SC Lawyer, May 2008, #3. Joint Defense Agreements.

• Author: By Gray Culbreath

South Carolina Lawyer

2008.

SC Lawyer, May 2008, #3.

Joint Defense Agreements

South Carolina LawyerMay 2008Joint Defense AgreementsBy Gray Culbreath"The enemy of my enemy is my friend," so goes an old Arab proverb. Often litigation will create alliances among parties who want to cooperate in pursuit of a common goal or strategy. The means by which to memorialize such an agreement is through a document called a joint defense agreement. This article will address the evidentiary origins of the joint defense agreement, the practical considerations in drafting and entering into a joint defense agreement and the ethical concerns surrounding their creation. The concept of the joint defense agreement has been addressed by very few South Carolina courts. In fact, a search of South Carolina state and federal courts reveals only one case. Fort v. Leonard, 2006 WL 2708321 (D.S.C. September 20, 2006). Therefore, the validity, scope or applicability of a joint defense agreement is still largely unaddressed by our courts. For previous discussions of the joint defense privilege and related doctrines, see 6 Jun. S.C. Lawyer 12 and 16 Jul. S.C. Lawyer 11.

The joint defense agreement arises from the common law doctrine known as the joint defense privilege. The rationale is that "persons who share a common interest in litigation should be able to communicate with their respective attorneys and with each other to more effectively prosecute or defend their claims." In re: Grand Jury Subpoenas 89-3 & 89-4c, John Doe 89-129, 902 F.2d 244, 249 (4th Cir. 1990). Over time, this doctrine has been given at least 15 different names. These names include the common interest privilege, the community of interest privilege, the joint defense privilege, the joint prosecution privilege, the joint privilege and the pooled information privilege. No matter the name, the doctrine is an exception to waiver of privilege that allows parties with a common interest in actual or potential litigation to share confidential information without waiving the privilege. See, Restatement (Third) of the Law Governing Lawyers § 76 (2000). The Fourth Circuit has recognized the joint defense privilege and common interest rule as the same or similar doctrines. See U.S. v. Duke Energy Corp., 214 F.R.D. 383, 389 (M.D.N.C. 2003).

Who can invoke a joint defense?

Before the reader sees the word "defense" and discounts this article's applicability to his practice, please consider that courts have applied the joint defense privilege in a variety of different contexts and to a variety of different parties. While typically phrased in terms of a "defense" privilege, the joint defense privilege can apply to any two parties who have a common interest in current or potential litigation either as actual or potential defendants, or plaintiffs. Prevue Pet Prods., Inc. v. Avian Adventures, Inc., 200 F.R.D. 413, 417 (N.D. Ill. 2001); In re Grand Jury Subpoenas, 902 F.2d at 249 (4th Cir. 1990) (indicating the joint defense privilege applies "whether the jointly interested persons are defendants or plaintiffs"). Courts have extended the rule to cooperating plaintiffs, Sedlacek v. Morgan Whitney Trading Group, 795 F. Supp. 329, 331 (C.D. Cal. 1992), companies that had been individually summoned before a grand jury who shared information before any indictment was returned, Continental Oil Co. v. United States, 330 F.2d 347, 349-50 (9th Cir. 1964), parties in bankruptcy, In re Bevill, Bresler & Schulman Asset Management Corp., 805 F.2d 120, 126 (3d Cir. 1986), to potential co-parties in prospective litigation, In re LTV Securities Litigation, 89 F.R.D. 595 (N.D. Tex. 1981), plaintiffs who are pursuing separate actions in different states, Schahar v. American Academy of Ophthalmology, Inc., 106 F.R.D. 187, 191-92 (N.D. Ill. 1985), civil defendants sued in separate actions, Transmirra Products Corp. v. Monsanto Chemical Co., 26 F.2d 572, 576-77 (S.D.N.Y. 1960), insured and insurer defending against a common plaintiff, Lectrolarm Custom Systems v. Pelco Sales, 212 F.R.D. 567, 572 (D.C. Cal. 2002), competitors seeking to have rival patents declared invalid, Power Mosfet Technologies v. Siemens AG, 206 F.R.D. 422, 425 (E.D. Tx. 2000), and co-parties who share a common interest, Sheet Metal Workers International Ass'n v. Sweeny, 29 F.3d 120, 124 (4th Cir. 1994). This includes a plaintiff and defendant in the same litigation with a common interest in defending a counterclaim and cross claim brought by a common co-defendant. Visual Scene, Inc. v. Pilkington Bros., 508 So. 2d 437, 440-41 (Fla. Dist. Ct. App. 1987). Courts have also applied it to non-litigants if they consult the same attorney or have a strong common legal interest. In the Fourth Circuit, this privilege among parties is recognized where the facts show an actual agreement in relation to the prosecution or defense of claims. LaSalle Nat'l Bank Ass'n v. Lehman Bros., 209 F.R.D. 112, 116 (D. Md. 2002).

