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In re Apollo Group

June 20, 2008

IN RE APOLLO GROUP, INC. SECURITIES LITIGATION


The opinion of the court was delivered by: Colleen Kollar-kotelly United States District Judge

MEMORANDUM OPINION

Currently pending in the above-captioned miscellaneous action is Apollo Group, Inc.'s ("Apollo") [1] Motion to Compel Respondent, the Department of Education (the "DOE"), to produce documents responsive to a subpoena duces tecum pursuant to Federal Rule of Civil Procedure 45 (the "Amended Subpoena"), issued from the United States District Court for the District of Columbia in connection with an underlying securities litigation pending in the District of Arizona. The DOE opposes Apollo's Motion to Compel and has filed its own [5] Cross-Motion to Quash the Amended Subpoena. Pursuant to this Court's March 12, 2007 Memorandum Opinion and Order, the parties engaged in discussions that resulted in the narrowing of Apollo's motion to compel, the DOE's production of certain documents requested in the Amended Subpoena, and the DOE's production of privilege logs for those documents that it withheld or redacted on the basis of various discovery privileges. Apollo subsequently filed two Supplemental Briefs challenging the DOE's withholding and redaction of documents from three of the categories of documents devised by the parties during their negotiations, and the DOE filed opposing briefs in which it asserts the claims of privilege asserted in its privilege logs.

Upon a searching review of Apollo's two Supplemental Briefs, the DOE's Oppositions thereto, the exhibits attached to each party's briefs, the relevant statutes and case law, and the entire record herein, the Court finds that the DOE has established that the documents it has wittheld and redacted in response to the Amended Subpoena are covered by a combination of the deliberative process privilege, the attorney-work product privilege, and the informer's identity privilege. The Court shall therefore DENY Apollo's [1] Motion to Compel and GRANT the DOE's [5] Cross-Motion to Quash.

I. BACKGROUND

A. Events Prior to This Court's March 12, 2007 Memorandum Opinion

Apollo is a defendant in a securities class action pending in the District of Arizona, which arose out of an August 2003 Program Review conducted by the DOE addressing Apollo's compliance with federal regulations, contained within Title IV of the Higher Education Act of 1965, which prohibit the payment of incentive compensation to enrollment counselors. Apollo Mot. to Compel at 2; 12/25/06 Decl. of Kristopher P. Diulio, Ex. B (Complaint, In re Apollo Group, Inc. Securities Litigation). Apollo is the largest for-profit provider of higher education in the United States, and operates through several subsidiaries, including the University of Phoenix ("UOP"). Apollo Mot. to Compel at 2. In early 2003, two former UOP employees brought a qui tam action alleging that UOP violated the Higher Education Act. Apollo Mot. to Compel at 1a.*fn1 Although the Department of Justice ("DOJ") declined to intervene in the qui tam action on May 7, 2003, and in August 2003, the DOE began an on-site program review of UOP to determine whether UOP was in compliance with federal regulations and, if not, the extent of the violations. Id.; DOE Mot. to Quash at 4.

During the course of the August 2003 Program Review, the DOE issued a Program Review Report (the "Report"), which identified a violation of the Higher Education Act. Apollo Mot. to Compel at 1a; DOE Mot. to Quash at 5. Apollo responded to the Report orally and in writing, and in September 2004, Apollo paid $9.8 million to settle the Program Review issues with the DOE. Apollo Mot. to Compel at 1a; DOE Mot. to Quash at 6. Because of the settlement of the Program Review, the DOE never issued a so-called Final Program Review Determination ("FPRD") specifically assessing the financial liabilities owed to the DOE by UOP. Apollo's Supplemental Brief Pursuant to Orders of March 12 and April 16, 2007 to Compel the DOE to Produce Category Two Documents, Docket No. [28] (hereinafter "Apollo Second Suppl. Br.") at 20-21. After the parties settled the Program Review, the plaintiff shareholders class in the underlying securities litigation sued Apollo, alleging that it violated federal securities laws by failing to timely disclose the contents of the Report. Apollo Mot. to Compel at 1a. Apollo, however, "believes that the Report was legally and factually faulty and was not subject to disclosure," id., and in an attempt to "demonstrate the many flaws in the DOE's Report, sought to obtain the DOE's underlying work papers from the Program Review" in order to defend against the underlying securities litigation, id. at 1.

