Commercial Litigation and Arbitration

Turning in Laptop at End of Employment without Claiming Privilege as to Contents Effects Waiver — Senior Executive Charged with Knowledge of Employment Handbook Stating Emails “Are Not Private”

Aventa Learning, Inc. v. K12, Inc., 2011 U.S. Dist. LEXIS 129928 (W.D. Wash. Nov. 8, 2011):

Plaintiff Aventa Learning, Inc. ("Aventa") is a Washington corporation founded in 2002 by Mr. Axtman and Mr. Benitez. *** Aventa assists schools in bringing their educational curricula online. ***

KCDL is a provider of distance learning programs. Pursuant to an Asset Purchase Agreement ("APA"), dated January 10, 2007, KCDL acquired substantially all of the assets of Aventa. *** Knowledge Learning Corporation ("KLC") acquired KCDL as part of a larger acquisition of another company. *** After the acquisition, KLC hired Stephen Brown as the Chief Executive Officer of KCDL with the intent to expand KCDL. ***

Plaintiffs initiated this lawsuit on June 2, 2010. Plaintiffs allege violation of the Washington State Securities Act ("WSSA"), RCW 21.20 et seq...., the tort of misrepresentation..., breach of the implied covenant of good faith and fair dealing..., a claim for declaratory relief..., and entitlement to equitable relief such as a constructive trust over Aventa's assets, an injunction, or an accounting.... Defendants have moved for summary judgment with regard to all of Plaintiffs' claims.***

KCDL asserts in its motion for a protective order that Mr. Axtman and Mr. Benitez have waived any privilege with regard to attorney-client communications that they saved onto their KCDL laptop computers. Because this court's jurisdiction is based on diversity and the underlying claims are predicated on state law, the privilege issues are governed by state law. See Fed. R. Evid. 501 ("[I]n civil actions and proceedings, with respect to an element of a claim or defense as to which State law supplies the rule of decision, the privilege of a . . . person . . . shall be determined in accordance with State law."); In re Cal. Pub. Utils. Comm'n, 892 F.2d 778, 781 (9th Cir. 1989) ("In diversity actions, questions of privilege are controlled by state law."). Washington's attorney-client privilege applies to confidential communications and advice between an attorney and client and extends to documents that contain a privileged communication. State v. Perrow, 231 P.3d 853, 855 (Wash. Ct. App. 2010). In Washington, the party asserting the attorney-client privilege has the burden of proving all the elements of privilege, including the absence of waiver. See Dietz v. Doe, 935 P.2d 611, 618-19 (Wash. 1997); see also Perrow, 231 P.3d at 856. Mr. Axtman and Mr. Benitez bear the burden of proving that the attorney-client privilege attached to the communications at issue, and that they did not waive the attorney-client privilege with regard to materials that they accessed and saved on their KCDL laptop computers.

1. Mr. Axtman's Laptop

Washington courts have held that "[w]hen a client reveals information to a third-party, the attorney-client privilege is waived unless the third-party is necessary for the communication or has retained the attorney for a common interest." Zink v. City of Mesa, 256 P.3d 384, 403 (Wash. Ct. App. 2011) (citing Morgan v. City of Fed. Way, 213 P.3d 596, 601 (Wash. 2009)). Following his separation from KCDL, Mr. Axtman returned his laptop to the company in late 2009. He did not, however, assert the attorney-client privilege with regard to any documents contained on the laptop until May 12, 2011, nearly a year and half following his relinquishment of the computer..... Once Mr. Axtman relinquished the laptop to KCDL (a third-party outside of his attorney-client relationship) without asserting privilege or taking any precautions to protect the privacy of materials that he had saved on the laptop, he no longer had any reasonable expectation of confidentiality with regard to those materials. Accordingly, under Washington law, he waived any privilege that may have been applicable. See Zink, 256 P.3d at 403; Morgan, 213 P.3d at 601. Such waiver would encompass all of the materials he placed or saved from any source onto his KCDL laptop computer. His belated attempt to assert the attorney-client privilege approximately a year and a half later is futile. Any privilege that may have existed with regard to these materials was extinguished by his unconditional relinquishment of the laptop and cannot be subsequently resurrected. Accordingly, the court grants Defendants' motion with regard to documents that Mr. Axtman saved onto his KCDL laptop computer, and that may now be stored on either his laptop or on Defendants' servers.

