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Bowles v. National Association of Home Builders

September 30, 2004

LIZA K. BOWLES, PLAINTIFF,
v.
NATIONAL ASSOCIATION OF HOME BUILDERS, ET AL., DEFENDANTS.



The opinion of the court was delivered by: John D. Bates, United States District Judge

MEMORANDUM OPINION

Liza K. Bowles ("plaintiff") brings this action against the National Association of Home Builders ("NAHB") and three officers of the company (collectively,"defendants"), relating to her termination as president of the National Association of Home Builders Research Center ("NAHBRC"), a wholly owned subsidiary of NAHB. Presently before the Court are plaintiff's motion to compel the production of documents by NAHB and defendants' cross-motion for the return of privileged documents in the possession of plaintiff. Plaintiff claims that NAHB has waived its attorney-client and work product privileges by disclosing several privileged documents to her while she was president of NAHBRC, and by failing to take reasonable measures to recover those documents from plaintiff upon her termination from employment. NAHB argues that plaintiff did not have the right to take the documents with her upon leaving the company, and therefore seeks the return of the documents.

For the reasons that follow, this Court concludes that NAHB has waived its attorney-client and work product privileges as to all documents of the same subject matter as the privileged documents that NAHB gave to plaintiff when she was president and has since allowed plaintiff to possess. This Court further concludes that NAHB has not identified in its papers any legal right, in contract or otherwise, to the documents. Thus, plaintiff's motion to compel is granted and defendants' motion for the return of documents is denied. The ongoing briefing of dispositive motions is stayed until further notice. Plaintiff shall file papers not to exceed 10 pages in length on the scope of the subject matter waiver by not later than October 22, 2004; NAHB shall file responsive papers not to exceed 10 pages by not later than November 12, 2004; and plaintiff shall file any reply papers not to exceed 4 pages by not later than November 24, 2004.

BACKGROUND

Plaintiff was employed by the NAHBRC, a wholly owned subsidiary of defendant NAHB, from May 1983 through October 2002. She was president of the NAHBRC from 1992 until the date of her termination. From 1983 to 2001, plaintiff was employed pursuant to a series of letter agreements. Beginning in 2002, however, the terms of her employment were governed by a formal employment agreement. The agreement has a significant severance payment provision, which lies at the heart of plaintiff's claims in this action, but it has no language expressly relating to the retention of documents upon the termination of the employee. See Def. Rep. Ex. 1.*fn1

In early 2001, NAHB began negotiating with NAHBRC a License Agreement that would for the first time require NAHBRC to pay NAHB royalties for the use of its own name. NAHB explains that it pursued the agreement to lessen the tax consequences of NAHBRC's profits.

NAHB consulted its attorneys, its accountants, and a consulting firm, all of whom either recommended a royalty agreement of this sort or assured NAHB that it was legal.

Plaintiff, on the other hand, fiercely objected to the proposed agreement, as did the three vice presidents of NAHBRC. Plaintiff discussed the issue with NAHBRC's own outside counsel,*fn2 who advised her that the IRS would most likely view the License Agreement as a fraudulent attempt to evade taxes. She also made her views known to NAHB on numerous occasions. As they debated and negotiated the License Agreement, NAHB shared with NAHBRC (and therefore with plaintiff, in her capacity as president of NAHBRC) several documents that were created by its outside and in-house counsel and that reflect their opinions of the legality of various drafts of the Agreement. The dispute between NAHB and the officers of NAHBRC grew so heated that the parties began to contemplate at least the possibility of litigation. See, e.g., Def. Ex. 8, at 5 ("However, once the Parent begins to litigate, the outcome could go either way."). NAHB even appears to have sought advice from its counsel at one point regarding the removal of members of NAHBRC's Board of Directors. See Pl. Ex. 1, at 20.

NAHB's position on the Licensing Agreement won the day. On September 9, 2002, over plaintiff's continuing objection, the NAHBRC's Board of Directors ("the Board") approved the License Agreement. When plaintiff refused to sign the Agreement, the Board terminated her as well as NAHBRC's three vice presidents, and awarded them large severance payments consistent with their employment agreements. Two days later, however, the Board rescinded their terminations and stopped payment on their severance checks.

A lengthy series of correspondence followed. In a letter dated September 23, 2002, plaintiff's counsel informed NAHBRC's counsel that plaintiff did not intend to return to NAHBRC, that she expected payment on her severance check, and most relevant for present purposes, that she"has certain documents in connection with her employment as President of the Research Center." The letter continues on that plaintiff's counsel has"asked Ms. Bowles to return those documents to your firm but we will retain copies so that we can advise her with regard to her rights and obligations." Def. Ex. 1.

On October 7, 2002, NAHBRC's counsel wrote in response saying, among other things,*fn3 that"the Research Center demands the immediate return of all its documents and other property that Ms. Bowles may have in her possession." Def. Ex. 2. Plaintiff's counsel replied on October 30, 2002, that"[a]ny documents or other items of property of the Center that have remained in Ms. Bowles' possession or under her control are presently being returned to the Center." Def. Ex. 3. However, on November 4, 2002, plaintiff's counsel wrote to change its position:"Upon further research, we have concluded that Liza Bowles has a legal right to retain copies of documents that were provided to her or prepared by her in her capacity as president of the NAHB Research Center. Accordingly, I am retaining these documents, but am providing you with copies, which we have bate stamped LB 0001 to LB 0706." Def. Ex. 4. Plaintiff's counsel included copies of the documents with the letter.

