Claiming advice of counsel waives privilege

Where defendants raised advice of counsel as an affirmative defense to a suit alleging they improperly classified their employees, and where they made selective production of documents and produced their attorney for a deposition, they waived attorney-client privilege as to relevant communications. They were ordered to produce all withheld communications, but were not otherwise sanctioned.

Background

The Department of Labor brought these consolidated actions against Medical Staffing of America LLC and Lisa Pitts pursuant to the Fair Labor Standards Act, alleging that certain of defendants’ health care workers were improperly classified as independent contractors rather than as employees, and therefore were unlawfully denied overtime pay.

As an affirmative defense defendants averred that “[a]ny alleged acts or omissions of Defendants were undertaken or made in good faith, and Defendants had reasonable grounds for believing their acts or omissions did not violate federal law, including but not limited to Defendants’ reasonable reliance on advice of counsel.” In support of that affirmative defense, defendants proffered that they relied on, among other things, the legal advice of attorney Arlene Klinedinst, and produced certain documents authored by her or her law firm.

Defendants produced her for a deposition, where she provided little testimony beyond that reflected in the documents, and refused to answer most questions regarding her work for defendants upon the objections of both her counsel and defendants’ counsel based on the grounds of attorney-client privilege. Faced with defendants’ refusal to produce any more information, plaintiff filed a motion for an adverse inference or to exclude any evidence regarding the advice of counsel.

In response, defendants advised they were withdrawing Ms. Klinedinst as a witness and would not offer any exhibits or testimony from her regarding advice she provided defendants, and argued therefore that the motion was moot. Additionally, defendants contend that sanctions are an inappropriate remedy.

Analysis

The Third Circuit has held “[t]he attorney-client privilege may be waived by a client who asserts reliance on the advice of counsel as an affirmative defense. Under such circumstances, the client has made a conscious decision to inject the advice of counsel as an issue in the litigation.” Although the Fourth Circuit has not specifically addressed this proposition, the Third Circuit’s reasoning is persuasive. In addition, other circuit courts have followed this reasoning.

Here, defendants deliberately injected the advice of counsel into the litigation by asserting the affirmative defense that their classification of nurses as independent contractors was made in good faith based on the advice of their counsel, including Ms. Klinedinst. By asserting that defense, defendants impliedly waived the attorney-client privilege with respect to the advice they received from their attorney and the information provided to the attorney upon which that advice was based.

Defendants also expressly waived the privilege when they produced documents in discovery from Klinedinst and proffered her for deposition. At that point, based on both implied and express waiver, the attorney-client privilege was waived as to all other communications relating to the same subject matter. Since defendants have sought to rely on the advice of attorneys Cooper and Bredehoft in addition to Klinedinst regarding the propriety of their classification of nurses as independent contractors, their waiver of the privilege applies to communications with those attorneys as well, since it involves the same subject matter.

Relief

After defendants withdrew Klinedinst as a witness, plaintiff replied that the adverse inference finding was the proper remedy in order to sanction defendants. Plaintiff’s request for an adverse inference finding as a sanction for a failed assertion of attorney-client privilege, and his articulated basis for making his request, are incongruent with both the offense alleged and the posture of the case.

Instead the court will use its authority to order supplemental discovery disclosures and responses. Defendants will be ordered to disclose all communications between them and any of their attorneys regarding the subject matter at issue here.

Defendants contend that, because they have withdrawn Klinedinst as a witness, plaintiff has received the alternate relief sought and the court should deny the motion as moot. However, the motion is not moot. First, as plaintiff points out, Klinedinst’s evidence may very well be relevant to the issue of willfulness in the case. Second, the attorney-client privilege cannot be “unwaived,” and having already disclosed some information on this subject matter, defendants are obligated to produce all of it.

Plaintiff’s motion granted in part, denied in part.

Scalia v. Medical Staffing of America LLC, Case Nos. 18-cv-226, 19-cv-475, April 8, 2020. EDVA at Norfolk (Leonard). VLW 020-3-203. 14 pp.