John I. Spangler, III & Deborah Cazan – December 10, 2012
Introduction
Construction disputes present complex issues of causation—what caused the accident, the delay or the added costs. Third-party consultants are frequently engaged to evaluate and offer opinions on causation, performance, schedules and costs. Then, when the dispute or accident ends up in litigation, the materials prepared by the consultants are sought in discovery. Claims of work product are often asserted, raising the question of what is covered by the work-product doctrine and what is not.
A common misconception is that if the consultant generating the materials is engaged by an attorney, the materials prepared by the consultant are automatically shielded from discovery. That is not the case. The work-product doctrine shields documents from discovery if they were prepared in anticipation of litigation, but not if they were prepared in the ordinary course of business.
Tough questions arise when one party claims that a document or report was prepared in anticipation of litigation, while the other party contends it was prepared in the ordinary course of business. Even more difficult are documents that are prepared for a dual purpose — i.e., in the ordinary course of business, but also in anticipation of litigation. Understanding how the doctrine is applied in these contexts is essential to protect documents from unwarranted discovery and preclude the improper invocation of the work-product doctrine to withhold documents that should be produced.
The Work-Product Doctrine—What Is It?
The work-product doctrine is a judge-created doctrine, and as initially crafted, protected from discovery written statements, private memoranda and personal recollections prepared by an attorney in anticipation of litigation.1 The intention was to create a zone of privacy around the attorney so as to allow the preparation and development of legal theories and strategies with an eye toward litigation, free from unnecessary intrusion by his adversaries.2
The doctrine is now codified in the Federal Rules of Civil Procedure (and in similar state procedure rules) and extends far beyond just the thought processes of an attorney. The work-product doctrine now encompasses “documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative,”3 and a party’s representative can be its attorney, but it also can be its insurer, employee or other agent. The doctrine applies so long as the party or its representative, working on behalf of the party, prepared the document or other written materials with the prospect of litigation in mind.
Unlike the attorney-client privilege, which shields from discovery confidential communications between clients and their attorneys,4 the work-product doctrine is not absolute, and can be overcome if the party seeking the documents can show it has a substantial need for the materials to prepare its case for trial and cannot, without undue hardship, obtain their substantial equivalent.5 It is also important to recognize that the party claiming work product, and seeking to prevent the discovery of the documents or materials, bears the burden of proof, and must demonstrate to the court that the materials were in fact prepared in anticipation of litigation and that the work-product doctrine applies.6
The “Because-Of” Test
Documents must be prepared “in anticipation of litigation” in order for the work-product doctrine to apply. In deciding where to draw the line between documents generated in the ordinary course of business—and thus not subject to the work-product doctrine—and those prepared in anticipation of litigation, most courts apply the “because-of” test, and ask the question, “Was the document created because of anticipated litigation?”7
In the construction context, the “because-of” test is frequently applied when reports and other internal documents are prepared by insurers and sureties, and then sought in subsequent litigation. Both insurers and sureties are in the business of evaluating risks, and both prepare reports and other internal documents evaluating those risks as part of their ongoing business operations. They also frequently litigate claims, so it is not always clear when documents are prepared for a business purpose versus a claim or litigation purpose.8
Two cases out of New York illustrate this issue. In Safeco Ins. Co. v. M.E.S., Inc.,9 the surety brought an action against the principals on several bonds the surety had issued, seeking contractual indemnity for losses the surety alleged it would incur due to the principals’ defaults on several construction projects.
Safeco had engaged consultants to evaluate the contractors’ performance on the projects before the defaults occurred, and the consultants issued Safeco reports of their findings. Safeco claimed the reports were protected from discovery by the work-product doctrine, arguing that they were generated in anticipation of claims arising out of the projects. The contractors argued that Safeco would have performed the same investigation of the underlying projects irrespective of whether litigation was anticipated, thus making the reports fully discoverable.
Safeco’s claim of work product was rejected and the documents ordered produced because Safeco failed to convince the court that the same analysis performed by the consultants would not have been undertaken in the ordinary course of its business, which includes, among other things, the evaluation of risks. The court was also influenced by the fact that the consultants had been hired by Safeco to provide construction management advice to Safeco before the default occurred, further blurring the line between services obtained in the ordinary course of business and those obtained in anticipation of litigation.
In contrast, in William A. Gross Construction Associates, Inc. v. American Manufacturers Mutual Insurance Co.,10 the court upheld a work-product claim as to preliminary evaluation reports prepared for the owner by its consultant, Hill International. Hill prepared the reports at the request of the owner’s counsel, and at the time they were prepared, the owner was facing claims from its contractors totaling $72 million. Hill also was engaged to perform the analysis at a time when the owner’s counsel thought litigation was imminent, and in fact, litigation commenced about two months after Hill was hired.
