Wednesday, July 03, 2019

good faith defense to false advertising may waive attorney/client privilege

In re Keurig Green Mountain Single Serve Coffee Antitrust Litig., 2019 WL 2724269, No. 14 MD 2542 (VSB)(HBP) (S.D.N.Y. Jul. 1, 2019)

In this antitrust claim, Keurig counterclaimed against plaintiff JBR for marketing its competing pods with allegedly false representations that its cups contain “no plastic” and are “biodegradable,” “compostable” and similar statements, in violation of the Lanham Act, Section 349 and 350 of New York’s General Business Law, and California’s Business and Professional Code. JBR asserted a number of affirmative defenses including that the counterclaims against it “are barred, in whole or in part, because JBR’s actions, if any, respecting the subject matters alleged therein were undertaken in good faith, with the absence of malicious intent, and constitute lawful, proper and justified means.” As the court pointed out, “it is doubtful that good faith is a defense to Keurig’s Lanham Act counterclaim,” but “it does appear to be relevant to Keurig’s counterclaim alleging a violation of Section 349 of New York’s General Business Law” (citing Samiento v. World Yacht Inc., 10 N.Y.3d 70, 81, 883 N.E.2d 990, 996, 854 N.Y.S.2d 83, 89 (2008) (“In order to assert a prima facie cause of action under General Business Law § 349, a plaintiff must be able to establish that a defendant intended to deceive its customers to the customers’ detriment and was successful in doing so.”).

The court found that JBR had to withdraw its good faith defense or hand over a bunch of otherwise privileged materials. During their depositions, JBR principals were asked about events in 2011 or 2012, when JBR was considering using the terms “biodegradable,” “compostable,” “ecofriendly” and similar terms on its packaging. JBR lacked expertise in the use of these terms and it hired an attorney -- Abrahamson -- for advice. JBR initially marketed its packaging as “compostable,” but switched to “biodegradable” upon the attorney’s advice, thinking “[it was] in the clear, because of the extensive research [it] had done and the extensive communication with this attorney.” JBR came to conclude that the advice was wrong (it was contacted by the Alameda County DA and told that its use of the term violated California law) and later asserted a claim against Abrahamson for malpractice that was resolved in arbitration.

Keurig argued that there had been a subject-matter waiver of the attorney-client privilege with respect to advice JBR received concerning the marketing of its cups as environmentally friendly and sought documents and testimony regarding that subject, as well as documents exchanged in the malpractice arbitration against Abrahamson. Under United States v. Bilzerian, 926 F.2d 1285 (2d Cir. 1991), “the attorney-client privilege cannot at once be used as a shield and a sword. A defendant may not use the privilege to prejudice his opponent’s case or to disclose some selected communications for self-serving purposes. Thus, the privilege may implicitly be waived when defendant asserts a claim that in fairness requires examination of protected communications.” Under that rule,  “forfeiture of the privilege may result where the proponent asserts a good faith belief in the lawfulness of its actions, even without expressly invoking counsel’s advice.”  Here, the good-faith defense—if maintained—would result in waiver with respect to advice JBR received concerning whether it could advertise its products as “compostable” or “biodegradable” or as having other similar characteristics. JBR’s only basis for that defense seems to have been advice from the lawyer, rather than, for example, its own testing, making communications with counsel essential to evaluate its good faith.

JBR argued that there was no need for disclosure because the nature of the lawyer’s advice could be inferred from the chronology of events and the nature of its actions. But the existence of waiver doesn’t depend on what other evidence is available or what inferences can be drawn from the other evidence. Second, “[a] client does not always follow its lawyer’s advice.… Finally, the accuracy of a lawyer’s advice depends on both the lawyer’s knowledge and the accuracy and completeness of the information provided by the client. If, for example, JBR deliberately or negligently provided Ms. Abrahamson with material mis-information or omitted material information concerning the physical characteristics of its products, her advice might provide little support for a good faith defense.”  To evalute good faith, a fact finder would need to know both what JBR told the lawyer and what the lawyer told JBR>

Because JBR determined in 2015 to cease marketing its compatible cups with language describing them as environmentally friendly, the waiver applies to “all communications between JBR and any attorney concerning the marketing of JBR’s compatible cups or packaging as environmentally friendly that occurred prior to the date on which JBR made the determination to cease marketing its cups in that manner.”  JBR couldn’t claim good faith after that date so there was no waiver thereafter, and any advice it received in 2016 couldn’t bear on its good faith in 2015.

Finally, the court found that the waiver was revocable at this stage of the proceedings. “Waiver of the attorney-client privilege is, of course, a serious matter, and JBR may not have foreseen its waiver when it served its reply.” If JBR withdrew the defense asserted in the answer to the counterclaims, there’d be no waiver.

Finally, there was no waiver as a result of JBR principals’ deposition testimony.  Rule 502(a) provides that a waiver of the attorney-client privilege as a result of an intentional disclosure extends to undisclosed communication only if the disclosed and undisclosed communications “ought in fairness be considered together.” JBR wasn’t, at this stage, making any use of the deposition testimony; specifically, it wasn’t “attempting to use the testimony to tell part of the story while preventing Keurig from telling the whole story.” Most deposition testimony never goes before any decisionmaker.  “Thus, the mere fact that a party makes a partial disclosure of privileged or protected information in a deposition does not result in a subject-matter waiver because there is no use of the testimony by the party holding the privilege.”

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