- Beware: Your Joint Defense Agreement Might Be Ineffective
- September 22, 2011
- Law Firm: Thorp Reed & Armstrong, LLP - Wheeling Office
Separate companies frequently have similar interests in litigation or potential litigation. As a result, those companies’ lawyers - and often their executives too - want to coordinate strategies for addressing their shared interests. Fearful of waiving the protection of the attorney-client privilege, those companies - expressly or impliedly, orally or in writing - enter into “joint defense,” or, more accurately, “common interest” agreements. Having done so, those companies’ lawyers and executives may be apt to let down their guard and readily exchange sensitive, confidential, strategic, and privileged information about their shared business, financial, or legal interests.
Don’t get too comfortable. Your joint defense/common interest agreement might not be as secure as you think.
In a July 5, 2011 decision, the United States District Court for the Eastern District of Pennsylvania rejected a written joint defense agreement and compelled the production of documents because the party that invoked the privilege failed to demonstrate that the joint communications at issue were in furtherance of any “ongoing, joint or coordinated” legal strategy. King Drug Co. v. Cephalon, No. 2:06-cv-1797 (E.D. Pa. July 5, 2011) (Goldberg, J.).
King Drug is an antitrust case. Barr, one of the defendants, is a pharmaceutical company. Chemagis, a non-party, is a supplier to Barr. Barr and Chemagis entered into a written joint defense agreement in relation to earlier patent litigation that involved Barr, but not Chemagis. Pursuant to that joint defense agreement, Barr and Chemagis representatives - both lawyers and non-lawyers - communicated with each other on matters relating directly or indirectly to the patent litigation.
The resolution of the patent litigation is a key issue in the King Drug antitrust case. Consequently, the King Drug plaintiffs sought the production of the prior communications between Barr and Chemagis related to the patent case. Barr invoked the attorney-client privilege and the common interest privilege. The King Drug plaintiffs argued that the common interest privilege did not apply, and that, as a result, Barr waived any attorney-client privilege through its communications with Chemagis.
The Court held the joint defense agreement was impotent to protect the communications from disclosure. The Court held that, in order for a joint defense/common interest privilege to apply, the party invoking it must establish that:
1) the communications were made in the course of a joint defense effort;
2) the statement was designed to further the effort; and
3) the privilege has not been waived.
Moreover, the Court emphasized that the purpose of the privilege is “to protect communications made as part of an on-going and joint effort to set up” a common legal strategy. (Emphasis in original.)
The Court noted that a shared financial interest is not a sufficient basis for a valid common interest privilege. Instead, parties must have a shared legal interest. Nonetheless, the Court concluded that Barr and Chemagis may have had a common legal interest in the patent matter that would have been sufficient to sustain a common interest privilege.
However, the Court held Barr failed to meet its burden of establishing that the communications between Barr and Chemagis were part of “an ongoing and coordinated legal defense.” Instead, the evidence presented led the Court to conclude that “Chemagis had no part in the defense” of the patent litigation, and that it was Barr that “completely controlled” that litigation. Consequently, the Court held that the common interest/joint defense agreement was ineffective, and that, in the absence of such a valid agreement, the attorney-client privilege had been waived and did not protect the communications between Barr and Chemagis from disclosure to the King Drug plaintiffs.
Based on King Drug, litigants should not consider joint defense agreements - even written joint defense agreements - to be cartes blanche to communicate unreservedly with separate, albeit allied, parties. In order for the joint defense/common interest agreement to have its desired protective effect, the communications must have been part of an “ongoing and joint effort” to further a common legal strategy. Just as important, the party invoking the protection of the privilege must be able to demonstrate and prove that element and all of the elements of the privilege to the satisfaction of the Court.