Can Employees Be Unretained Experts under Rule 26(b)(4)(D)? Caselaw Split — Work Product & Employees — New Evidence on Reply Waived — Failure to Produce Evidence = Adverse Inference — Good Quotes on Protective Orders, Experts, Plain Meaning
Tellabs Operations, Inc. v. Fujitsu Ltd., 2012 U.S. Dist. LEXIS 60749 (N.D. Ill. May 1, 2012):
In January 2008, Fujitsu Limited ("Fujitsu") filed suit against Tellabs Operations, Inc. ("Tellabs") in the Eastern District of Texas, charging it with infringing three of Fujitsu's patents for optical amplifiers. 1 A few months later, in June, Tellabs filed a patent infringement suit in the Northern District of Illinois against Fujitsu, alleging that it infringed Tellabs' Patent No. 7,369,772. Fujitsu filed a counterclaim in that case, claiming that Tellabs had infringed yet another of Fujitsu's patents, No. 7,227,681. Fujitsu's Texas suit was transferred here and consolidated with the Illinois suit for the purposes of discovery.***
The question for resolution is whether Fujitsu is entitled to a protective order prohibiting Tellabs from taking discovery regarding Fujitsu's inspection in 2006 of Tellabs' optical scanner. Fujitsu argues that the inspection was conducted by its own employees, who were specially assigned to that task in anticipation of litigation and, since they will not be testifying at trial, their endeavors are protected by the work product doctrine and Rule 26(b)(4)(D), Federal Rules of Civil Procedure. Codified at Rule 26(b)(3) of the Federal Rules of Civil Procedure, the work-product doctrine is designed to protect an attorney's thought processes and mental impressions against disclosure and to limit the circumstances in which attorneys may piggyback on the fact-finding investigation of their adversaries. See Hickman v. Taylor, 329 U.S. 495 (1947); Sandra T.E. v. South Berwyn School Dist. 100, 600 F.3d 612, 621-622 (7th Cir.2010). Rule 26(b)(4)(D) prohibits discovery by one party of "facts known or opinions held by an expert who has been retained or specially employed by another party in anticipation of litigation or to prepare for trial and who is not expected to be called as a witness at trial."
Resolution of the current controversy is complicated by the parties' competing assessments of the underlying facts, their disagreement over application of the relevant legal principles, and the lack of unanimity among the lower courts about the meaning of Rule 26(b)(4)(D). Wright and Miller, in their treatise on Federal Practice and Procedure, have said that the number of situations in which the protective provisions of the Rule would come into effect is small. In their view, "[t]here is a legitimate concern that a party may try to immunize its employees who are actors or viewers against proper discovery by designating them experts retained for work on the case," and they warn that "courts should be exceedingly skeptical when employees who have otherwise discoverable information are designated 'experts,' and efforts must be made to preserve the opportunity to discovery that information." 8A Wright, Miller, & Marcus, Federal Practice & Procedure, §2033 at 126 (2010). That caution finds proper application in this case.
In 2005, Tellabs pulled off what industry commentors called a "surprise upset" over Fujitsu and others in the optical networking world by cutting a deal with Verizon Communications, Inc., for the sale of more than a quarter billion dollars of optical transport equipment.... When Fujitsu's stunned representatives spoke with Verizon to find out what happened, they were told, among other things, that Tellabs ' 7100 optical amplifier was more advanced than Fujitsu's, and that Fujitsu had to innovate to catch up. Fujitsu's amplifier technology was described as "old," and its product "weak."... Fujitsu was in a state of what may fairly be called corporate panic.