Although Hill was also providing construction management services to the owner on the project, the owner’s counsel hired a separate group at Hill to perform the claim evaluations and the claim consultants were not involved with the construction management work Hill performed. The claim consultants also had no contact with the contractors on site. Also, unlike the continuous involvement of the Hill personnel providing construction management services, the claim consultants were involved in a short-term assignment that was scheduled to end about three weeks before the litigation commenced. In addition, the report prepared by the claim consultants discussed possible litigation positions and provided a litigation analysis of certain documents. Taken together, these facts established that the claim reports were protected work product created in anticipation of litigation, and not in the ordinary course of business.
Construction accident reports are treated in the same fashion as is illustrated in Alta Refrigeration, Inc. v. AmeriCold Logistics, LLC.11 In this action, the court rejected the claim that an accident investigative report, prepared in accordance with the company’s incident investigation policy and to comply with certain OSHA regulations, was protected from discovery by the work-product doctrine. Since the company had a business policy to create such reports, it could not demonstrate the report was prepared in anticipation of litigation, and could not invoke the work-product doctrine to shield the report from production.
Dual-Purpose Documents
Another tough issue is presented by dual-purpose documents — documents created for both a business reason and in anticipation of litigation. Work-product protection will not be afforded the document if it would have been prepared in substantially similar form or content irrespective of the expected or anticipated litigation. The pertinent question is what would have happened had there been no litigation threat—that is, would the party seeking workproduct protection have generated the document if it were acting solely for a business-related purpose?12 To answer this inquiry, courts focus on the form, or content of the document and ask whether the document would have been prepared in substantially similar form but for the prospect of litigation. If this showing can be made, the privilege applies, but if the document would have been prepared in the same form regardless of the threat of litigation, the document goes unprotected.13
Typical of this type of situation is the report commissioned in United States v. Adlman.14 In this case, an accountant and lawyer at Arthur Anderson were engaged to evaluate the tax implications of a proposed merger. The Anderson consultant prepared a memorandum to assist the client with the proposed merger — a business decision, but also for litigation purposes—because it was certain the tax advantages the client intended to claim from the proposed transaction would be challenged by the Internal Revenue Service. The Anderson memorandum contained a detailed legal analysis of likely IRS challenges to the transaction, proposed legal theories or strategies to address the expected challenge and predictions about the likely outcome of litigating with the IRS.
Looking at the totality of the situation, the court concluded that a dual-purpose document could nevertheless be subject to work-product protection if the document was created in anticipation of litigation and would not have been created in substantially similar form, but for the prospect of litigation.15
A case applying the dual-purpose test in the construction context is G.M. Harston Construction. Co. v. City of Chicago, a case arising out of Chicago’s16 termination of a construction contract for convenience. Under the terminated contact, the city was contractually required to work with the terminated contractors to determine the amounts they were owed for work performed prior to the termination.
To facilitate the performance of this contractual obligation, the city engaged Deloitte & Touche, an independent auditing firm, and advised the terminated contractors that Deloitte would evaluate their termination claims. Thereafter, the terminated firms supplied financial information to Deloitte and met with representatives of the auditing firm several times during their ongoing review of the cost information.
In subsequent litigation, the terminated firms sought discovery of the materials developed by Deloitte when evaluating their claims. The city claimed the materials were protected from discovery by the work-product doctrine, arguing that Deloitte was retained by the city’s counsel and in anticipation of litigation. The terminated contractors claimed the city had a contractual duty to evaluate their claims and hired Deloitte to perform or discharge that contractual obligation.
In resolving these competing claims, the court applied the dual-purpose test. The evaluation performed by Deloitte served a dual purpose — to determine what the city owed the terminated contractors under the contracts, and to assess the strength of whatever litigation position the city might take.17
Although documents prepared for a dual purpose do not necessarily forfeit work-product protection, the work-product protection did not apply here since the evaluation performed by Deloitte had to be made under the terminated contracts, and in that sense, was performed in the ordinary course of business. Since the city was contractually obligated to evaluate the termination claims, the court concluded that the Deloitte documents would have been created in essentially similar form irrespective of the threat of litigation, and were not protected from discovery.
Conclusion
The work-product doctrine is not a bright-line test that can easily be applied and depends upon the facts and circumstances surrounding the preparation of the requested documents. The party claiming work product has the burden of proof and will be required to produce the documents unless it can carry that burden and convince the court that the documents were prepared in anticipation of litigation, and not in the ordinary course of business. The fact that an attorney engages the consultant or accountant that prepares the subject documents does not automatically shield the materials from discovery. Focus on the question of whether it can be shown or demonstrated that the document was prepared because of the threat of litigation. If this is likely to be a close question, consider hiring a consultant to perform the ordinary course evaluation, and another consultant to assist in litigation planning or analysis.
Also, realize that if the subject document serves a dual purpose — a business purpose and a litigation purpose — the claim of work product will receive greater scrutiny and will necessitate a showing that the document would not have been prepared in its form or would not have contained its content, but for the expected litigation.
Knowing where these lines are drawn and how the doctrine applies is essential to preserve appropriate work product from discovery and prevent improper claim of work product to frustrate appropriate discovery.