Apollo began its efforts to obtain the work papers in October 2004, by servingthe DOE with a Freedom of Information Act ("FOIA") request seeking the work papers. Id. at 4; Diulio Decl. Ex. C (10/25/04 Letter from D. Cox to J. Trumble). The DOE responded to Apollo's FOIA request with four interim response letters and a final response dated May 3, 2005. Apollo Mot. to Compel at 5; Diulio Decl. Exs. D-H (Letters dated 12/29/04, 2/18/05,2/28/05, 4/8/05, and 5/3/05). The DOE produced a total of 5,353 pages, but withheld 2,022 pages based on certain FOIA exemptions. Apollo Mot. to Compel at 5; Diulio Decl. Ex. H (5/3/05 Letter from J. Van Vlandren to D. Cox) at 3. Apollo appealed the DOE's FOIA response on June 15, 2005. Apollo Mot. to Compel at 5; Diulio Decl. Ex. I (6/15/05 Letter from D. Cox). On October 31, 2005, the DOE issued its final determination on Apollo's appeal, denying the appeal with respect to the pages withheld from the original search, producing an additional 185 pages discovered pursuant to a supplemental search, and withholding an additional 2,061 pages located during that supplemental search based on various FOIA exemptions. Apollo Mot. to Compel at 5; Diulio Decl. Ex. J (10/31/05 Letter from M. Clark to D. Cox). The DOE did not provide a log of the withheld documents, but generally described the fourteen (14) categories of documents withheld pursuant to FOIA Exemptions 5 and 7(C). Id.

In response, on June 5, 2006, Apollo served the DOE with a subpoena duces tecum, issued from the United States District Court for the District of Columbia, seeking production of the documents withheld from the DOE's FOIA production. Apollo Mot. to Compel at 7; Diulio Decl. Ex K (6/5/06 Subpoena). After the DOE determined that Apollo's initial subpoena failed to comply with the DOE's Touhy regulations, Apollo served the DOE with a second subpoena duces tecum, dated July 3, 2006 (the "Amended Subpoena"), which sought (1) unredacted versions of any redacted documents the DOE produced pursuant to the FOIA request; (2) the 4,083 pages of documents that the DOE withheld from its FOIA production; and (3) various documents pertaining to the Program Review, the Report, or the qui tam action, to the extent they are not covered by categories (1) and (2).Apollo Mot. to Compel at 7; DOE Mot. to Supp. at 6.

The DOE responded to the Amended Subpoena in a letter dated July 13, 2006, asserting that a

review of [Apollo's] demand under the standards in 34 C.F.R. § 8.5 makes clear that authorizing production of the documents sought would be contrary to the interests of the United States [because Apollo] has previously sought access to all of the records responsive to your subpoena under the FOIA, and the Department has produced to you all responsive records that are not exempt from public disclosure under that statute.

DOE Mot. to Supp. Ex. 8 (7/13/06 Letter from J. Dailey to K. Diulio) at 2 (citing 34 C.F.R. § 8.5(c)). On December 19, 2006, Apollo filed the instant Motion to Compel pursuant to Federal Rule of Civil Procedure 45(c)(2)(B). On January 19, 2007, the DOE opposed Apollo's Motion to Compel and filed its own Cross-Motion to Quash the Amended Subpoena, pursuant to Federal Rules of Civil Procedure 26(b)(1) and 45(c)(3). As described in detail in this Court's March 12, 2007 Memorandum Opinion, a flurry of additional briefing followed the DOE's Cross-Motion. See generally In re Apollo Group Inc. Secs. Litig., Misc. Action No. 06-558 (CKK), Memorandum Opinion (D.D.C. Mar. 12, 2007), Docket No. [15].