In a September 2005 document captioned "Post Mortem & Question/Request," Fujitsu expressed an urgent need to catch up to Tellabs, about which the document lamented Fujitsu knew "nothing at all." The document stressed that for the "future recovery on FW 7500 program we must know the details of whom we are competing. ... The best way is to learn it directly from product itself. ... The Fujitsu must seriously study about our AMP philosophy once more time, since it is true that [Verizon] indicated our AMP is behind. ... Therefore we must have serious research of AMP on Market/Competitor. [Fujitsu] needs FNC to support this research. Especially, the Transition response time, the dynamic adjustment can NOT be researched by paper or written document. Only equipment can let us know. [Fujitsu] seriously request FNC to look for the possibility to buy Tellabs equipment. PLEASE!" (Tellabs' Response, Ex. I)(caps emphasis in original). ***
In support of the motion for a protective order, Fujitsu attached an affidavit from FNC's general counsel, Melanie Wright, who swore that the allegations in her affidavit were true and that they were based upon her personal knowledge. Ms. Wright's affidavit made no mention of the email just a few months earlier in which Fujitsu was desperately seeking to purchase a Tellabs optical scanner so that inspections could be conducted for what were obviously business and competitive reasons. ***
Thus, while the in-house documents leading up to the purchase evince a concern that Fujitsu had fallen behind Tellabs' technology and that urgent business interests necessitated the purchase and inspection of a Tellabs optical scanner, Ms. Wright states that the purchase and inspection of the Tellabs equipment were driven by the possibility that Tellabs might have infringed Fujitsu's patents. The affidavit is silent on the basis of this conjecture and says nothing about the investigation so desperately sought by Fujitsu after losing the Verizon contract.***
Curiously, Fujitsu initially contended that the attorney-client privilege precluded Ms. Wright from even being deposed on her affidavit. That objection was overruled and the deposition proceeded. It was revealing. As it turned out, much of what Ms. Wright said in her affidavit was not based on personal knowledge, and a good deal of what she said in the affidavit was open to serious question, to say the very least. She had no knowledge of what triggered the inspection, be it concerns over infringement or concerns over falling behind competitors. .. She had no knowledge whether the Tellabs equipment was originally purchased for a purpose unrelated to litigation.... She didn't select the Tellabs products that were to be inspected. ***
Although she claimed to have overseen and coordinated the activities of the employees conducting the inspection, she didn't choose the engineers who performed the inspection, didn't know what their ordinary duties were, didn't have any communications with them, and it appears she never saw whatever report they issued.... Moreover, she had no personal knowledge regarding the claimed destruction of some of the Tellabs equipment — she only knew what she was later told. And, in some instances, she didn't know who told her.... In fact, it was Hitoshi Fuji, a non-lawyer, from Fujitsu Ltd.'s Patent Division who directed the inspection.... Ms. Wright's affidavit made no mention of Mr. Fuji's involvement.***
Perhaps recognizing that it could not make out its case based on the Wright affidavit —a point made in Tellabs' response (at 9) — Fujitsu attached Hitoshi Fuji's far more expansive affidavit to its reply brief. This, of course, was too late. "A reply brief is for replying" not for raising essentially new matter that could have been advanced in the opening brief. Hussein v. Oshkosh Motor Truck Company, 816 F.2d 348, 360 (7th Cir. 1987)(Posner, J., concurring). Arguments and evidence that could have been raised in the opening brief but are first raised in a reply brief are waived. Judge v. Quinn, 612 F.3d 537, 542 (7th Cir. 2010); Cornucopia Institute v. U.S. Dept. of Agriculture, 560 F.3d 673, 678 (7th Cir. 2009); Massenberg v. A & R Security Services, Inc., 2011 WL 1792735, *6 (N.D.Ill. 2011)(Holderman, C.J.). But when asked at oral argument about the timing of the affidavit, counsel for Tellabs chose not to object. The beneficiar y of a waiver can freely surrender the benefit of the waiver. And Tellabs chose to do so. Nunez v. United States, 546 F.3d 450, 452 (7th Cir. 2008). And so, we turn to the Fuji affidavit. ***
In sum, Fujitsu twice presented the court with evidence that it felt sufficient to demonstrate there was good cause for entering a protective order. First, there was Ms. Wright's affidavit; it was inaccurate, insufficient, and misleading. The second affidavit was Mr. Fuji's, which was more expansive, but still inaccurate in key areas. And, oddly, Fujitsu did not attach affidavits from any of the three engineers involved in the inspection, even though the evidence would have been based on personal knowledge and not on guesswork and multiple levels of hearsay as was the case, at least in part, with Ms. Wright and Mr. Fuji. ***
Failure to produce evidence that is uniquely available to one party permits, but does not compel, the inference that the evidence, if produced, would have been unfavorable. Graves v. United States, 150 U.S. 118 (1893); Miksis v. Howard, 106 F.3d 754, 763 (7th Cir. 1997); R.R. Donnelley & Sons Co. v. Vanguard Transp. Systems, Inc., 641 F.Supp.2d 707, 711 (N.D.Ill. 2009). This is not to draw a negative inference from the fact that Fujitsu refused to make the engineers available for deposition, and I do not do so. It is simply to recognize that by making the engineers' testimony unavailable to Tellabs, Fujitsu made it uniquely available to itself, and by not utilizing that singularly relevant testimony in support of the motion, it triggered the evidentiary principle adverted to above. Nor is this to impose a requirement that only non-hearsay can be received in the context of a proceeding like the one before me. That is certainly not true. But the weight to be given evidence and the credibility to be afforded witnesses do not cease to be relevant considerations in the context of disputes involving claims of privilege or applications of Rule 26(b)(4)(D).
