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In re Itron, Inc.

United States Court of Appeals, Fifth Circuit

February 21, 2018

In re: ITRON, INCORPORATED, Petitioner

         Petition for a Writ of Mandamus to the United States District Court for the Southern District of Mississippi

          Before DENNIS, SOUTHWICK, and HIGGINSON, Circuit Judges.


         This mandamus petition calls on us to correct a significant misapplication of attorney-client privilege law. The underlying lawsuit springs from a disputed corporate merger. Plaintiff-Petitioner Itron acquired a company called SmartSynch. According to Itron, misrepresentations by three of SmartSynch's corporate officers ("Defendants") caused it unknowingly to assume an unwanted $60 million contractual obligation to a third company, Consert. After years of litigation, Itron settled Consert's claims against it for $18 million. Itron now sues Defendants for negligent misrepresentation, seeking as compensatory damages the cost of the Consert litigation and settlement. Discovery is nearly complete.

         On Defendants' motion, the presiding magistrate judge ordered Itron to produce, without qualification:

• "All documentation or correspondence including, but not limited to, emails, memoranda, letters, minutes, and reports of any kind, which include any analysis, assessment, or evaluations that were directed to, or received by, any member of Itron's management (including but not limited to its General Counsel) regarding the merits of Consert's claims or Itron's defenses thereto, and any proposed or actual settlement of the lawsuit."
•"All documents, communications, files, packages and presentations presented to the Board of Directors of Itron regarding or relating to . . . the Consert Agreement and/or the Consert litigation."
• "All documents, communications, files, packages, presentations and minutes of the Board of Directors of Itron regarding or relating to the decision to settle the Consert Litigation."
•"All documents, including but not limited to all communications to or from [fifteen specifically-named attorneys with Gibson, Dunn & Crutcher LLP (the law firm who represented Itron against Consert)], or any other attorney with Gibson Dunn, regarding or relating to the decision to settle the Consert Litigation."
•"All documents, including but not limited to all communications to or from [those same fifteen attorneys] or any other attorney with Gibson Dunn, regarding, relating to, or evidencing that the decision to settle the Consert Litigation either 'was compelled by the desire to limit [Itron's] liability, ' or that the 'amount paid [to settle the Consert Litigation] was reasonable.'" (alterations in original) (quoting Liberty Mut. Ins. Co. v. Holloway, 556 Fed.Appx. 299, 305 n.15 (5th Cir. 2014)).
•"All documents, including all correspondence involving Itron's counsel, which relate to Itron's decision to settle the Consert Litigation."

         Itron objected that many if not all of these materials are shielded from disclosure by the attorney-client privilege. But the magistrate judge disagreed, concluding that Itron waived its privilege by filing a lawsuit to which the attorney-client communications would be relevant. That was error.

         We hold that the mere act of filing this lawsuit effected no waiver of any attorney-client privilege. We further hold that the magistrate judge's contrary ruling amounted to clear error warranting mandamus relief. We therefore GRANT Itron's petition for mandamus, VACATE the magistrate judge's order, and REMAND the case with instructions to re-evaluate Defendants' motion in a manner consistent with this opinion.[1]


         Itron agreed to acquire SmartSynch for approximately $100 million. Six days before the closing date, however, SmartSynch entered a new agreement with third-party company Consert. Itron then assumed SmartSynch's obligations under the agreement as SmartSynch's successor-in-interest. Itron alleges that SmartSynch's CEO, CFO, and VP of Product Marketing (Defendants) negligently failed to disclose the Consert agreement; that the Consert agreement was adverse to Itron's financial interest; and that the Consert agreement committed Itron to unwanted expenditures exceeding $60 million. Itron allegedly discovered the agreement when Consert sent its first invoice. At that point, Itron filed a declaratory judgment action against Consert seeking to void or reform the agreement. See Itron, Inc. v. Consert Inc., 109 A.3d 583, 584-85 (Del. Ch. 2015). Consert asserted counterclaims including breach of contract. After more than two-and-a-half years of litigation, Itron and Consert settled their dispute the weekend before trial. As part of the settlement agreement, Itron paid Consert $18 million.

         Itron now sues all three Defendants for negligent misrepresentation under Mississippi law. See 28 U.S.C. §§ 1332(a), 1652. It alleges that Defendants' misrepresentations caused it to "unwittingly assume[] liability for the Consert Agreement, " "result[ing] in substantial losses to Itron[] due to the Consert Litigation and the resulting settlement."

