When is a document not discoverable because it was prepared in anticipation of litigation?

work product

Wynn Resorts, LTD. vs. Dist. Ct. (Okada) (Nev. Supreme Ct. – Jul. 27, 2017)

The issue is under what circumstances is work performed “in anticipation of litigation” so that it is protected by the work-product privilege and not discoverable.

Okada owned approximately half of Wynn Resorts’ stock through Aruze USA, Inc., of which he was the principal. Okada also served on Wynn Resorts’ board of directors (the Board). Wynn Resorts alleged that it developed concerns about the suitability of Aruze, Okada, and Aruze’s parent corporation, Universal Entertainment Corp. (collectively, the “Okada Parties”), as shareholders of Wynn Resorts after Okada began developing a casino resort in the Philippines. In particular, the Board asserted that it believed that Aruze’s continued ownership of its stock could put Wynn Resorts’ gaming licenses at risk.

The Board conducted an investigation over several years into the business climate in the Philippines and Okada’s involvement there. The Board alleged it ultimately determined that any involvement by Okada in the Philippines was ill advised; however, Okada advised the Board that he was proceeding with his project in the Philippines.

The Board hired former federal judge and FBI director Louis J. Freeh and his firm (the Freeh Group) to investigate and report on Okada’s business in the Philippines. The Freeh Group’s letter of engagement indicated that the Freeh Group was hired as legal counsel to investigate Okada and present its findings to the Board in order to determine if Okada’s activities violated Wynn Resorts’ policies and potentially placed Wynn Resorts’ gaming licenses in jeopardy.

The Freeh Group’s investigation resulted in a 47-page Freeh Report, which included allegations of misconduct by Okada in the development of his Philippines project. The Freeh Group presented its findings to the Board, providing all directors other than Okada with a copy of the Freeh Report. The Board also received advice from two law firms, including Brownstein Hyatt, regarding the contents of the Freeh Report and the Okada Parties’ potential suitability issues.

The Board ultimately adopted resolutions finding the Okada Parties to be “[u]nsuitable persons” under Wynn Resorts’ Articles of Incorporation, Article VII, § 1(/)(iii). It thereafter exercised its “sole discretion” and redeemed Aruze’s Wynn Resorts stock, pursuant to Article VII, § 2(a) of its Articles of Incorporation, in exchange for a promissory note with a principal value of $1.9 billion, which the Okada Parties allege was only a fraction of the value of the redeemed stock.

The next day, Wynn Resorts filed a complaint against the Okada Parties for declaratory relief, breach of fiduciary duty, and aiding and abetting breach of fiduciary duty. The complaint stated that the Board relied on the Freeh Report and the advice of its gaming attorneys in redeeming Aruze’s shares. The Freeh Report was also attached to the complaint. The Okada Parties filed counterclaims seeking declaratory relief and a permanent injunction rescinding the redemption of the stock, and alleging claims for breach of contract, breach of Wynn Resorts’ articles of incorporation, and various other tort-based causes of action.

Wynn Resorts filed notice of its lawsuit with the Securities and Exchange Commission, and attached a copy of the Freeh Report. Wynn Resorts also allegedly provided a copy of the Freeh Report to the Wall Street Journal.

In September 2015, the Okada Parties filed a motion to compel Wynn Resorts to produce evidence and documents underlying the Freeh Report. Wynn Resorts had previously responded to the Okada Parties’ requests for the documents on which the Freeh Report was based with a privilege log listing approximately 6,000 documents that it withheld or redacted on the basis of the attorney-client privilege or work product doctrine. The Okada Parties argued that the Freeh Group’s work was not protected by either the attorney-client privilege or work-product doctrine because Wynn Resorts attached the Freeh Report to its complaint and provided it to a newspaper to broadcast its accusations against Okada.

The district court granted, in part, the Okada Parties’ motion to compel the Freeh Report documents. The district court found that some of the documents might be protected under the attorney-client privilege, but that because the Freeh Report documents were not prepared in anticipation of litigation, the work-product doctrine did not apply. The district court also noted that when Wynn Resorts attached the Freeh Report and its appendices to the complaint, it was not a wholesale waiver of privilege. The district court then ordered that Wynn Resorts had 15 days to supplement the privilege log in accordance with the court’s findings.

In January 2016, the Okada Parties filed a second motion to compel Wynn Resorts to produce the Freeh Report documents. The Okada Parties argued that Wynn Resorts was withholding documents in violation of the district court’s prior order, and that those documents were not privileged due to either waiver of the attorney-client privilege or at-issue waiver. After conducting an in camera review of approximately 25 percent of the documents, the district court granted the Okada Parties’ second motion to compel in part, ordering that because the work was not done in anticipation of litigation, the work-product doctrine did not apply to any Freeh Report documents created prior to February 22, 2012 (the date when preparation of the appendices to the Freeh Report was completed), and that Wynn Resorts waived any attorney-client privilege of the documents by public disclosure of the Freeh Report and under the at-issue waiver doctrine.

Wynn Resort sought writs of mandamus or prohibition arguing among other issues, that the district court erred in granting the Okada Parties’ motion to compel the product of the Freeh Report documents.