The historical origins of the joint defense privilege

It is generally accepted that the joint defense privilege first arose in Chahoon v. Commonwealth, 62 Va. (21 Gratt) 822 (Va. 1871), a Virginia criminal case involving two defendants. There, the court held that a criminal defendant had not waived the attorney-client privilege by disclosing confidential information among counsel to criminal co-defendants. Because communications and work product are presumably protected between two defendants with the same attorney, the court thought it acceptable to extend this protection to two defendants with different attorneys. The doctrine was developed to allow attorneys to coordinate their clients' criminal defense strategies. The holding in Chahoon is the first known decision to extend a disclosure privilege to a group of defendants mounting a joint defense.

The Chahoon court noted that the defendants "had the same defense to make, the act of one in furtherance to the conspiracy, being the act of all, and the counsel of each was in effect the counsel of all, though, for purposes of convenience, he was employed and paid by his respective client." Id. at 841-842. In recognizing the joint defense privilege as applied to criminal co-defendants, courts reason that the co-defendants have the right to obtain the separate counsel of their choice as well as the privilege to protect communications between the defendant and his or her attorney from compelled disclosure. The first court to extend the joint defense privilege into the civil arena was the Minnesota Supreme Court in Schmitt v. Emery, 2 N.W.2d 413, 416-17 (Minn. 1942). "Regardless of its origin in the criminal context, the Fourth Circuit has extended the privilege to the civil arena, renamed it the common interest privilege, and as the renaming suggests, broadened it to include parties who share a common interest." Fed. Election Comm'n v. Christian Coalition, 178 F.R.D. 61, 72 (E.D. Va. 1998).

The joint defense privilege

The joint defense privilege does not create a new privilege. Instead, the joint defense privilege is a rule of non-waiver. A communication made under a joint defense arrangement does not waive the underlying attorney-client privilege. "The joint defense privilege, an extension of the attorney-client privilege, protects communications between parties who share a common interest in litigation. . . . For the privilege to apply, the proponent must establish that the parties had some common interest about a legal matter."

In re Grand Jury Subpoena: Under Seal, 415 F.3d 333, 341 (4th Cir. 2005) (citations and internal quotation marks omitted). The privilege is most commonly invoked among defendants and "permits client[s] to disclose information to [their] attorney in the presence of joint parties and their counsel without waiving the attorney-client privilege and is intended to preclude joint parties and their attorneys from disclosing confidential information learned as a consequence of the joint defense without permission." United States v. Hsia, 81 F. Supp. 2d 7, 16 (D.D.C. 2000) (citing First Am. Corp v. Al-Nahyan, Nos. 96-MS-25 (JHG/PJA) & 96-MS-24, 1996 WL 170, 121 (D.D.C. 1996)). The joint defense privilege was adopted as an exception to the waiver rule of the attorney-client privilege, such that communications between a client and his own lawyer remain protected by the attorney-client privilege even when disclosed to co-defendants or their counsel for purposes of a common defense. Hunydee v. United States, 355 F.2d 183, 185 (9th Cir. 1965). Thus, the joint defense privilege protects pooling information for any defense purpose common to the participating defendants. United States v. McPartlin, 595 F.2d 1321, 1336-37 (7th Cir. 1979). The privilege is viewed as an extension of the attorney-client privilege or attorney work product, and it at least "protects communications between an individual and an attorney for another when the communications are 'part of an on-going and joint effort to set up a common defense strategy.'" In re Bevill, Bressler & Schulman Asset Mgmt. Corp., 805 F.2d 120, 126 (3d Cir. 1986) (quoting Eisenburg v. Gagnon, 766 F.2d 770, 787 (3d. Cir. 1985)). It is important to note that an attorney's presence is necessary to protect communications and information exchanged under a joint defense agreement from disclosure. Schahar, 106 F.R.D. at 192.