         During the voluminous pretrial proceedings, Defendants moved to compel Itron to produce, among other things, the documents listed above. They argued that Itron "waived its attorney-client privilege as to all communications with counsel concerning potential exposure and settlement [with Consert], " because "whether Itron's settlement of Consert's counterclaims was compulsory and reasonable are disputed material issues" and "the most relevant evidence of whether the settlement was reasonable will be the opinions of counsel for Itron." Itron opposed the motion on the grounds that these documents reside at the "core" of the attorney-client privilege, and that Itron never affirmatively relied on, used, or disclosed privileged communications, as required for this type of waiver under Mississippi law. See Jackson Med. Clinic for Women, P.A. v. Moore, 836 So.2d 767, 773 (Miss. 2003); see also In re Cty. of Erie, 546 F.3d 222, 229 (2d Cir. 2008); Rhone-Poulenc Rorer Inc. v. Home Indem. Co., 32 F.3d 851, 864 (3d Cir. 1994). In fact, Itron said, it had stipulated that "so long as the Court does not find a privilege waiver, Itron will not affirmatively use any privileged information against Defendants in this case." Finally, Itron observed that Defendants were free to dispute the objective reasonableness of Itron's settlement by examining the underlying facts and calling expert witnesses, whom both sides had designated to address that very issue.

         The magistrate judge granted Defendants' motion to compel in substantial part, ordering Itron to produce the documents listed above. The magistrate judge's order rejected Itron's argument regarding the proper legal standard under Mississippi law. But the order did not cite Jackson Medical (the primary case on which Itron relied), nor did it address how, under Defendants' proposed standard, the privileged materials were "vital" to the case. The order instead asserted that, "since Itron seeks in the present lawsuit to recover its Consert litigation losses from Defendants, the law in this Circuit will not permit Itron to withhold under claim of privilege the documents regarding the Consert litigation." Order [ECF No. 202] at 2-3, Itron, Inc. v. Johnston, No. 3:15-cv-330 (S.D.Miss. June 30, 2017) (citing federal district court opinions, themselves citing Conkling v. Turner, 883 F.2d 431, 434 (5th Cir. 1989)).

         Itron has been challenging that order ever since. It first lodged objections with the district court, but the district court overruled them on the ground that the magistrate judge's ruling was "not clearly erroneous." Itron then moved the district court for reconsideration, or, in the alternative, to certify the magistrate judge's order for interlocutory appeal. See 28 U.S.C. § 1292(b). Both motions were denied. Running up against the production deadline, Itron petitioned us for review.


         In evaluating a claim of attorney-client privilege, we review factual findings for clear error and "the application of the controlling law de novo." In re Avantel, S.A., 343 F.3d 311, 318 (5th Cir. 2003) (quotation mark omitted). The controlling law to be applied here is that of Mississippi, which governs Itron's causes of action and, by extension, any assertion of attorney-client privilege or putative waiver thereof. Id. at 323; see Fed. R. Evid. 501. Our task is to apply the law as would the Mississippi Supreme Court. Guilbeau v. Hess Corp., 854 F.3d 310, 311 & n.4 (5th Cir. 2017).

         Mississippi law gives clients the "privilege to refuse to disclose . . . any confidential communication[s] made to facilitate professional legal services, " if those communications were made "between the client . . . and [its] lawyer" or "among lawyers . . . representing the same client." Miss. R. Evid. 502(b). Like the magistrate judge, we assume (but do not decide) that the documents sought here-communications to or from Itron's attorneys relating to the merits of Consert's claims against it-meet this definition. The parties are free to contest this premise on remand with respect to particular documents. We decide today only whether Itron impliedly waived its attorney-client privilege by the mere act of filing this lawsuit. It did not.


