A federal appellate court has denied a writ of mandamus seeking to overturn a district court’s order that attorney-client privileged communications be disclosed in discovery pursuant to the crime-fraud exception. While practitioners agree with the court’s decision, they advise care in asserting this exception.
The roots of In re Abbott Laboratories can be traced back to 2011 when the petitioners, pharmaceutical and other companies, filed a patent-infringement lawsuit in the U.S. District Court for the District of New Jersey against Perrigo Company.
In 2014, the Federal Trade Commission (FTC) filed an antitrust suit in the U.S. District Court for the Eastern District of Pennsylvania against the petitioners alleging that the petitioners “maintained an illegal monopoly through the filing of sham patent infringement lawsuits against two potential competitors.” Following a bench trial, the district court ruled in favor of the FTC, finding that internal counsel for the petitioners were aware that the lawsuits were “baseless” and that they “acted in bad faith.” The U.S. Court of Appeals for the Third Circuit subsequently upheld the ruling.
In 2019, multiple entities including drug manufacturers initiated a lawsuit against the petitioners in the U.S. District Court for the Eastern District of Pennsylvania, titled King Drug Co. of Florence, Inc. v. Abbott Laboratories. In the King lawsuit, these entities alleged antitrust violations in line with the FTC’s allegations. During the discovery phase of the King lawsuit, the entities sought the production of 211 documents that they believed would shed light on the petitioners’ in-house counsel’s knowledge of the alleged sham litigation.
Despite the petitioners asserting the attorney-client privilege to prevent the disclosure of these documents, the district court ordered the production of 19 documents consisting of legal research and analysis by attorneys. The district court concluded that these documents fell within the crime-fraud exception due to their relevance to the fraudulent activities. Subsequently, the petitioners filed a mandamus petition to challenge the district court's decision.
The Third Circuit denied the petition. In its ruling, the appellate court emphasized the stringent requirements for granting a writ of mandamus, highlighting the need to demonstrate a clear abuse of discretion or legal error, the absence of alternative avenues for appropriate relief, and the presence of potential irreparable harm. The appellate court concluded that none of the elements applied.
The appellate court further pointed out the lack of binding precedent protecting the privileged information from disclosure. Despite the arguments presented, the appellate court found no legal basis that would prevent the documents from being produced under the crime-fraud exception, as the communications were in furtherance of future illegal conduct, i.e., the “sham litigation.”
Additionally, the appellate court highlighted alternative avenues available for the petitioners to seek relief, such as filing a post-judgment appeal to address any potential improper disclosure of privileged materials. The appellate court further noted that the documents in question were over a decade old and related to an expired patent, thus diminishing the likelihood of irreparable harm. Moreover, protective orders had already been agreed upon by the parties to prevent any detrimental public disclosure of the sensitive information. Ultimately, the appellate court concluded that the petitioners had not met the threshold required to warrant the granting of their mandamus petition and denied their request.
“Sham litigation that seeks to deceive or manipulate the legal system should not be shielded from scrutiny. That is why the crime-fraud exception exists,” states Trenton K. Patterson, Dallas, TX, ABA Litigation Section member.
“Allowing sham litigation to go unchecked undermines the integrity of the legal system and erodes the trust of the public,” says Jarvarus A. Gresham, Atlanta, GA, Co-Chair of the Litigation Section’s Sound Advice Subcommittee of the Pretrial Practice & Discovery Committee. “The crime-fraud exception must apply to ensure that justice prevails over deceit and manipulation,” he adds.
While agreeing that the court appropriately applied the crime-fraud exception in the case, these practitioners believe that counsel should proceed with caution and integrity when considering whether to pursue an argument based on the crime-fraud exception. “It is imperative to thoroughly assess the veracity of the claim and consider the potential consequence of invoking such an exception,” explains Gresham. “Be completely sure that unethical actions are at play before attacking the reputation of opposing counsel,” he adds.
“Legal counsel should exercise careful judgment and diligence when contemplating whether to assert the crime-fraud exception,” advises Patterson. “It is imperative to conduct a thorough evaluation of the evidence, potential outcomes, and ethical considerations before taking such a significant step,” he adds.