A joint defense privilege between counsel and co-defendants has long been recognized under the common law as an extension of the attorney-client privilege, irrespective of a formal agreement.

While the joint defense privilege encompasses communications protected by the attorney-client privilege and the work product doctrine, it cannot extend greater protections than the legal privileges upon which it rests. Lugosch v. Congel, 219 F.R.D. 220, 240 (N.D.N.Y. 2003). Thus, to be protected, all attorney-client communications or work product must first satisfy the traditional requirements for the attorney-client or work product privileges before they become, or remain, privileged. There must also exist: (1) a common legal interest between all persons with whom the communication is shared; (2) a confidential communication exchange in furtherance of the common and joint defense strategy; and (3) no waiver (explicit, implicit, intentional and inadvertent sharing of the communication, in some form or fashion with a third party). See In re Bevill Bresler & Schulman, 805 F.2d at 126. As with most privileges, the burden of establishing its existence is upon the party invoking it. Id. Further, the party must show that the communication was made in confidence. The court will consider what the client reasonably understood, based on what was objectively reasonable under the circumstances, to analyze whether a communication was intended to be in confidence. United States v. Bay State Ambulance & Hosp. Rental Serv., Inc., 874 F.2d 20, 28 (1st Cir. 1989).

The privilege will not apply if the common interest is commercial rather than legal in nature. In Bank Brussells Lambert v. Credit Lyonnais (Suisse) S.A., 160 F.R.D. 437, 447-48 (S.D.N.Y. 1995), the court held a legal strategy is required before the privilege can apply; it will not extend to cooperation for business reasons. Parties cooperating in conjunction with a business transaction, such as a merger or business deal, are not necessarily pursuing a common or joint defense. Walsh v. Northrop Grumman Corp., 165 F.R.D. 16, 19 (E.D.N.Y. 1996).

Joint defense agreements

Joint defense agreements allow parties to coordinate a cohesive strategy by sharing privileged information, thereby reducing duplication of effort. A joint defense group does not necessarily arise by operation of law simply because two or more parties share a common interest. Therefore, parties must take positive steps, such as entering into a joint defense agreement, to demonstrate their intention to cooperate. Prudent lawyers should formalize the joint defense privilege by entering into a joint defense agreement. As one district court acknowledged, parties entering into a joint defense agreement take a knowing risk that they have more to gain than lose from their confidential sharing of information. Ageloff v. Noranda, Inc., 936 F. Supp. 72, 77 (D.R.I. 1996).

In order to balance and manage the joint defense privileges and the benefits and risks that are associated with the same, most parties to a joint defense group typically memorialize the agreement among the parties in a joint defense agreement. A joint defense agreement is a document whereby multiple parties with a common interest in actual or threatened litigation can communicate with one another and coordinate strategy. The parties to a joint defense agreement agree to maintain the confidentiality of communications between them that would, absent disclosure to other defendants or lawyers, be protected by the attorney-client privilege or work product doctrine. It allows co-defendants and their lawyers to share work product and information, prepare joint strategy, and share costs without waiving the attorney-client privilege or work product protection. The sharing may involve cooperation on all aspects of the case from strategy to discovery and trial, or it may be limited to providing access to each other's witnesses. The extent of cooperation is usually dictated by the degree of commonality of interests and the trust between parties and lawyers. The Fourth Circuit maintains a broad view and liberally protects confidential information once parties execute a joint defense agreement. See In re Grand Jury Subpoenas, 902 F.2d at 249.