         Ordinary waiver principles resolve the present dispute. By definition, the attorney-client privilege protects only confidential communications. Miss. R. Evid. 502(b). By disclosing such communications to third parties-such as by revealing them in open court-the client waives the privilege. Hewes v. Langston, 853 So.2d 1237, 1264 (Miss. 2003); see, e.g., Bennett v. State, 293 So.2d 1, 5 (Miss. 1974) (client waived privilege by testifying to his counsel's advice at trial), overruled on other grounds by Triplett v. State, 579 So.2d 555, 559 (Miss. 1991), but cited in Jackson Med., 836 So.2d at 771. And to prevent selective or misleading disclosures, fairness dictates that the waiver extend to related subject matter. E.g., United States v. Woodall, 438 F.2d 1317, 1324-25 (5th Cir. 1970) (en banc); Century 21 Deep S. Props., Ltd. v. Corson, 612 So.2d 359, 374-75 (Miss. 1992). Hence the animating maxim that the privilege cannot "be used as both sword and shield."

         By the same token, a client waives the privilege by affirmatively relying on attorney-client communications to support an element of a legal claim or defense-thereby putting those communications "at issue" in the case. See generally 8 Fed. Prac. & Proc. § 2016.6 (3d ed. updated Apr. 2017); 2 The New Wigmore: A Treatise on Evidence § 6.12.4(b)(2) (3d ed. 2017); 81 Am. Jur. 2d Witnesses § 329 (2d ed. updated Nov. 2017); 1 McCormick On Evidence § 93 (7th ed. updated June 2016). "In other words, when a party entitled to claim the attorney-client privilege uses confidential information against his adversary (the sword), he implicitly waives its use protectively (the shield) under that privilege." Willy v. Admin. Review Bd., 423 F.3d 483, 497 (5th Cir. 2005).[2]

         Mississippi adopted this rule expressly in Jackson Medical Clinic for Women, P.A. v. Moore, 836 So.2d 767, 773 (Miss. 2003). The plaintiff in that case, Grace Moore, had opposed the defendant medical clinic's motion for summary judgment on the ground that her attorney's bad advice tolled the statute of limitations. Id. at 768-69, 770-71, 773. After the trial court denied the clinic's motion, the clinic sought discovery into what Moore's attorney had told her. Id. at 768. That is, the clinic sought to test the factual assertion Moore had just used to overcome the clinic's statute-of-limitations defense. Moore invoked the privilege. Id.

         The Mississippi Supreme Court held that Moore waived her privilege as to those attorney-client communications when she "specifically pled reliance on [her attorney's] advice as an element of her defense to [the] motion for summary judgment." Id. at 773 (citing Metro. Life Ins. Co. v. Aetna Cas. & Sur. Co., 730 A.2d 51, 60 (Conn. 1999)). "When Moore used confidential communications with her attorney to toll the statute of limitations, " the court explained, "she used the attorney-client privilege as a sword." Id. "[F]airness require[d]" that she not "hide behind the shield" of that same privilege now. Id. This holding aligns with the numerous cases across jurisdictions finding waiver "when a client asserts reliance on an attorney's advice as an element of a claim or defense, " Sedco Int'l, S. A. v. Cory, 683 F.2d 1201, 1206 (8th Cir. 1982), [3] and the many dozens of cases finding no waiver when no such reliance has occurred.[4]

         Here, no one argues that Itron's complaint effected waiver under the Jackson Medical test. Although the complaint seeks as damages the amount of Itron's settlement with Consert, it never "specifically ple[ads] reliance" on any legal advice. Jackson Med., 836 So.2d at 773. Nor does it refer to any "confidential [attorney-client] communications." Id. In fact, a person reading the complaint would have no idea that Itron even had attorneys in the Consert matter, were it not for the common-sense understanding that corporations engaged in prolonged, multimillion-dollar lawsuits tend to employ counsel. In short, because Itron's complaint mentions no attorneys, no attorney-client communications, and no attorney-client relationships, it cannot be said to "use[] the attorney-client privilege as a sword." Id. The privilege thus remains available. Accord In re Lott, 424 F.3d 446, 454 (6th Cir. 2005) ("[W]hile the sword stays sheathed, the privilege stands."). Although we do not foreclose the possibility that some other act by Itron might constitute waiver, we see no basis in Mississippi law for concluding the complaint itself had that effect.[5]


         Defendants would have us broaden the Jackson Medical rule such that waiver occurs whenever the client files a lawsuit to which privileged communications, if disclosed, might prove "highly relevant"-even if the client never relies on or uses those communications to make her legal case. The magistrate judge embraced a more expansive rule, requiring only simple relevance. These expansions of Jackson Medical find no support in the Mississippi Rules of Evidence, see Miss. R. Evid. 502(d), or any Mississippi caselaw. ...

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