Footnote 12. Vacillations, inconsistencies, and falsehoods are factors that properly may be considered in evaluating a witness's credibility or the story itself may be so internally inconsistent or implausible that a reasonable fact finder would not credit it. See Anderson v. City of Bessemer, 470 U.S. 564, 575 (1985) ("Documents or objective evidence may contradict the witness' story."); Mitondo v. Mukasey, 523 F.3d 784, 788 (7th Cir.2008); C.J. Xodus v. Wackenhut Corp. 619 F.3d 683, 687 (7th Cir.2010); Kadia v. Gonzales, 501 F.3d 817, 820 (7th Cir.2007).
Justice Brandeis once mused that "[s]unlight is said to be the best of disinfectants . . . ." Brandeis, Other Peoples Money and How the Bankers Use It (1914). If that's the case, in discovery matters, protective orders are SPF 100. Therefore, a protective order should not be cavalierly granted. Under Rule 26(c), Federal Rules of Civil Procedure, a party seeking a protective order has the burden of showing "good cause." Jepson, Inc. v. Makita Elec. Works, Ltd., 30 F.3d 854, 858 (7th Cir. 1994). To do so, there must be a particular and specific demonstration of fact, as distinguished from stereotyped and conclusory statements. Gulf Oil Co. v. Bernard, 452 U.S. 89, 102 n. 16 (1981). Here, Fujitsu contends that nothing connected to the inspection of the Tellabs optical amplifier in 2006 is discoverable, including the observations of the engineers who conducted the inspection. The argument is based on Fed.R.Civ.P. 26(b)(4)(D), the work product doctrine, and relevancy. As explained below, the arguments are unpersuasive, and Fujitsu has not carried its burden of showing "good cause." A. Rule 26(b)(4)(D) and the Work Product Doctrine
*** The threshold issue here is easily stated: can an in-house employee be "retained or specially employed . . . in anticipation of litigation" within the meaning of 26(b)(4)(D)? The answer to that question has divided the lower courts. The cases are collected in 8A, Wright, Miller, and Marcus, Federal Practice and Procedure, § 2033 at 124 (2010) and are discussed below. ***
Some courts have simply concluded that the text of the Rule is plain and thus precludes the conclusion that any employee can ever be "retained or specially employed" in anticipation of litigation or preparation for trial. See, e.g., United States v. 22.80 Acres of Land, 107 F.R.D. 20, 21 (N.D.Cal.1985)("Rule 26(b)(4)(B) was intended to extend protections not to a party's regular employees, but to outside experts a party retains once that party anticipates litigation or is preparing for trial."); Matter of Kegg, 116 F.R.D. 643, 644 (N.D.Ohio 1987)(in-house expert was not the type of impartial observer envisioned by the rule, but more a loyal employee going about his duties); Virginia Electric & Power Co. v. Sun Shipbuilding, 68 F.R.D. 397, 407 (E.D.Va.1975); Kansas-Nebraska Natural Gas Co., Inc. v. Marathon Oil Co., 109 F.R.D. 12, 15-16 (D.Neb. 1985)(following analysis of Virginia Electric). Generally, these cases have looked to three things to arrive at their interpretation of the Rule: the definition of an expert, the (supposedly) plain language of Rule 26(b)(4), and the accompanying Advisory Committee Notes.***
Several observations are in order. First, "[i]t may be that no parsing of the rule and [the] Note will afford a fully satisfactory answer to t[he] question" of whether a regular employee of a party should be considered to be "specially employed" within the meaning of Rule 26(b)(4)(D). Wright & Miller § 2033 at 124. But the text and structure of the Rule and the Advisory Committee Note are indeed susceptible of an interpretation that supports a result contrary to those cases that have concluded that in-house experts are not within the scope of the Rule.
