Friday, December 14, 2012

Fourth Circuit Issues Startling Waiver Decision

Without even a citation to the New Jersey Supreme Court’s decision in Stengart v. Loving Care Agency, Inc., 990 A.2d 650 (N.J. 2010), and despite an amicus brief by the Electronic Privacy Information Center, which cited Stengart, a panel of the Fourth Circuit, Judge Motz writing, held that the Marital privilege (and, presumably, the attorney-client privilege) was waived where the husband-employee e-mailed his wife using the employer’s computer at a time when the employer had no electronic usage policy.  UnitedStates v. Hamilton, No. 11-4847, 2012 U.S. App.LEXIS 25482 (4th Cir. Dec. 13, 2012). 
In Hamilton, the employer, approximately two years after the husband’s e-mail to his wife, issued an electronic usage policy.  That policy, among other things, stated that the employer could review “stored” e-mails.  Subsequently, the panel held that defendant had failed to maintain the confidentiality of the communications, and thereby vitiated the marital privilege, by “communicating with his wife on his workplace computer, through his work email account, and subsequently failing to safeguard the emails.”  The Court noted that the marital privilege “should be allowed only when it is plain that marital confidence cannot otherwise reasonably be preserved” (see Wolfle v. United States, 291 U.S. 7, 14 (1934)) and, reasoning that spousal communication did not require the use of a work computer or work e-mail account, found that the privilege had been waived.  

The panel did note, in passing, an argument by the Electronic Privacy Information Center, writing as Amicus Curiae, that it would be “extreme” to “require an employee to scan all archived e-mails and remove any that are personal and confidential every time the workplace use policy changes.”  While agreeing that “these arguments caution against lightly finding waiver of marital privilege by e-mail usage” the Court nevertheless dismissed this line of reasoning, stating only that “the district court found that Hamilton did not take any steps to protect the emails in question[.]”  

Unfortunately, the Court’s analysis omits any discussion of the actual location(s) where Hamilton’s e-mails were stored on the employer’s systems.  As a practical matter, it is likely that the e-mail was stored on Hamilton’s laptop, as well as the employer’s servers, back up locations (which may be physical tapes and/or cloud-based storage), and possibly other locations within the employer’s electronic systems.  This detail takes on enormous significance due to the legal and practical difficulties presented by deleting information located on storage media which are, potentially, outside of the employee’s control.  For example, employers regularly have policies regarding the unauthorized destruction of data, unauthorized access to certain portions of their data systems (for example, backups), in addition to the practical question of efficiently reviewing and redacting years worth or archival e-mails.  Furthermore, the Court failed to consider the potential legal implications posed by the Computer Fraud and Abuse Act to employees who delete data from their employer’s systems.  

In short, because Hamilton did not risk violating company policy by accessing and wiping his e-mails, the Court found that he had waived the privilege with respect to the e-mail communication. The Court failed to squarely address the problem of where the e-mails were stored, whether an employer would permit an employee to unilaterally wipe e-mails off the company’s server, or the severe difficulties inherent in successfully and permanently removing such materials beyond the employer’s ability to retrieve them.  The Court also failed to grapple with the prospect that, if Hamilton successfully deleted material from his employer’s systems, that he might well have violated the provisions of the Computer Fraud and Abuse Act or the Virginia Computer Crimes Act, Va. Code § 18.2-152.1.  While misusing access or information lawfully provided to the employee may not violate the CFAA under the Fourth Circuit’s recent ruling in WEC Carolina Energy Solutions, LLC v. Miller, 687 F.3d 199 (4th Cir. 2012), attempting to access backup tapes or cloud storage may well exceed authorized access even under the standard in Miller.  In short, the Court’s suggestion that Hamilton did not take appropriate measures to remove the stored e-mails, and thus waived privilege, seems ill-considered.  

The decision in Hamilton, unless set aside en banc, suggests that the Court would also find the attorney-client privilege waived in similar circumstances.  This contrasts with the recent decision, which we noted in our recent blog, of the Canadian Supreme Court, which has held that employees do indeed have a protectable privacy interest in their company-issued computers.  On that note, it is worth noting Justice Sotomayor’s concurrence in United States v. Jones, 132 S. Ct. 945 (2012), in which she opined that “it may be necessary to reconsider the premise that an individual has no reasonable expectation of privacy in information voluntarily disclosed to third parties” as “[t]his approach is ill suited to the digital age, in which people reveal a great deal of information about themselves to third parties in the course of carrying out mundane tasks.”  132 S. Ct. at 957 (discussing locational information provided through the use of GPS systems).  