B. The Court's March 12, 2007 Memorandum Opinion and Subsequent Events

The Court's March 12, 2007 Memorandum Opinion resolved a number of procedural motions regarding the propriety of the parties' filings subsequent to the DOE's Motion to Quash. See id. at 5-9. In addition, that Memorandum Opinion found that Apollo could, despite the DOE's arguments to the contrary, pursue the production of documents responsive to the Amended Subpoena via a Motion to Compel pursuant to Federal Rule of Civil Procedure 45(c)(2)(B), and that the documents Apollo sought in the Amended Subpoena met the "relevancy" standard articulated in Rules 26 and 45 of the Federal Rules of Civil Procedure. See id. at 9-14. The Court noted the DOE's assertion that the documents sought in the Amended Subpoena were privileged under the deliberative process, attorney-client, and attorney work-product privileges, but found that it could not assess those claims in the absence of a privilege log. Id. at 14-16. The Court therefore ordered the DOE to produce a privilege log for the documents as to which it claimed privileges and suggested that, before the DOE did so, the parties should "engage in discussions as to whether it may be possible to limit the scope of the DOE's privilege log . . . in order to expedite the DOE's production of its privilege log and the Court's ultimate consideration of the Cross-Motions to Compel and to Quash." Id. at 16.

The parties subsequently engaged in such discussions, which resulted in the classification of the documents at issue in Apollo's Amended Subpoena and Motion to Compel into six categories.*fn2 The parties further agreed that "[i]n exchange for Apollo's agreement to withdraw its motion to compel to the extent that it seeks documents in Categories 1, 3 and 4," the DOE would produce certain specific documents included in Categories 5 and 6, and would produce--pursuant to a rolling schedule--privilege logs for all documents from Categories 2, 5, and 6 not included in the DOE's voluntary production. Joint Agr. at 2-4. The parties also agreed to a schedule for briefing on disputes regarding Apollo's various privilege logs, which provided that the briefing would be ripe without reply briefs by Apollo. Id. at 4-5. The Court adopted the parties' proposals by Minute Order dated April 16, 2007. On May 21, 2007, Apollo filed its Supplemental Brief seeking to compel the DOE to supplement its production of Category 5 and 6 Documents. See Apollo Suppl. Br. Pursuant to Orders of March 12 and April 16, 2007 to Compel the DOE to Suppl. Its Doc. Prod. of Category Five and Six Docs., Docket No. [21] (hereinafter "Apollo First Suppl. Br."). On July 10, 2007, Apollo filed its Second Supplemental Brief seeking to compel the DOE to produce Category 2 documents. The DOE filed its Oppositions to Apollo's Supplemental Briefs on June 15 and July 24, 2007, respectively.

On May 19, 2008, the Court issued an Order requiring the parties to provide it with any additional information on factual and legal developments that the parties believed were material to the Court's consideration of the pending motion. See Order, May 19, 2008, Docket No. [30]. The parties' responses to that Order reveal that the securities action underlying this miscellaneous action proceeded to trial in January 2008, and resulted in a jury verdict against Apollo. See Apollo Notice, Docket No. [31] at 4; DOE Notice, Docket No. [32] at 3-4. Apollo nevertheless asserts that resolution of the cross-motions pending in this miscellaneous action is necessary in order "to allow Apollo to defend itself in its post-trial motions for judgment as a matter of law and a new trial, and on any subsequent appeal." Apollo Notice at 4. The Court notes that Apollo did not bring the trial date in the underlying securities action to this Court's attention and that, in fact, nothing was filed in this matter by either party between the DOE's July 24, 2007 Opposition to Apollo's Second Supplemental Brief and this Court's May 19, 2008 Order requesting an update on the case from the parties.

II. LEGAL STANDARDS

Federal Rule of Civil Procedure 45(c)(2)(B) provides that if a party commanded to produce documents in response to a subpoena objects to doing so, "the serving party may move the issuing court for an order compelling production or inspection." Fed. R. Civ. P. 45(c)(2)(B). On the other hand, Rule 45(c)(3)(A) states that the Court must quash or modify a subpoena, upon timely motion, that, inter alia "requires disclosure of privileged or other protected matter, if no exception or waiver applies." Fed. R. Civ. P. 45(c)(3)(A). Further, Rule 45(d)(2) states that "[a] person withholding subpoenaed information under a claim that it is privileged or subject to protection as trial-preparation material must: (i) expressly make the claim; and (ii) describe the nature of the withheld documents, communications, or tangible things in a manner that, without revealing information itself privileged or protected, will enable the parties to assess the claim." Fed. R. Civ. P. 45(d)(2).

