protection is whether the document was “prepared for use in possible litigation[.]”).

The Lumber Liquidators case provides an important reminder that one should not assume that all confidential communications with trusted advisors are covered by privilege and work product protections. Parties and their counsel should take care to strictly observe the requirements for preserving the protections, while also remaining mindful of the risk of waiver through disclosure to third parties.

Access the Court’s Order here.

Credit Card Issuers Defeat Anti-Trust Claims in Relation to Arbitration Clauses

Major U.S. credit card issuers won a significant legal victory following a decision by an appeals court rejecting a challenge to mandatory arbitration clauses in credit card agreements. At the trial court level, consumer groups asserted claims against several major credit card issuers, arguing that they colluded to violate antitrust laws when their leaders openly met to discuss implementation of mandatory arbitration clauses during the period from 1999 through 2003. The consumer groups argued that the issuers violated the Sherman Act by meeting on more than 25 occasions to coordinate on mandatory arbitration clauses contained in their cardholder agreements. Among other things, Section 1 of the Sherman Act prohibits agreements that affect interstate commerce that unreasonably restrain competition. At the trial court level, U.S. District Judge William Paul concluded that the parallel action of banks to include mandatory provisions did not amount to unlawful collusion in violation of the Sherman Act. Although the trial court found that parallel action existed, it ultimately determined by only a “slender reed” that the issuer’s actions were undertaken individually, and not in collusion with each other. On appeal, the Second Circuit Court of Appeals affirmed the trial court’s judgment in favor of the credit card issuers, noting that the trial court’s factual determinations were not clearly erroneous.

Read more about this development here and the case here.

NFL Appeal of Brady Arbitration Decision to Be Heard After Super Bowl

The National Football League’s challenge to a trial court’s decision to vacate an arbitration decision suspending New England Patriots quarterback Tom Brady will be heard after the Super Bowl. The NFL has appealed the order of the U.S. District Court for the Southern District of New York that vacated an arbitration decision issued by NFL Commissioner Roger Goodell that suspended Brady for four games. Among other things, the district court took issue with the fundamental fairness of the commissioner’s decision based on concerns about inadequate notice of potential discipline, denial of the opportunity to cross examine lead investigators, and denial of access to investigative files. The Second Circuit Court of Appeals has set the date of March 3, 2016 for oral argument on the NFL’s appeal of the district court’s decision. The current NFL season concludes in February 2016, following Super Bowl 50.

Read more about this development here and the underlying decision here.