To Be or Not to Be…Privileged: Pennsylvania Supreme Court Cannot Agree

By: Daniel S. Strick

            The Pennsylvania Supreme Court Justices could not agree on the scope of the attorney-client privilege in the matter of Nationwide Mutual Insurance Company v. Fleming, 2010 Pa. LEXIS 40 (Jan. 29, 2010).  Due to retirements and recusals, only four justices heard the case.  A two-two split resulted with the Superior Court’s decision being affirmed, even though none of the Justices agreed with the rationale provided by the Superior Court.  Thus, leaving the scope of the attorney-client privilege in the state of flux.          

I.          Document 529

            At issue is whether “Document 529” was covered by the attorney-client privilege and if so, whether the privilege was waived as a result of the production of two other documents arguably on the same subject matter.  Nationwide sued a group of former insurance agents who allegedly provided confidential information on policyholders to competing carriers.  The agents filed a counterclaim alleging bad faith and an effort to drive the agents out of business.  During a bench trial in Butler County, the agents asserted Nationwide’s “reflex action plan” was an illegal plan to drive them out of business through harassment and baseless lawsuits.  The agents filed a motion to compel production of an unredacted copy of document 529.  The trial court judge granted the motion to compel finding Nationwide waived the privilege with respect to any document regarding the “reflex action plan” because it had willingly produced other related documents. 

            Document 529 was written by one of Nationwide’s in-house attorneys and describes litigation in several states involving Nationwide, their former agents and the agents’ new employers.  Specifically, Document 529 discusses the nature of these suits, the money damages sought, the purpose of the litigation, Nationwide’s limited likelihood of success and other remedies available against defecting agents.  Document 529 also contains counsel’s recommendations regarding Nationwide’s use of specific contractual provisions and the possible filing of complaints with the insurance departments of certain states.  Nationwide claimed Document 529 was protected by the attorney-client privilege.

II.        Superior Court Finds Document 529 Not Protected by Attorney-Client Privilege

            The Superior Court agreed Document 529 must be produced, but found it was not protected by the attorney-client privilege.  In Pennsylvania, the attorney-client privilege is codified by statute which provides:

In a civil matter counsel shall not be competent or permitted to testify to confidential communications made to him by his client, nor shall the client be compelled to disclose the same, unless in either case this privilege is waived upon the trial by the client.

42 Pa.C.S. §5928.  The Superior Court reasoned the attorney-client privilege protects from disclosure only those communications made by a client to his or her attorney which are confidential and made in connection with providing of legal services or advice.  The privilege only extends to communications from an attorney to the client if and only if the communications contain and would reveal confidential communications from the client.  The Superior Court held Document 529 was not a communication from a corporate client to counsel, but rather a communication from counsel to a group of managers of a corporate client.  Further, Document 529 did not disclose any confidential communications made by Nationwide to its counsel.  Thus, the claimed attorney-client protection was inapplicable.

III.       Supreme Court Cannot Agree       

            Although there was a two-two split regarding whether to affirm or reverse the Superior Court’s decision, the four Supreme Court Justices agreed Document 529 fell within the veil of the attorney-client privilege, despite the Superior Court’s finding to the contrary.  The Court could not agree whether the attorney-client privilege was waived. 

            Once the attorney-client communications have been disclosed to a third party, the privilege is deemed waived.  Relying on federal law, the trial court and the Justices for affirmation of the Superior Court decision found voluntary disclosure of confidential communications waives the privilege as to every confidential communication involving the same subject matter.  Documents 314 and 395 were produced to the agents by Nationwide in response to discovery requests.  Document 314 included Nationwide’s counsels’ understanding regarding the problem of the defection of agents.  Document 395 is a comprehensive business manual detailing the various practices which should be applied when dealing with defecting agents and explains modifications to the “reflex action plan” in order to efficiently deal with a large agent defection.  Those in favor of affirming the Superior Court’s decision found all three documents dealt with the same subject matter, i.e. the problems of agent defections and how to prevent it.

            Those in favor of reversal found the attorney-client privilege was not waived by the production of Documents 314 and 395.  Although broadly speaking the three documents involved the same subject matter, their content and purpose differed greatly.  Documents 314 and 395 acknowledging the problem of agent defection and advised the company was going to begin addressing and executing Nationwide’s legal options.  By contract, Document 529 analyzed the status of the various lawsuits, the likelihood of success of the lawsuits and other legal strategies which could be implemented.  Thus, the attorney-client privilege applicable to Document 529 was not waived by the production of Documents 314 and 395.         

            The Justices favoring reversal of the Superior Court’s decision took issue with the bright line rule set forth by the Superior Court finding the attorney-client privilege is rigidly centered on the identification of specific client communications as attorney advice and client input are often inextricably intermixed.  Therefore, a pragmatic approach to the application of the attorney-client privilege as set forth in a 1900 Pennsylvania Supreme Court decision where the privilege applies to all attorney-to-client communications is appropriate.

IV.       Result

            The Superior Court decision was affirmed because no majority was reached.  However, since the Supreme Court affirmed on different grounds without specifically endorsing the Superior Court decision, the law is in a state of confusion. 

            Nationwide has filed an application for reargument. We anticipate the Pennsylvania Supreme Court will grant reargument so as not to leave the state of this important legal principle in the state of flux. 

            This matter highlights the importance of care and evaluation required for each document produced in response to document requests so there are no issues of waiver of the attorney-client privilege for all communications on the same subject matter.