2. Mr. Benitez's Laptop

The court's analysis of both waiver and whether the attorney-client privileged ever attached to certain communications or materials that Mr. Benitez saved on his KCDL laptop stands on different grounds. Unlike Mr. Axtman, Mr. Benitez did not relinquish his KCDL laptop to the company without first asserting attorney-client privilege over certain materials contained on it, and without securing a sequestration agreement with regard to those materials from KCDL. The question with regard to Mr. Benitez's assertion of privilege is whether, in light of KCDL's policies concerning the use of its laptop computers by its employees, Mr. Benitez had any reasonable expectation of privacy with regard to attorney-client communications he saved on his laptop, or whether the act of saving those communications onto his KCDL laptop served to waive any privilege that may have existed.

***KLC performs the human resource functions for KDLC, including policy promulgation. *** Although both Mr. Benitez and Mr. Axtman have denied ever being employed by KLC as opposed to KDLC...neither has denied KLC's human resources role with regard to KDLC. Further, although Mr. Benitez testifies that "to the best of [his] knowledge, [he] never received a copy of KLC's Employee Handbook"..., Defendants have presented evidence that Mr. Benitez received two emails dated November 19, 2007 and February 23, 2009, both of which included the KLC Handbook as an attachment. ... Mr. Benitez does not ever expressly deny receiving these emails. In light of Defendants' undisputed evidence of Mr. Benitez's receipt of these two emails, Mr. Benitez's best recollections that he did not receive the handbook must yield. Based on the evidence presented, the court must conclude that Mr. Benitez did in fact receive copies of the KLC Employee Handbook on more than one occasion.

In any event, Mr. Benitez was a vice-president of KCDL and a member of KCDL's executive committee. ... As a senior level manager, Mr. Benitez was "expected to know the contents of company policies so [he] could properly manage and supervise employees." *** Accordingly, Mr. Benitez is fairly charged with constructive knowledge of the company's policies concerning electronic communications. See, e.g., Scott v. Beth Israel Med. Center, Inc., 847 N.Y.S.2d 436, 441 (Sup. Ct. 2007) ("[Former employee's] effort to maintain that he was unaware of [former employer's] email policy barring personal use is rejected. As an administrator, [former employee] had constructive knowledge of the policy.").

KLC's handbook contains an Electronic Communications policy which clearly states that "[e]lectronic communications are not private." ... The policy also states that "[a]ll resources used for electronic communications are KLC property" and "should generally be used only for KLC business." (Id.) Finally, the policy states that KLC "reserves the right to access, search, inspect, monitor, record, and disclose any file or stored communication . . . at any time and for any reason." ***

Washington law protects only confidential communications between an attorney and a client. Morgan, 213 P.3d at 601 ("To qualify for attorney-client privilege, a communication must be made in confidence.") For the privilege to apply, the client must have a reasonable expectation that the communications are confidential and will be kept confidential. In re Siegfried, 708 P.2d 402, 404-05 (Wash. Ct. App. 1985) (analyzing psychologist-patient communications privilege which "are privileged to the same extent, and are subject to the same conditions, as are confidential communications between attorney and client"). If a client is informed that there may be disclosure to a third-party, there is no reasonable expectation of confidentiality and the privilege never attaches. See Hertog v. City of Seattle, 979 P.2d 400, 411 (Wash. 1999) (analyzing psychologist-patient communications); see also State v. Side, 21 P.3d 321, 324-25 (Wash. Ct. App. 2001) (analyzing psychologist-patient communications, the court held that "[a] patient who is warned that communications may not be kept confidential has no reasonable expectation of confidentiality and any privilege is waived.").

Based on the company policy described above, Mr. Benitez could not have had a reasonable expectation of confidentiality with regard to communications or other materials that he created or received on his KCDL laptop following the acquisition of Aventa and that were saved or stored on his KCDL laptop or the Defendants' servers. The laptop itself was not his property, and the company reserved the right to access and disclose any file or stored communication at any time. Thus, Mr. Benitez cannot meet his burden of proving that any expectation of confidentiality he might have entertained was reasonable. 16 Accordingly, the court finds that the attorney-client privilege never attached with regard to emails or communications that Mr. Benitez created and sent or that he received after the Aventa acquisition, which were stored on his KCDL laptop or the Defendants' servers. 17

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