In Re Santa Fe International Corp.
2001 WL 1381192, 272 F.3d 705 (2001)
Rule of Law:
The 'common legal interest' extension of the attorney-client privilege protects communications disclosed to third parties only when there is a palpable threat of litigation at the time of the disclosure, not merely a shared concern about potential future liability.
Facts:
- Offshore drilling workers alleged that Santa Fe International Corporation and other drilling companies secretly met over a ten-year period to fix wages and benefits.
- In May 1991, Santa Fe's in-house counsel drafted a legal memorandum regarding legal issues related to the exchange of wage and benefit information among competitors.
- Santa Fe circulated this 1991 memorandum to other independently owned offshore drilling corporations (competitors) who are now co-defendants.
- At the time Santa Fe shared the memorandum in 1991, there was no ongoing litigation involving these companies regarding these issues.
- Santa Fe admitted that in 1991, it did not anticipate or perceive a specific threat of antitrust litigation.
- Santa Fe claimed the purpose of sharing the memo was to ensure compliance with antitrust laws and minimize risk, rather than to prepare a joint defense for existing lawsuits.
Procedural Posture:
- Plaintiffs sued Santa Fe and other drilling companies in the U.S. District Court for the Southern District of Texas for antitrust violations.
- The District Court established an expedited oral procedure for resolving discovery disputes.
- During a discovery hearing, Plaintiffs orally requested production of documents withheld by Defendants under claims of privilege.
- The District Court ruled that sharing the documents with other companies waived the privilege and ordered Santa Fe to produce them.
- Santa Fe joined other defendants in filing a motion for reconsideration and clarification with the District Court.
- The District Court denied the motion for reconsideration.
- Santa Fe petitioned the U.S. Court of Appeals for the Fifth Circuit for a writ of mandamus to vacate the District Court's production order.
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Issue:
Does the 'common legal interest' privilege protect an internal legal memorandum disclosed by a corporation to its horizontal competitors when, at the time of disclosure, there was no actual or imminent litigation pending against the parties?
Opinions:
Majority - Dennis
No. The Court held that the district court did not clearly err in finding the privilege waived because there was no palpable threat of litigation at the time of disclosure. The Court reasoned that the attorney-client privilege must be construed narrowly. While the 'common legal interest' (CLI) privilege extends to potential co-defendants, it requires more than a mere awareness that conduct might someday result in litigation. Because Santa Fe and its competitors were not preparing for a joint defense against an actual or imminent lawsuit in 1991, but were rather engaging in a common business undertaking to minimize risk, the sharing of the document waived the attorney-client privilege. The Court emphasized that horizontal competitors cannot exchange confidential legal opinions under the guise of CLI without a foreseeable lawsuit.
Dissent - Smith
Yes (in principle, arguing the majority/lower court erred). The dissenting judge argued that the district court committed a clear error by ordering the production of documents without first reviewing them in camera to determine if they contained privileged material. The dissent contended that the majority applied the CLI privilege too narrowly and that the privilege should not be waived solely because litigation had not yet commenced, as long as the parties shared a common legal interest. Furthermore, the dissent argued that Santa Fe was denied due process because the production order was issued without proper notice or a written motion.
Analysis:
This decision significantly narrows the scope of the 'common legal interest' or 'joint defense' privilege in the Fifth Circuit. It establishes a 'palpable threat' standard, meaning corporations cannot freely share legal advice with competitors or partners regarding regulatory compliance or risk avoidance unless a lawsuit is actually on the horizon. This distinction separates 'common business interests' (avoiding liability) from 'common legal interests' (defending against a specific legal threat). Practically, this means corporate counsel must be extremely cautious about sharing privileged opinions with third parties, even those in the same industry facing similar risks, as such sharing will likely waive privilege in future litigation.