Joint defense agreements can be very informal, such as a general understanding among counsel to pursue discovery jointly in the best interest of the group. At the opposite end of the spectrum, joint defense agreements can be incredibly complex and detail the division of labor amongst the various defendants' counsel for the entire litigation. Some joint defense agreements can consist solely of exchanges of legal and factual memoranda without ever revealing client confidence. Generally, however, parties to a joint defense agreement agree they will conduct a joint defense and that communications among them will remain confidential and will be used in the development of the joint defense.

While joint defense agreements take many forms and many different styles, there are some consistent themes among agreements that should be followed in order to ensure their viability. A basic joint defense agreement contains provisions that attorney-client privilege communications and matters protected by the work product doctrine shall remain privileged when communicated to other defendants or their lawyers. The agreement should also provide that the confidentiality survives the litigation even where one party settles or is dismissed and the other parties remain. The agreement should also allow a party to settle out and for the party to withdraw from the agreement as long as notice is provided to all other parties and any confidential information obtained as a result of participation in the defense group is returned.

The agreement should identify conflicts of interest and provide a mechanism to address future conflicts. These conflicts can arise between parties or between and among lawyers. Courts typically uphold joint defense agreements that include the following provisions:

An express statement that the parties share a common interest, and if possible, state the interest with specificity;

A statement that counsel wish to pursue the separate but common interests without waiver of privileged communications;

A non-waiver of privilege, stating that sharing information for the common defense will not result in a waiver of the attorney-client or work product privileges;

A statement that preventing the parties from sharing information, strategies and documents, including those of their lawyers, will impede the defenses;

A detailed description of the kind of information the agreement covers;

An agreement that the parties will hold confidential all information gained through the joint defense and that such information will be for the sole purpose of assisting in the common defense;

A statement that no information obtained through the joint defense agreement may be disclosed to any third party without the written consent of the party that provided the information;

A provision dealing with government inquiries, typically stating that if a party is required to disclose information by governmental authority, the party must notify the others so that they may take steps to protect their confidential information;

A provision that ensures any party that enters into settlement negotiations must continue to abide by the confidentiality terms of the joint defense agreement and that by settlement, the settling party returns all copies of all information obtained through the joint defense agreement; and

A clear statement regarding conflicts, waiver and use of confidential information.

In addition to those provisions set forth above, other practical considerations exist. Because an opposing party might seek to compel the production of the joint defense agreement, one should consider whether to include language that would make it undesirable for the opposing party to introduce the agreement to the jury. The agreement should also have language indicating that each party and its lawyer has cleared all potential conflicts of interest that may exist. It is also helpful to identify the type of information to be shared and state that the agreement does not provide a participant with control over any document except his or her own. The language in the agreement should address the procedure to follow if one party seeks a subpoena or other court ordered discovery requesting either the production of the agreement itself or documents produced pursuant to the agreement. Finally, any joint defense agreement should provide a procedure as to how the agreement terminates.

Waiver of the joint defense privilege

The sharing of information between parties within a joint defense agreement does not waive the attorney-client privilege under the joint defense doctrine. See United States v. McPartlin, 595 F.2d 1321, 1336-37 (7th Cir. 1979). A party to joint defense communications may waive the attorney-client privilege by disclosing such confidential information to persons outside the scope of the joint defense group. United States v. Blasco, 702 F.2d 1315, 1329 (11th Cir. 1983). Importantly, however, a waiver by one party does not constitute waiver by all parties. In order for the entire group to lose the privilege, all parties must unanimously consent. John Morrell & Co. v. Local Union 304A, United Food & Commercial Workers, 913 F.2d 544, 556 (8th Cir. 1990) (quoting Ohio-Sealy Mattress Mfg. Co. v. Kaplan, 90 F.R.D. 21, 29 (N.D. Ill. 1980)).