If in-house experts were intended to have been excluded, one would have expected the Rule to have ended with the words "who have been specially retained." In common parlance, employees already on the job are not specially retained, no matter what the task. The addition of the words, "or specially employed," presumably was intended to signal a broader scope. To exclude in-house employees from the ambit of the Rule is effectively to read out the phrase "specially employed." But that would contradict of the basic principle that statutes should be construed to give effect to each word. See Carcieri v. Salazar, 555 U.S.379, 391 (2009).
The impression that in-house experts are within the intended scope of the Rule is further bolstered by the phrasing of the Advisory Committee Note, which, immediately after stating that the Rule deals with an expert who has been retained or specially employed by the party in anticipation of litigation or preparation for trial includes the following parenthetical: "(thus excluding an expert who is simply a general employee of the party not specially employed on the case)." (Emphasis supplied). If in-house experts were intended to be excluded under the Rule, the Advisory Committee Note would have ended with the words "general employee of the party." There would have been no need to add the qualifier "not specially employed on the case." Adding that phrase denotes that a "general employee of the party" is protected if specially employed on the case, but not otherwise. In short, while the Advisory Committee Note is perhaps not decisive, its explanation goes far to support an interpretation of the Rule that in-house experts are within the ambit of the Rule if specially employed to perform a task in anticipation of litigation.
The phrase "specially employed" can mean specially tasked or assigned notwithstanding the conclusion reached by some cases that the words, "assigned" and "employed," cannot be equivalent phrasings. See Virginia Electric., supra; Webster's College Dictionary and the Oxford English Dictionary define employ as to make use of (someone or something), to use or engage the services, to devote to or direct toward a particular activity, to apply to some definite purpose. Thus, an in-house employee who is directed to perform a particular task that is outside the scope of his normal duties can, consistent with accepted usage, be said properly to have been "specially employed."
Second, the reliance of Virginia Electric and other cases on the supposed impartiality of an outside expert, as opposed to the supposed inherent partiality and bias of an employee, seems a questionable basis for a narrow interpretation of Rule 26(b)(4)(D). The premise that an expert is by nature impartial is based on either an incorrect a priori assumption that bitter experience has long since proven to be false or a dubious dictionary definition of "expert" as one who possesses not only expertise but impartiality as well. Dictionaries can have a significant role to play in statutory construction. "'But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary....'" Watt v. Alaska, 451 U.S. 259, 266 (1981)(quoting, Cabell v. Markham, 148 F.2d 737, 739 (2nd Cir.)(L. Hand, J.), aff'd, 326 U.S. 404 (1945)).
The drafters of Rule 26(b)(4)(D) surely [*48] were aware of the long-standing concern about the partisanship of expert witnesses and thus would not have intended the Rule's meaning to be based on their supposed impartiality. In his famous speech in 1921 to the Bar Association of the City of New York, "The Deficiencies of Trials to Reach the Heart of the Matter," Learned Hand said that the expert "inevitably or nearly, must take on the attitude of a partisan, for partisan they surely become." A year earlier, the Illinois Supreme Court lamented that expert testimony is "regarded as the most unsatisfactory part of judicial administration ... because the expert is often the hired partisan ...." Opp v. Pryor, 294 Ill. 538, 128 N.E. 580, 583 (1920). And Judge Posner has observed that experts are often "the mere paid advocates or partisans of those who employ and pay them, as much so as the attorneys who conduct the suit..." Olympia Equipment Leasing Co. v. Western Union Telegraph Co., 797 F.2d 370, 382 (7th Cir.1986). This is a view shared by, if not all, the overwhelming number of judges and evidence scholars.