Here, many courts would have held that, in the absence of an electronic usage policy, Hamilton had a reasonable expectation of privacy when he e-mailed his wife back in 2006.  The breathtaking aspect of the Hamilton decision is the Court’s holding that Hamilton’s reasonable expectation was defeated years later after the employer issued an electronic policy because Hamilton did not engage in conduct that no employee lawyer worth his or her salt would counsel a client to do and conduct that many employers would seize upon as misconduct and possibly even criminal under the Computer Fraud and Abuse Act.  In short, while this blog rarely criticizes courts, this is one of those rare instances where, in our judgment, this decision is plainly wrong and, hopefully, will either be withdrawn by the panel or set aside en banc.  

West Virginia Adopts “Apex Deposition Rule”

In State ex rel. Mass. Mutual Life Ins. Co. v. Sanders, 724 S.E.2d 353 (W.V. 2012) the West Virginia Supreme Court adopted the so-called “apex deposition rule”.  This rule protects senior officers of a corporation from being deposed until other methods of discovery have been exhausted.  As articulated by the Court, the rule prevents a party from deposing a senior corporate officer unless it can demonstrate:

(1) that there is a reasonable indication that the official’s deposition is calculated to lead to the discovery of admissible evidence, and (2) that less intrusive methods of discovery are unsatisfactory, insufficient or inadequate.

While this rule does not prohibit deposing senior officers, it does attempt to avoid placing an undue burden on those individuals. The apex deposition rule has been adopted by several other courts, including the courts in Michigan, Alabama, California, Rhode Island, Oklahoma, and Texas.  See Evans v. Allstate Ins. Co., 216 F.R.D. 515 (N.D. Okla. 2003) (defendant was granted a protective order prohibiting depositions of its CEO, Senior Vice President, and Chief Financial Officer); Baine v. Gen’l Motors Corp., 141 F.R.D. 332 (M.D. Ala. 1991) (Court quashed deposition of one of defendants Vice Presidents due “less for the potential for harassment than for the possibility of duplication, inconvenience, and burdensomeness” without prejudice to plaintiff’s ability to take said deposition later of intervening discovery was revealed to be insufficient); Mulvey v. Chrysler Corp., 106 F.R.D. 364 (D.R.I. 1985) (Court ordered interrogatories, rather than deposition, of Mr. Lee Iacocca due to potential for harassment and abuse of deposition given Mr. Iacocca’s “singularly unique and important” nature without prejudice to later deposition if still warranted following interrogatories); Alberto v. Toyota Motor Corp., 796 N.W.2d 490 (Mich. Ct. App. 2010) (granting motion to quash deposition of defendant’s Chairman and CEO, and President and COO due to their lack of personal knowledge of the subjects at issue); Crown Central Petroleum Corp. v. Garcia, 904 S.W.2d 125 (Tex. 1995) (Texas Supreme Court granted writ of mandamus directing trial court to vacate an ordered video deposition of defendant’s Chairman and CEO when the CEO filed an affidavit attesting that he had no personal knowledge of the events at issue); Liberty Mut. Ins. Co. v. San Matea Cnty. Superior Ct., 10 Cal. App. 4th 1282, 1289 (1992) (Court issued a “peremptory writ of mandate” ordering lower court to enter a protective order prohibiting plaintiff from taking the deposition of defendant’s CEO, as the CEO had signed an affidavit expressing ignorance of the facts sought by the plaintiff.).

It should be emphasized that, in none of the cases cited above, does the apex deposition rule entirely prohibit a party from deposing high-level corporate officers under all circumstances.  Rather, the rule is intended to order discovery more efficiently by requiring the parties to attempt other forms of discovery before resorting to the deposition of an “apex” officer.  Alberto, 796 N.W.2d at 495.  In Alberto, the Michigan Court of Appeals aptly explained one popular rationale behind the Apex deposition rule – that high-level corporate officers “rarely have specialized and specific first-hand knowledge of matters at every level of [a] complex organization” and that, before ordering the deposition of such an individual “it must be demonstrated that the officer has superior or unique knowledge of facts relevant to the litigation.”  Id. While this is one popular rationale for the rule, other courts have relied on the possibility of undue burden or harassment in applying the apex deposition rule.  See, e.g. Baine v. Gen’l Motors Corp., 141 F.R.D. 332 (M.D. Ala. 1991); Mulvey v. Chrysler Corp., 106 F.R.D. 364 (D.R.I. 1985). 