III. DISCUSSION

Apollo's First Supplemental Brief relates to the DOE's withholding of certain Category 5 and 6 documents on the grounds of the attorney work-product and deliberative process privileges, and redacting of documents in Category 6 in reliance on the informer's identity privilege. See generally Apollo First Suppl. Br. Apollo's Second Supplemental Brief relates to the DOE's withholding of all documents identified as falling within Category 2 on the basis of the attorney work-product and deliberative process privileges. See generally Apollo Second Suppl. Br.Although Apollo's Supplemental Briefs thus seek to compel the production of different types of documents, the parties' arguments regarding the privileges applicable to those documents cut across the various categories and are generally based on the circumstances of the Program Review as opposed to the particular types of documents. As such, for both the attorney work-product and the deliberative process privileges, the Court first addresses the general applicability of the privilege to the documents Apollo seeks in the Amended Subpoena, and then turns to a consideration of the specific types of documents withheld by the DOE based on each privilege. After that, the Court considers the DOE's redaction of documents within Category6 on the basis of the informer's identity privilege. In sum, the Court concludes that the DOE has established the applicability of all of the privileges it invokes, and thus has properly withheld and redacted documents sought in the Amended Subpoena based upon those privileges.

A. The DOE Properly Invokes the Attorney Work-Product Privilege

1. The Attorney Work-Product Privilege's General Applicability

The attorney work-product privilege generally protects memoranda and other documents prepared by an attorney in contemplation of litigation. See generally Hickman v. Taylor, 329 U.S. 495 (1947); Coastal States Gas Corp. v. Dep't of Energy, 617 F.2d 854, 864-85 (D.C. Cir. 1980); see also Fed. R. Civ. P. 26(b)(3)(A) ("Ordinarily, a party may not discover documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party's attorney, consultant, surety, indemnitor, insurer, or agent)").*fn3 The attorney work-product privilege, unlike the attorney-client privilege, is not intended to protect the confidential relationship between attorney and client, but rather is intended to protect the adversarial trial process. Coastal States, 617 F.2d at 864. As the Supreme Court explained in Hickman, "it is essential [to our adversarial system] that a lawyer work with a certain degree of privacy, free from unnecessary intrusion by opposing parties and their counsel." 329 U.S. at 510-11.An attorney's work-product may be reflected in "interviews, statements, memoranda, correspondence, briefs, mental impressions, personal beliefs, and countless other tangible and intangible ways[,]. . . [but] [w]ere such materials open to opposing counsel on mere demand, much of what is now put down in writing would remain unwritten." Id. at 511.

The limiting principle for the attorney work-product privilege is that it only applies to documents prepared in anticipation of litigation or for trial. Coastal States, 617 F.2d at 864. The litigation at issue need not be judicial, rather, courts have found that the attorney work-product privilege extends to documents prepared in anticipation of administrative litigation, partially because "administrative litigation certainly can beget court litigation and may in many circumstances be expected to do so." Exxon Corp. v. Dep't of Energy, 585 F. Supp. 690, 700 (D.D.C. 1983). Nevertheless, "the work-product rule does not extend to every written document generated by an attorney; it does not shield from disclosure everything that a lawyer does," rather "there is no privilege at all unless the document was initially prepared in contemplation of litigation." Coastal States, 617 F.2d at 864-65. The D.C. Circuit has held that the "testing question" for the work-product privilege is "whether, in light of the nature of the document and the factual situation in the particular case, the document can fairly be said to have been prepared or obtained because of the prospect of litigation." Senate of Puerto Rico v. U.S. Dep't of Justice, 823 F.2d 574, 586 n.42 (D.C. Cir. 1987) (citations omitted). "For a document to meet this standard, the lawyer must have had a subjective belief that litigation was a real possibility, and that belief must have been objectively reasonable." In re Sealed Case, 146 F.3d 881, 884 (D.C. Cir. 1998) (citation omitted).

Apollo maintains that the DOE cannot establish that any documents created in connection with the Program Review were prepared "in anticipation of litigation" because the DOE itself has described the Program Review as "routine monitoring." Apollo Second Suppl. Br. at 11-12, Ex. I (8/26/04 DOE Letter) at 12. As discussed in greater detail below, before the Report was made public, the DOE notified Apollo that it had received FOIA requests seeking the Report. See Apollo Mot. to Compel Reply at 4, Ex. A (3/18/04 DOE Letter). Apollo, in turn, "objected to the release of the Report for a number of reasons." Id. at 4, Ex. B (4/5/04 Apollo Letter). On August 26, 2004, the DOE rejected Apollo's arguments against release of the Report by letter, stating in relevant part that the Report "was created as a result of the Department's routine monitoring of the Title IV Federal Student Financial Assistance programs administered by [UOP]." Apollo First Suppl. Br. Ex. I, (8/26/04 Letter from DOE) at 11-12.

Apollo's description of the Program Review as a routine, regulatory investigation is diametrically opposed to the version of facts evinced in the series of Declarations the DOE provides. These include two Declarations apiece from Jennifer L. Woodward, an attorney with the DOE's Office of the General Counsel ("OGC") who has personal knowledge concerning the Program Review, and Kent D. Talbert, the General Counsel of the DOE. See 6/12/07 Woodward Decl. (attached as Ex. to DOE Opp'n to Apollo First Suppl. Br.); 7/24/07 Woodward Suppl. Decl. (attached as Ex. to DOE Opp'n to Apollo Second Suppl. Br.); 6/15/07 Talbert Decl. (attached as Ex. to DOE Opp'n to Apollo First Suppl. Br.); 7/24/07 Talbert Suppl. Decl. (attached as Ex. to DOE Opp'n to Apollo Second Suppl. Br.). Ms. Woodward and Mr. Talbert's Declarations stress what they describe as the highly atypical nature of the UOP Program Review. See generally id. In turn, the DOE asserts that the atypical nature of the UOP Program Review establishes that it was conducted in anticipation of litigation, rather than as a matter of routine monitoring. See DOE Opp'n to Apollo First Suppl. Br. at 15-17; DOE Opp'n to Apollo Second Suppl. Br. at 4-10.

According to Ms. Woodward, DOE program review reports "typically follow an on-site visit to a school during which Institutional Review Specialists perform a program review of a school's participation in the student financial assistance programs authorized pursuant to Title IV of the Higher Education Act of 1965," Woodward Suppl. Decl. ¶ 5, and--in a typical Program Review--"OGC lawyers become involved in a program review process when a draft program review report is sent to OGC for a review of its legal sufficiency," id. ¶ 6. In contrast, the UOP Program Review had its genesis in the qui tam complaint filed by two former UOP employees. According to Ms. Woodward, once the DOJ declined to intervene in the qui tam action, the DOE advised the DOJ that the qui tam complaint raised credible evidence that UOP had violated the Higher Education Act and that, as a result, the DOE was considering what administrative action to take against UOP. Id. OGC then contacted the DOE's Federal Student Aid ("FSA") division and "recommended that FSA conduct a program review." Id.

Ms. Woodward avers that "[b]ecause the genesis for [the UOP] program review was the qui tam complaint, OGC had far more involvement in the planning and conduct of the program review than is typical." Id. Indeed, she asserts that she and another OGC attorney "were involved in determining the strategy of the program review from its inception," precisely because OGC "anticipated that the program review would lead to further administrative litigation with Apollo." Id. ¶ 7. According to Ms. Woodward, even before the DOE commenced its program review (but after the DOJ had declined to intervene), she and the other OGC attorney interviewed the qui tam relators under oath with their counsel present, and "asked pointed questions of the relators in order to substantiate the allegations and to garner information related to planning the strategy of the program review." Id. Ms. Woodward's planning of the program review involved regular communication with the qui tam relators and their counsel "gathering information related to the strategy of the program review, including what locations to focus on, what documents to ask for, and who to interview." Woodward Decl. ¶ 10.

As to the actual conduct of the program review, Ms. Woodward avers that "[b]ecause the [DOE] anticipated that the program review would be contested," she and the other OGC attorney "led and advised the program review team on how to conduct the program review." Woodward Suppl. Decl. ¶ 8. In particular, Ms. Woodward explains that she participated in many of the interviews conducted during the August 2003 on-site review at UOP "because the entire program review process was conducted with an eye toward litigation the [DOE] anticipated would follow." Id. ¶ 10. Ms. Woodward stresses that her "involvement in the [UOP] program review was not routine OGC involvement in program reviews," id., and that she and the ...


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