The Nevada Supreme Court noted that the petitions merited the Court’s consideration as they raised important issues concerning the scope of discovery and privilege in relation to the business judgment rule. Further, if the discovery permitted by the district court was inappropriate, a later appeal would not remedy any improper disclosure of the information. Accordingly, the Court chose to entertain the petitions.

Work-product protection

The Court explained that the work-product doctrine protects more than just communications between a client and attorney, and is thus broader than the attorney-client privilege. Hickman v. Taylor, 329 U.S. 495, 508 (1947). “At its core, the work-product doctrine shelters the mental processes of the attorney, providing a privileged area within which he can analyze and prepare his client’s case.” United States v. Nobles, 422 U.S. 225, 238 (1975). Thus, an attorney’s work product, which includes “mental impressions, conclusions, opinions, and legal theories of counsel. . . , are not discoverable under any circumstances.” Wardleigh v. Second Judicial Dist. Court, 111 Nev. 345, 359, 891 P.2d 1180, 1189 (1995); NRCP 26(b)(3).

Both the attorney and client have the power to invoke the work-product privilege. Restatement (Third) of the Law Governing Lawyers § 90 (2000). Nevada’s work-product privilege is found at NRCP 26(b)(3), which provides, in relevant part:

[A] party may obtain discovery of documents and tangible things. . . prepared in anticipation of litigation . . . by or for another party or by or for that other party’s representative . . . only upon a showing that the party seeking discovery has substantial need of the materials. . . and that the party is unable without undue hardship to obtain the substantial equivalent of the materials by other means In ordering discovery of such materials when the required showing has been made, the court shall protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation.

(Emphasis added.) Therefore, like its federal counterpart, FRCP 26(b)(3), NRCP 26(b)(3) protects documents with “two characteristics: (1) they must be prepared in anticipation of litigation or for trial, and (2) they must be prepared by or for another party or by or for that other party’s representative.” In re Grand Jury Subpoena (Mark Torf I Torf Envtl. Mgmt.) (Torf), 357 F.3d 900, 907 (9th Cir. 2004).

In determining whether materials were prepared in anticipation of litigation, courts generally use one of two tests: (1) the “primary purpose” test or (2) the “because of” test. The Court joined the majority of courts and adopted the “because of” test for determining whether work was done “in anticipation of litigation.”

Under the “because of” test, documents are prepared in anticipation of litigation when “in light of the nature of the document and the factual situation in the particular case, the document can fairly be said to have been prepared or obtained because of the prospect of litigation.” Restatement (Third) of the Law Governing Lawyers § 87 cmt. i (2000) (quoting 8 Charles A. Wright et al., Federal Practice & Procedure § 2024, at 343 (2d ed. 1994) (emphasis added)). The Court explained that the Restatement approach was consistent with Nevada caselaw examining work product and protecting records prepared by or at the request of an attorney, but not records prepared in the normal course of business since those are not prepared because of the prospect of litigation. See, e.g., Columbia I HCA Healthcare Corp. v. Eighth Judicial Dist. Court, 113 Nev. 521, 527-28, 936 P.2d 844, 848 (1997) (concluding that hospital’s “occurrence reports” were not protected work product because they were prepared in the normal course business).

The anticipation of litigation must be the sine qua non for the creation of the document—“but for the prospect of that litigation,” the document would not exist. Torf, 357 F.3d at 908. However, “a document. . . does not lose protection under this formulation merely because it is created in order to assist with a business decision.” United States v. Adlman, 134 F.3d 1194, 1202 (2d Cir. 1998). “Conversely. . [this rule] withholds protection from documents that are prepared in the ordinary course of business or that would have been created in essentially similar form irrespective of the litigation.” Id.

In determining whether the “because of” test is met, the Court joined other jurisdictions in adopting a “totality of the circumstances” standard. See, e.g., Torf, 357 F.3d at 908. In Torf, the Ninth Circuit Court of Appeals stated that:

[t]he “because of” standard does not consider whether litigation was a primary or secondary motive behind the creation of a document. Rather, it considers the totality of the circumstances and affords protection when it can fairly be said that the “document was created because of anticipated litigation, and would not have been created in substantially similar form but for the prospect of that litigation[.]”

The Court further explained that in evaluating the totality of the circumstances, a court should “look [] to the context of the communication and content of the document to determine whether a request for legal advice is in fact fairly implied, taking into account the facts surrounding the creation of the document and the nature of the document.” In re CV Therapeutics, 2006 WL 1699536, at *4. Lastly, a court should consider “whether a communication explicitly sought advice and comment.” Id.

The Court noted that it was unclear whether the district court utilized the “because of” test for determining if the Freeh Report was prepared in anticipation of litigation. Therefore, the Court directed the district court to consider whether the Freeh Report was created “in anticipation of litigation” under the “because of” test, applying a “totality of the circumstances” analysis.

The Court concluded that the district court correctly determined that Wynn Resorts waived the attorney-client privilege by placing the Freeh Report at issue in the initial litigation. However, because the work-product privilege may apply to some of the documents compiled in the preparation of the Freeh Report, the Court granted the petition in part and directed the clerk to issue a writ of prohibition directing the district court to consider whether the work-product privilege applied.

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