At common law, disclosure of the privileged communications could only occur upon waiver by every member of the arrangement. See Medcom Holding Co. v. Baxter Travenol Labs., Inc., 689 F. Supp. 841, 845 (N.D. Ill. 1988). One party's waiver of privileges for information shared in joint defense communications does not constitute a waiver by any other party to the communications. Ohio-Sealy Mfg. Co. v. Kaplan, 90 F.R.D. 21, 29 (N.D. Ill. 1980). The limitation that a waiver by one party is not a waiver by all is deemed necessary by the courts to "assure joint defense efforts are not inhibited or even precluded by the fear that a party to joint defense communications may subsequently unilaterally waive the privileges of all participants, either purposefully in an effort to exonerate himself, or inadvertently." W. Fuels Ass'n v. Burlington N. R.R. Co., 102 F.R.D. 201, 203 (D. Wyo. 1984) (citing Ohio-Sealy Mattress Mfg., 90 F.R.D. at 36). Moreover, courts have uniformly held that a former participant to a joint defense agreement may not reveal, and the government may not seek, information the defense counsel received in the joint defense arrangement. See e.g., United States v. Bicoastal Corp., No. 92-CR-261, 1992 WL 693384, at *56 (N.D.N.Y. 1992) (holding the government may not inquire whether a cooperating defendant was ever part of a joint defense agreement).

Ethical considerations arising from the joint defense agreement

A joint defense agreement can create a host of ethical issues unintended by the parties at the time they enter into the arrangement. For example, a joint defense agreement can create fiduciary relationships between attorneys and parties who are not their clients. See e.g., Int'l Trust Corp. v. Pirtle, No. 07-96-0277-CV, 1997 WL 20870, at *10-11 (Tex. App. 1997) (holding that the obligation to preserve all confidence exchanged under such an agreement transforms into a fiduciary relationship between the participating attorneys and their non-client co-defendants). The Seventh Circuit has held this fiduciary relationship can exist even in the absence of an express attorney-client relationship. See Westinghouse Elec. Corp. v. Kerr-McGee Corp., 580 F.2d 1311, 1319-20 (7th Cir. 1978). Further, using any information gained under the agreement to the advantage of one party over another would result in a breach of that fiduciary duty.

Another conundrum created by the joint defense agreement is the potential to disqualify counsel from a joint defense group, such as when one member of the group switches allegiance or because of a conflict of interest. As noted by one court, even if a joint defense agreement specifically provides the lawyers do not owe a duty of loyalty to any other client of a joint defense group, a confidentiality provision places a fiduciary duty on the attorney and thereby disqualifies them if he represents adverse interests. See Nat'l Med. Enters., Inc. v. Godbui, 924 S.W.2d 123, 132 (Tex. 1996). Additionally, one member of the defense group's conflict can be imputed to an entire defense group thereby raising the potential that a party could seek to disqualify all of the lawyers. See, e.g., Essex Chem. Corp. v. Hartford Acc. & Indem., 993 F.Supp. 241 (D.N.J. 1998); GTE N., Inc. v. Apache Prod., Co., 914 F.Supp. 1575 (N.D. Ill. 1996). At least one court has found that a joint defense agreement "establishes an implied attorney-client relationship with [a] co-defendant." United States v. Henke, 222 F.3d 633, 637 (9th Cir. 2000). These potential issues highlight the need for counsel to be aware of the facts and circumstances surrounding the joint defense.

Conclusion

While joint defense agreements are an effective way to share effort, information and expense, counsel should recognize that the agreement does not create an independent privilege. Further, counsel need to err on the side of defining the limits, rights and responsibilities of the group in the agreement and to be aware of the potential ethical ramifications that arise from the agreement.