Footnote 15. See e.g., Jack Weinstein, Improving Expert Testimony, 20 U.Rich.L.Rev. 473, 482 (1986)("an expert can be found to testify to the truth to almost any factual theory, no matter how frivolous."); Michael H. Graham, Expert Witness Testimony and the Federal Rules of Evidence: Insuring Assurance of Trustworthiness (1986) Ill.L.Rev. 43, 45; 29 ("Today practicing lawyers can locate quickly and easily an expert witness to advocate nearly anything the lawyers desire."); 29 Wright and Gold, Federal Practice and Procedure, 6262 at 183 (1997); Huber, Safety and the Second Best: The Hazards of Public Risk Management in the Courts, 85 Colum.L.Rev. 277, 333 (1985) ("A Ph.D. can be found to swear to almost any expert proposition no matter how false or foolish."); Miller v. Lenz 2010 WL 252287, 2 (N.D.Ill.2010); Discovery of the Non-Testifying, "In House" Experts Under Federal Rules of Civil Procedure, supra, 58 Indiana L.J. at 606, 626 ("'the question attorneys implicitly ask in evaluating the potential expert testimony of each party is, to paraphrase, whether my whore" ' will be more persuasive than your whore.'"). See also Minasian v. Standard Chartered Bank, PLC, 109 F.3d 1212, 1216 (7th Cir. 1997); Rosen v. CibaGeigy Corp., 78 F.3d 316, 319 (7th Cir. 1996).
An interpretation based on an assumption that experience has shown to be untrue is neither persuasive nor accurate. Even "the plain-meaning rule is 'rather an axiom of experience than a rule of law, and does not preclude consideration of persuasive evidence if it exists.' Boston Sand Co. v. United States, 278 U.S. 41, 48 (1928) (Holmes, J.)." Watt, 451 U.S. at 266.
A number of courts have come to a conclusion contrary to that reached by Virginia Electric. See, e.g., In re Shell Oil Refinery, 132 F.R.D. 437, 441-42 (E.D.La. 1990)("Which hat [employees/experts] wear depends on whether their knowledge was gained in the course of their special employment as members of the investigation team or in the course of their regular duties."); Marine Petroleum Co. v. Champlin Petroleum Co., 641 F.2d 984, 993 (D.C.Cir. 1979)("The rule's tacit acknowledgement of the necessity of meticulous preparation has equal force whether the expert is one originally and exclusively retained for anticipated litigation or one whose employment responsibilities are expanded to encompass consultation and advice in expectation of litigation."); Seiffer v. Topsy's Intern., Inc., 69 F.R.D. 69, 72 (D.Kan.1975)(where partner in defendant accounting firm was requested by law firm to assist in possible litigation arising out of accounting firm's audits by reviewing the work, had not been involved in the audits, and reported his findings in writing to the law firm, he was not merely a "general employee"); In re Sinking of Barge Ranger I Cas. Near Galveston, Tex. on May 10, 1979, 92 F.R.D. 486, 489 n.5 (S.D.Tex. 1981)(following Sieffer).***
What all the cases agree on is that the expert must be "specially employed in anticipation of litigation." The question is whether the special employment must be on a project other than the kind the employee normally is engaged in as well as being in anticipation of litigation or whether the special employment is on a matter in anticipation of litigation. The Rule is susceptible of being read as requiring both. In that event, the rule would not be operative unless it could be shown that the employee was given a project that he wouldn't ordinarily be working on. If that interpretation is correct, Fujitsu has only questionable evidence to show that the three engineers were specially assigned in this case. ***
As it turns out, however, there is no need to answer this question definitively because, in any case, the plain language of the Rule requires that the special employment be "in anticipation of litigation." And Fujitsu has failed to meet its burden of demonstrating that was the case. The phrase "in anticipation of litigation" is well known as a prerequisite to work product protection. See Fed.R.Civ.P. 26(b)(3); United States v. Nobles, 422 U.S. 225, 238 (1975); Hickman v. Taylor, 329 U.S. 495, 508 (1947). The issue has always been, whether the preparation of a document -- or, here, undertaking of and reporting on an inspection of products -- was done in anticipation of litigation or in the ordinary course of business.***
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