NAHB's counsel replied at length in a firmly-worded letter dated November 8, 2002: These documents that Ms. Bowles has retained are corporate documents that belong solely to the Research Center. Further, many of these documents are privileged and confidential and are protected by the attorney-client and work product privileges. Ms. Bowles, as part of the'control group' at the Research Center, was provided copies of these documents solely to assist her in performing her job as the President of the Research Center. Ms. Bowles has been terminated and no longer has a need for or right to these corporate documents. Accordingly, we insist that Ms. Bowles return the original documents and any other copies that have been made to the Research Center.

Def. Ex. 5.

Plaintiff's counsel responded on November 11, 2002, saying"[w]e find that whether a former employee is required to return documents provided in connection with employment is a question of contract." The letter cites to case law, and then concludes:"There is no requirement in Ms. Bowles' Executive Employment Agreement that she return documents. If there is any other contractual provision that calls for her to return documents, we would appreciate your bringing it to our attention." Pl. Ex. 9. NAHBRC's counsel never replied to this letter, and the issue of the retained documents laid dormant for more than a year.

Meanwhile, on November 15, 2002, plaintiff filed her Complaint in this Court against NAHB and three of its officers (but not against NAHBRC). The Complaint draws upon several*fn4 of the privileged documents retained by plaintiff after leaving NAHBRC. Ten months later, on September 24, 2003, plaintiff issued requests for admissions that attached several of the retained documents and asked defendants to admit to their genuineness. On October 8, 2003, plaintiff served defendants with her initial disclosures under Fed. R. Civ. P. 26(a)(1), in which she included the retained documents as material potentially relevant to the matters at issue in this litigation.

NAHB's counsel wrote to plaintiff's counsel on November 19, 2003, noting that upon review of the documents that you produced on behalf of Liza Bowles in response to Defendant National Association of Home Builders of America's ("NAHB") First Set of Requests for Production of Documents..., NAHB discovered that Ms. Bowles possesses a series of privileged e-mails between Joe Barney and counsel for NAHB. See Bates Numbers LB 0176-77. There is no indication of how Ms. Bowles came into possession of these e-mails. NAHB seeks return of all copies of this series of e-mails. Moreover, NAHB objects to Ms. Bowles' use of any of these e-mails and her possession of these e-mails does not constitute a waiver of the NAHB's attorney-client privilege. Pl. Ex. 6. That same day, NAHB's counsel wrote to plaintiff's counsel asserting privilege in, and demanding the return of, seven additional documents that it had discovered in plaintiff's production of documents. See Pl. Ex. 5. All but one of the documents cited in these letters are within the Bates range of the documents that plaintiff more than a year earlier had informed NAHBRC were in her possession.*fn5

On December 22, 2003, plaintiff's counsel wrote to counsel for NAHB and NAHBRC that she was enclosing a draft motion and supporting memorandum seeking a determination from the Court that NAHB and NAHBRC had waived the attorney-client privilege as to the"innumerable documents we have been discussing in our past correspondence and with respect to all documents pertaining to the same subject matter." Pl. Ex. 2. NAHB and NAHBRC's counsel replied on January 12, 2004, that"NAHBRC has agreed to waive the attorney-client privilege and work product privilege with respect to the issues you identified prior to September 9, 2002. NAHB has not agreed to waive either the attorney-client privilege or work product doctrine." Def. Ex. 6.

On January 22, 2004, NAHBRC produced 459 pages of documents for which it had previously asserted privilege. Nonetheless, according to the privilege log filed with the parties'*fn6 papers, NAHB has independently asserted attorney-client privilege or attorney work product protection for more than 200 documents that are responsive to plaintiff's first request for the production of documents. See Pl. Ex. 1. NAHB and NAHBRC have withheld these documents from plaintiff in response to plaintiff's request for the production of documents, as well as to the dozens of third-party subpoenas that plaintiff has issued to various NAHB and NAHBRC employees, accountants, and lawyers.

Plaintiff has filed a motion to compel NAHB to produce all documents for which it has asserted privilege that relate to the same subject matter as the privileged documents that she retained upon her termination from NAHBRC. NAHB and the other defendants have filed a cross-motion for the return of the very documents that plaintiff retained. Those competing motions have been fully briefed by the parties.

ANALYSIS

Although the two motions before the Court are related, the Court will address them separately. For the reasons set out below, the Court will grant plaintiff's motion to compel, and deny defendant's motion for the return of documents.

I. Plaintiff's Motion to Compel

Plaintiff's motion to compel is premised on two arguments. First, plaintiff claims that NAHB has waived its attorney-client and work product privileges in the documents that plaintiff retained upon leaving the company, either by giving the documents to plaintiff in the first place, or by failing to take reasonable steps to recover the documents and protect any privilege in them. Second, plaintiff asserts that the waiver of any privilege in those particular documents leads to a subject matter waiver as to all related ...


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