Absolute Judicial Privilege Extends to Demand Letter and Draft Complaint

In Mansfield v. Bernabei, 727 S.E.2d 69 (Va. 2012), the Virginia Supreme Court affirmed the trial court’s dismissal of plaintiff’s complaint for defamation predicated on statements made about plaintiff, an attorney, in a draft complaint and demand letter.  Plaintiff was an attorney employed by a residential condominium which also, at one time, employed defendant.  Upon his termination, defendant sent a demand letter and draft complaint claiming that he had been discriminated against on the basis of his race to numerous individuals and entities.  Subsequently, the complaint was actually filed in substantially similar form.  The Complaint named plaintiff as a defendant due to his alleged involvement in defendant’s termination.  Plaintiff subsequently filed suit, alleging that he was defamed by material in the draft complaint.  Affirming the trial court’s dismissal of plaintiff’s defamation action, the Virginia Supreme Court held that the allegations made in the draft complaint were protected by the absolute judicial privilege.  In so holding, the Court was unpersuaded by plaintiff’s contention that the draft complaint and demand letter were not covered by the privilege because they were not part of a pending judicial proceeding.  Rather, the Court explained, the privilege extends to communications tangentially related to potential litigation it is “material, relevant, or pertinent” to the judicial process.  In the context of communications preliminary to proposed judicial proceedings, this means that the reviewing court must examine whether “1) the statement was made preliminary to a proposed proceeding; 2) the statement was related to a proceeding contemplated in good faith and under serious consideration, and 3) the communication was disclosed to interested persons.”

The scope of judicial privilege for pre-litigation statements is not unlimited.  In Nguyen v. Proton Tech. Corp., 69 Cal. App. 4th 140 (Cal. Ct. App. 1999) the California Court of Appeals found the privilege extends only to communications which are logically connected to the subject of the litigation.  Furthermore, conduct which violates the Rules of Professional Conduct, as well as outright threats, may fall outside of the ambit of the privilege.  In Nguyen, the Court explained that the privilege “does not prop the barn door wide open for any and every sort of prelitigation charge or innuendo, especially concerning individuals” and emphasized that “most potential abuse of this privilege for prelitigation communications can be prevented by enforcement of the relevancy requirement.”  Accordingly, the Court in Nguyen found that defendant’s conduct, which included notifying plaintiff’s new employer of his prior criminal record and contacting plaintiff’s parole officer to inform him of plaintiff’s allegedly competitive behavior, was not protected by the privilege.

Another remedy may be available to plaintiffs in states with Anti Strategic Lawsuits Against Public Participation (Anti-SLAPP) statutes, such as the District of Columbia and California.  While these lawsuits vary somewhat in their scope and in the remedies available thereunder, D.C.’s Anti-SLAPP statute, D.C. Code § 16-5501 et seq. provides that “[a] party may file a special motion to dismiss any claim arising from an act in furtherance of the right of advocacy on issues of public interest within 45 days after service of the claim.”  See also, e.g., Cal. Civ. Proc. § 425.16 (California’s Anti-SLAPP statute).  This “special motion to dismiss” is intended to prevent the assertion of claims or counterclaim “without substantial merit brought against individuals or groups with the intention of silencing the opponents, or at least diverting their resources.”  See Kathryn W. Tate, California’s Anti-SLAPP Legislation: A Summary of and Commentary on Its Operation and Scope, 33 Loy. L.A. L. Rev. 801, 802-03 (2000).  Accordingly, to the extent that these defamation lawsuits are brought to deter plaintiffs from filing legitimate claims, they may be subject to peremptory dismissal under state Anti-SLAPP statutes.  See Dove Audio, Inc. v. Rosenfeld, Meyer & Susman, 47 Cal. App. 777 (Cal. Ct. App. 1996) (affirming lower court’s decision to strike appellant’s complaint for defamation, predicated on statements in a pre-litigation letter distributed to third parties, based in part on the California Anti-SLAPP statute).   This is especially significant, as many such statutes – including the D.C. Anti-SLAPP statute – provide that a moving party who prevails on their motion may be awarded reasonable attorneys fees and costs.  D.C. Code § 16-5504.  

For additional information and background on this case and the doctrine of Judicial Privilege, see: