Opinion
Misc. Action No. 03-1651 (JDB).
June 29, 2004
Suzanne J. Romajas, Securities and Exchange Commission, Washington, DC, Counsel for applicant.
Adrian Wager-Zito, Jones Day, Washington, DC, David B. Alden, JONES, DAY, REAVIS POGUE, North Point, Cleveland, OH, Counsel for respondent.
MEMORANDUM OPINION
Presently before the Court are the application of the Securities and Exchange Commission ("SEC") for an order to show cause and to require obedience to its subpoena duces tecum ("Subpoena"), and the motion of respondent R.J. Reynolds Tobacco Holdings, Inc. ("RJR") for a protective order. For the reasons that follow, the Court will grant in part and deny in part both the SEC's application and RJR's motion.
BACKGROUND
On June 24, 2003, pursuant to Sections 21(a) and 21(b) of the Exchange Act, 15 U.S.C. § 78u(a) and (b), the SEC issued an Order Directing Private Investigation and Designating Officers to Take Testimony in an investigation captioned as In the Matter of R.J. Reynolds Tobacco Holdings, Inc. See Hagerup Decl., Ex. 1. Thereafter, on July 3, 2003, the SEC issued an administrative subpoena duces tecum directing RJR to produce certain documents and to provide testimony regarding certain matters pursuant to the June 24, 2003, order. See id., Ex. 2. Specifically, the Subpoena requires RJR to produce documents responsive to the following nine requests regarding "tobacco-related litigation costs":
1. All documents related to R.J. Reynolds' consideration given to disclosure of tobacco-related litigation costs and the effects of such costs on operating results, liquidity or other common measures used to evaluate operating results and liquidity, including but not limited to, all documents that were provided to R.J. Reynolds' officers, directors and senior executives.
2. All documents that describe, summarize or identify tobacco-related litigation costs or the effects of tobacco-related litigation costs on operating results, liquidity or other common measures used to evaluate operating results and liquidity, including without limitation all such documents provided to R.J. Reynolds' officers, directors and senior executives, and all such documents prepared in connection with R.J. Reynolds' financial statements or its financial performance, financial reporting or financial planning.
3. All documents sufficient to identify tobacco-related litigations. For each such litigation, provide all documents that identify the total costs and expenses incurred by R.J. Reynolds on a monthly, quarterly and annual basis.
4. All documents, including, but not limited to, Excel spreadsheets, that contain information pertaining to tobacco-related litigation costs that have been included in R.J. Reynolds' LAS Access database.
5. All reports generated from R.J. Reynolds' LAS Access database that show the yearly, quarterly and monthly costs associated with each tobaccorelated litigation matter or case.
6. All monthly, quarterly and yearly General Ledger detail reports for all tobacco-related litigation cost centers, including, but not limited to, Cost Centers 807 and 808.
7. All monthly, quarterly and yearly General, Administrative and Entertainment ("GAE") detail reports that contain tobacco-related litigations costs.
8. All monthly, quarterly and yearly Selling, General and Administrative ("SGA") detail reports that contain tobacco-related litigation costs.
9. All monthly, quarterly and yearly budget forecasts or reports related to R.J. Reynolds' tobacco-related litigation costs.
Subpoena Att. at 2-3, SEC Applic., Ex. 2.
These nine requests fall into four general categories: (1) documents that quantify RJR's present and historical litigation fees and expenses on a monthly, quarterly and annual basis for each tobacco-related litigation (Req. Nos. 3, 4, and 5); (2) documents that quantify RJR's forecasted budget for litigation fees and expenses (Req. No. 9); (3) documents that concern the effect of such fees and expenses on various measures of RJR's financial condition (Req. Nos. 6, 7, and 8); and (4) documents that reflect the consideration given by RJR management to RJR's disclosure of such information (Req. Nos. 1 and 2).
The SEC originally broke the nine requests into three categories that did not differentiate between the historical and forecasted costs for tobacco-related litigation. See SEC Applic. at 1.
Over the course of discussions between the SEC and RJR, the SEC agreed to narrow the definition of "tobacco-related litigations" to exclude from the Subpoena's scope any responsive documents relating to litigations under the antitrust or employment laws or that otherwise concern non-smoking or non-health issues. See Hagerup Decl., Exs. 8-10. The SEC also clarified that its focus is primarily quantitative in nature; it seeks documents reflecting dollar amounts spent by RJR on attorney fees and expenses in its tobacco-related litigations and the impact on RJR's financial condition, not documents that detail the substance of the work performed by RJR's attorneys. See id., Ex. 11.
The SEC claims that RJR has failed to comply fully with the Subpoena. According to the SEC, RJR initially produced a total of eleven documents in response to the Subpoena, none of which contained quantitative fee and expense data or reflected the impact of such data on RJR's financial condition. SEC Applic. at 1; see also Hearing Transcript (January 8, 2004) at 5, ll. 2-5 (hereinafter "Tr."). On January 7, 2004, RJR produced to the SEC a document that contains the aggregate annual amounts spent on outside counsel and on other external items in RJR's tobaccorelated litigations. The aggregate number produced in that document does not include any inhouse costs for RJR's tobacco-related litigations. As responses to Requests Nos. 6, 7, and 8, the SEC states that it is not completely satisfied that the documents so far produced by RJR are sufficient to comply with those requests. See Status Report by the SEC (January 15, 2004) at 1. The SEC represents, however, that it will consider that RJR has satisfactorily complied with Requests Nos. 6, 7, and 8 if RJR produces: (1) the monthly GAE and SGA numbers for 1998 and the first half of 1999, and (2) the sub-ledger that it uses to reconcile its litigation-related fees and expenses to the GAE line item on its general ledger. Id.
Four of the eleven documents reflect RJR's communications with the staff of the SEC's Division of Corporation Finance in late 2002 and early 2003 and address the issues on which Corporation Finance was focused during that period. One document is a printout of an RJR ledger for the periods ending December 31, 1998 through June 30, 2003, revealing the amount of RJR's total general administrative expenses and its total selling, general and administrative expenses for each month of the covered period. Six of the documents are charts that list, for the periods ended December 31, 1998 through June 30, 2003, an abbreviated case name, along with the date the complaint was served in that case, the jurisdiction where the case is pending, and the generic "category" into which RJR has classified the case. See SEC Opp. and Reply at 2.
Subsequent to the motions hearing held on January 8, 2004, counsel for the parties made a joint submission to this Court clarifying the description of the document produced by RJR on January 7, 2004, and fine-tuning representations made by counsel during the hearing. See Joint Status Report (January 30, 2004).
RJR acknowledges that it possesses other documents that are responsive to the Subpoena, but refuses to produce them on the grounds that they are protected from disclosure by the work product doctrine or the attorney-client privilege, or that they contain commercially sensitive information meriting confidential treatment. On August 14, 2003, the SEC filed an application in this Court for an order to show cause and to require RJR's obedience to the Subpoena. In response, RJR filed a motion for a protective order and its opposition to the SEC's application on August 29, 2003. A hearing was held on January 8, 2004.
DISCUSSION
RJR contends that certain documents that may be responsive to the SEC Subpoena are protected by privilege, including the work product doctrine — specifically as opinion work product — and attorney-client privilege. RJR also maintains that it has made clear on repeated occasions that it is willing to produce non-privileged documents and reports responsive to all nine of the SEC Subpoena's Requests, to the extent that they exist. Nevertheless, RJR refuses to produce such documents absent reasonable confidentiality protections above and beyond those normally in place to protect confidential information from disclosure in an investigation conducted by the SEC. The SEC responds that the documents it seeks from RJR are not protected by privilege and that RJR has failed to demonstrate that any of the documents at issue qualify for confidential treatment beyond that which is normally accorded in an SEC investigation. The Court will address each argument in turn.
RJR notes that the claims of attorney-client privilege largely overlap with its opinion work product protection claims. Accordingly, because the opinion work product protection is "broader than the attorney-client privilege", see Linde Thomson Langworthy Kohn Van Dyke P.C. v. R.T.C., 5 F.3d 1508, 1515 (D.C. Cir. 1993), RJR focuses its arguments on the opinion work product doctrine. See RJR Mot. and Opp. at 19 n. 15. The Court therefore likewise focuses its analysis on the opinion work product doctrine and will refer to this entire category of argument loosely under the term "privilege."
I. Privilege
The SEC asserts that its Subpoena seeks only documents that contain "quantitative data reflecting the dollar amounts spent by RJR on tobacco-related litigations and management's consideration of the impact that such data has on various measures of RJR's financial condition," and that it made clear to RJR that any descriptions of work performed by RJR's counsel need not be produced and could be redacted from otherwise responsive documents such as outside counsel's billing statements. SEC Applic. at 15. RJR argues that its documents containing information on the actual or budgeted litigation expenses for individual and aggregated tobaccorelated matters are protected from disclosure by the work product doctrine because of the unique nature of the litigation threats that RJR faces and because the SEC's Subpoena seeks much more than merely aggregate quantitative data.
The work product privilege protects from disclosure the work of an attorney prepared in anticipation of litigation. In re Sealed Case, 146 F.3d 881, 884 (D.C. Cir. 1998). The Supreme Court first articulated the principles undergirding the work product privilege in Hickman v. Taylor, 329 U.S. 495, 509-14 (1947). There, the Court observed that
it is essential that a lawyer work with a certain degree of privacy, free from unnecessary intrusion by opposing parties and their counsel. Proper preparation of a client's case demands that he assemble information, sift what he considers to be the relevant from the irrelevant facts, prepare his legal theories and plan his strategy without undue and needless interference. . . . Were such materials open to opposing counsel on mere demand, much of what is now put down in writing would remain unwritten. An attorney's thoughts, heretofore inviolate, would not be his own. Inefficiency, unfairness and sharp practices would inevitably develop in the giving of legal advice and in the preparation of cases for trial. The effect on the legal profession would be demoralizing. And the interests of the clients and the cause of justice would be poorly served.Id. at 510-11. The work product privilege was subsequently codified in Fed.R.Civ.P. 26(b)(3). Courts now analyze the work product doctrine under two rubrics: fact work product and opinion work product. Fact work product can be discovered on a showing of both a substantial need and an inability to secure the substantial equivalent of the materials by alternate means without undue hardship. In re Grand Jury Proceedings, 33 F.3d 342, 348 (4th Cir. 1994) (citing In re John Doe, 662 F.2d 1073, 1078 (4th Cir. 1981), cert. denied, 455 U.S. 1000 (1982)). Opinion work product, on the other hand, represents the actual thoughts and impressions of the attorney, enjoys a nearly absolute immunity, and can only be discovered in rare and extraordinary circumstances. 33 F.3d at 348.
The D.C. Circuit has articulated the "testing question" for the work product privilege as "whether, in light of the nature of the document and the factual situation in the particular case, the document can fairly be said to have been prepared or obtained because of the prospect of litigation." In re Sealed Case, 146 F.3d at 884 (quoting Senate of Puerto Rico v. U.S. Dep't of Justice, 823 F.2d 574, 586 n. 42 (D.C. Cir. 1987)). If so, and the document embodies the mental impressions and thoughts of the attorney, then discovery of that document should generally be denied. In re Allen, 106 F.3d 582, 607 (4th Cir. 1997). However if, on the other hand, the documents are prepared by lawyers "in the ordinary course of business or for other nonlitigation purposes," the work product privilege is not applicable. In re Sealed Case, 146 F.3d at 887 (quoting Linde Thomson Langworthy Kohn Van Dyke, 5 F.3d at 1515). And if opinions and theories about the litigation are only part of a document otherwise discoverable, the court may require production of a redacted copy. Nat'l Fire Ins. Co. of Pittsburgh, Pa. v. Murray Sheet Metal Co., Inc., 967 F.2d 980, 985 (4th Cir. 1992).
The parties agree that the four categories of documents at issue are those that contain: (1) the actual historical and present litigation-related costs incurred by RJR on an aggregate and case-by-case basis (Req. Nos. 3, 4, and 5); (2) forecasted or budgeted litigation expenses on a monthly, quarterly, and annual basis (Req. No. 9); (3) comparisons of litigation costs to various other financial thresholds (Req. Nos. 6, 7, and 8) on a monthly, quarterly, and annual basis; and (4) the information provided to RJR's management about the effects of litigation costs on the company's financial condition (Req. Nos. 1 and 2). RJR represented at the hearing on January 8, 2004, that it no longer seeks to assert privilege for documents falling into the first category that reflect aggregated figures. Tr. at 17, ll. 20-22, and 18, ll. 2-3, and 54, ll. 9-10. RJR stated that, instead, it seeks protection only for documents falling into category 1 that reflect case-by-case figures. Furthermore, because RJR has produced several documents in response to Requests Nos. 6, 7, and 8, the only documents in category 3 that are still at issue are the monthly GAE and SGA numbers for 1998 and the first half of 1999, and the sub-ledger that RJR uses to reconcile its litigation-related fees and expenses to the GAE line item on its general ledger. See discussion supra at 4; Status Report by the SEC (January 15, 2004) at 1. RJR also indicated at the January 8, 2004, hearing that it no longer seeks to assert privilege for category 4 documents that reflect annual aggregate figures. RJR reiterated, however, that it is continuing to assert privilege for all documents that fall into category 2 — i.e., the forecasted or budgeted expense information sought by the SEC in Request No. 9 of its Subpoena. In sum then, RJR seeks to protect as privileged: the documents or materials within category 1 that are presented on a case-by-case basis; the few documents still at issue within category 3 (the monthly GAE and SGA numbers for 1998 and the first half of 1999, and the sub-ledger that RJR uses to reconcile its litigation-related fees and expenses to the GAE line item on its general ledger); documents within category 4 that reflect RJR's litigation costs presented on a case-by-case, monthly or quarterly — but not aggregated annual — basis; and all documents within category 2. The Court now turns to an assessment of those privilege claims.
A. Expense Data Aggregated at Sub-Annual Levels (Categories 3 and 4)
RJR asserts that litigation-related expenses that are aggregated on a monthly or even quarterly basis are privileged even though RJR has conceded that annually-aggregated figures are not. RJR argues that the specificity of aggregated figures increases as the periods over which they are calculated decrease; RJR's concern is that its litigation adversaries might be able to "reverse engineer" what is happening in specific cases to discern the impact that they are having on the litigation costs incurred by RJR. Tr. at 19, ll. 3-8. As counsel explained at the January 8 hearing, "as soon as you start slicing [the aggregated expense figures], you get closer and closer to things from which people can divine what they're doing [to RJR]." Id. at 47, ll. 24-25, and 48, l. 1. Counsel for RJR admitted, however, that the distinction between the quarterly and monthly aggregate expense figures (for which it asserts privilege) and the annually-aggregated figures (for which it does not) is simply a "matter of degree." Id. at 48, l. 7.
In order to qualify for protection as work product, the materials and information at issue must have been prepared in anticipation of litigation and, in order to qualify for the heightened protection afforded to opinion work product, those materials and information must reveal the thoughts and opinions of the attorney. RJR argues vigorously that it faces a wide range of litigation adversaries who litigate against it for the express purpose of causing it to incur litigation expenses, which they hope will force RJR to raise the prices of its products or perhaps cease doing business altogether. RJR contends that this renders information about its litigation expenditures, that might otherwise not be considered sensitive, to be of special moment to its adversaries; the quantitative data would allow RJR's litigation adversaries to see how RJR's attorneys have considered and responded to their efforts, as well as provide a detailed account of the effectiveness of efforts to force RJR to incur additional litigation costs. Having conceded that the annual aggregate figures responsive to Requests Nos. 1-8 are not privileged, however, RJR has failed to point to anything in the record — including the unique nature of the hostile litigation situation that RJR faces — that can support the proposition that quarterly aggregate information reveals the mental impressions of attorneys when annual aggregate information does not. See Tr. at 54, ll. 14-21, and 56, ll. 17-20.
Furthermore, RJR contends that it is a "misconception that the only thing that can be work product is that which is prepared in anticipation of litigation." Id. at 49, 8-10. It is RJR's position, relying on the Eight Circuit's discussion and holding in Simon v. G.D. Searle Co., 816 F.2d 397 (8th Cir. 1987), that while ordinary work product must be prepared in anticipation of litigation, opinion work product is not subject to the same definitional requirement. Id., ll. 22-25. No other support for this proposition is offered, and upon a careful review ofSimon, the Court disagrees with RJR. The Eighth Circuit held inSimon that while certain documents were not themselves prepared in anticipation of litigation, information contained therein was privileged as opinion work product because that information, which the Court concluded revealed the mental impressions of its preparing attorney, was "by [its] very nature . . . prepared in anticipation of litigation." 816 F.2d at 401. The Eighth Circuit's holding distinguishes between documents prepared in anticipation of litigation and information prepared in anticipation of litigation; the court's reasoning, however, does not release the subject of opinion work product protection from the requirement of having been prepared in anticipation of litigation. Here, the record does not establish that either the documents reflecting aggregated historical litigation costs or the information itself was prepared in anticipation of litigation or would reveal attorney mental impressions and opinions.
Indeed, RJR has dropped its assertion of privilege for the annual aggregated figures sought in the SEC's Requests Nos. 1-8, and has effectively conceded that the information and materials that fall into categories 1, 3, and 4 as they have been defined for the purpose of this discussion are not by their very nature "prepared in anticipation of litigation." Having failed to support the proposition that historical litigation costs that are aggregated on a sub-annual level, or even presented on a case-by-case basis, are inherently distinct from those that are aggregated on an annual level, RJR has failed to establish that this information should be protected from disclosure to the SEC on the basis of privilege. Finally, the fact thataggregated historical litigation cost information may have been provided to RJR management would not imbue it with attorney-client or work product protection it otherwise does not have.
Counsel for RJR candidly stated at the hearing on January 8, 2004, in response to questioning on the distinction between annual aggregate historical cost figures and similar figures calculated at sub-annual levels, that "I'm defeated." Tr. at 56, l. 23.
B. Budgeted Expense Data (Category 2)
The SEC's Request No. 9 seeks all monthly, quarterly, and annual budget forecasts or reports related to RJR's tobacco-related litigation costs on both an aggregate basis and a case-bycase basis. This Court has, in the past, observed that while fee and billing information is the sort of communication between an attorney and his client that is not covered by an attorney-client privilege, it is possible that information regarding attorney-client fee arrangements may contain matters that may be covered by the work product doctrine. In re Grand Jury Proceedings, 201 F.Supp.2d 5, 13 (D.D.C. 1999). Relying on the Eighth Circuit's holding in Simon, RJR argues that all information and documents responsive to this request are protected by the opinion work product privilege. According to RJR, litigation budgeting and forecasts, whether on an aggregate, matter/type, or case-specific level, directly reveal the thoughts and mental impressions of RJR's attorneys regarding the anticipated direction of the litigation and RJR's anticipated responses, including which matters RJR believes pose the most significant risk, which matters RJR believes will proceed to trial, and which matters RJR believes will be disposed of in other ways. See Blixt Decl. at ¶ 8.
The court in Simon protected from disclosure individual case reserve figures calculated by the defendant company's attorneys. The Eighth Circuit reviewed the nature of the case reserves as assembled by the company and noted that they embodied the attorneys' estimate of anticipated legal expenses, settlement value, length of time to resolve the litigation, and geographic consideration, among other factors. 816 F.2d at 400-01. The court then examined the use the company made of those figures, observing that "[t]he aggregate reserve information in the risk management documents serves numerous business planning functions, but we cannot see how it enhances the defense of any particular lawsuit." Id. at 401. The court then distinguished the individual case reserve figures from the aggregate figures and concluded that:
The individual case reserve figures reveal the mental impressions, thoughts, and conclusions of an attorney in evaluating a legal claim. By their very nature they are prepared in anticipation of litigation and, consequently, they are protected from discovery as opinion work product. We do not believe, however, that the aggregate reserve information reveals the individual case reserve figures to a degree that brings the aggregates within the protection of the work product doctrine. The individual figures lose their identity when combined to create the aggregate information.Id. at 401-02 (internal citations omitted).
Here, RJR's General Counsel testified in his declaration that, like the litigation reserve figures in Simon, the monthly, quarterly, or yearly budget forecasts for pending and anticipated litigation matters embody the estimates of anticipated litigation expenses that are based on the latest observations and impressions about various cases, by himself, attorneys under his supervision, and RJR's outside counsel. Those estimates are based on factors that include: the firm selected as lead counsel, the expected length of the litigation, the number of lawyers needed to staff the case, the jurisdiction of the litigation, the novelty or complexity of the issues presented, recent court rulings, and the likelihood of dismissal of the case, as opposed to a prolonged discovery period or trial. Blixt Decl. ¶ 3.
The first question to be considered in determining whether such budgeted expense information is protected as work product is whether it was prepared in anticipation of litigation. As theSimon court observed, "[a] business corporation may engage in business planning on many fronts, among them litigation." 816 F.2d at 401. Indisputably, budgets in general are business planning tools. The question is whether, nevertheless, the budgeted figures at issue here are, by their nature, information prepared in anticipation of litigation and thus revealing the litigationrelated thoughts and opinions of RJR's attorneys. The SEC points out that RJR's budgeted litigation cost figures can be distinguished from the litigation reserve figures in Simon because the reserve figures in Simon took into account the estimated amounts the company might have to pay out in judgments and settlements, while RJR's forecasted cost figures do not; instead, they are based on the forecasted costs of paying RJR's attorneys. While appreciating the distinction, the Court nevertheless concludes that RJR's budgeted cost figures — on a case-specific level — are, like the case-specific reserve figures in Simon, by their very nature prepared in anticipation of litigation and directly reflect the mental impressions and judgments of RJR's attorneys with respect to forecasted costs in individual cases.
RJR has repeatedly stressed that it does not settle tobacco-related litigation. See, e.g., Tr. at 82, ll. 18-20 ("this company does not settle").
Forecasted litigation costs are, as a matter of definition, the expected costs of anticipated litigation and the forecasts can be said to have been, by their very nature, prepared in anticipation of litigation. Furthermore, when forecasted litigation costs are presented on a case-specific level, the mental impressions and judgments of the attorneys who made the cost estimates may, to a certain extent, become apparent if the forecasts are revealed. This is much less true, however, of forecasted litigation costs that are aggregated; as forecasted costs for individual matters are aggregated, the ability to intimate any discernible underlying thoughts and assessment of the preparing lawyers is markedly diminished. The Court therefore concludes that RJR's forecasted costs of litigation that are broken down on a case-by-case basis are protected from disclosure as opinion work product. With respect to aggregated forecasted costs, however, the Court concludes that they are not protected from disclosure. RJR's argument that the mental impressions or opinions of attorneys as to specific cases can be discovered, or reverse-engineered, from aggregate information on literally thousands of cases is unconvincing (and indeed far-fetched). In coming to this conclusion, the Court determines that the aggregated forecasted costs do not comprise opinion work product, but need not decide whether they comprise fact work product. Even if the aggregated forecasted costs were to be considered fact work product, that information would still be subject to disclosure to the SEC either on the basis of the SEC's showing of substantial need and undue hardship that is required to overcome a fact work product assertion, see SEC Applic. at 17-18, or on the basis of waiver due to RJR's disclosure of these aggregated forecasted numbers to RJR's outside auditors, see Blixt Decl. ¶ 7.
As RJR's General Counsel has stated, the budgeted litigation cost numbers are crafted from elements that include the judgments of its lawyers regarding the novelty or complexity of the issues presented, recent court rulings, and the likelihood of dismissal. Blixt Decl. ¶ 4.
Such a determination would not necessarily be at odds with the Eighth Circuit's reasoning in Simon, assuming that RJR's aggregate forecasted figures are pure aggregations of the casespecific figures. The Eighth Circuit, in concluding that the aggregated reserve figures were not protected at all by the work product doctrine, noted that, in addition to the fact that the "individual figures lose their identity when combined to create the aggregate information," the aggregate figures at issue there were "the product of a formula that factors in variables such as inflation, further diluting the individual reserve figures." 816 F.2d at 402.
See Couch v. United States, 409 U.S. 322, 335 (1973) ("no confidential accountantclient privilege exists under federal law, and no state-created privilege has been recognized in federal cases").
C. Non-Aggregated Expense Data Presented On Case-By-Case Basis (Categories 1, 3, and 4)
RJR contends that non-aggregated, case-specific historical litigation cost information is also protected by the opinion work product doctrine. Although RJR admits that it has found no cases that explicitly support this proposition, RJR argues that a logical extension of Simon, which deals with forward-looking information rather than historical information, compels the conclusion that such historical information should also be protected. RJR argues that the case-specific historic cost and expense information "is merely trailing forecasted . . . information, and it really gives you the same thing". Tr. at 63:8-11. RJR emphasizes that it faces the unique litigation context of having numerous litigation adversaries that are intent on putting it out of business by driving up the cost of its litigation efforts. RJR argues that the sophistication, innovation, and persistence of its adversaries create the danger that case-specific historical litigation costs, once disclosed, could be reverse-engineered and its adversaries could gain insight into how effective their efforts were in causing RJR to increase its litigation efforts and costs, or possibly even the thought processes of RJR's lawyers. Tr. at 61-64.
The Court observes, however, that strict numerical and quantitative data is not generally considered privileged. See In re Grand Jury Proceedings, 201 F.Supp.2d at 13 ("fee and billing information is exactly the sort of attorney-client communication that courts have with near uniformity held not to be covered by attorney-client privilege") (citing cases). Furthermore, the SEC has made clear that it is only interested in quantitative data and that descriptions of work performed by RJR's counsel need not be produced and could be redacted from otherwise responsive documents such as outside counsel's billing statements. SEC Applic. at 15; Hagerup Decl. ¶ H and Ex. 11. Given that opinion work product protection attaches only to materials that have been prepared because of the prospect of litigation, and due to the fact that any descriptions of attorney work that might reveal attorney mental processes can be redacted from responsive documents, the Court concludes that case-specific cost and fee information that is historical and backward-looking in nature is not privileged and must be produced.
II. Confidentiality
RJR represents that it has been willing all along to produce non-privileged documents and information responsive to all of the Subpoena's requests, to the extent that they exist, as long as the SEC agrees to accord the materials, which RJR claims are highly sensitive, confidentiality protections beyond those the SEC normally accords to materials that it acquires in an investigation. RJR Mot. and Opp. at 2-3. According to RJR, because the SEC refused to negotiate a confidentiality agreement, it now moves the Court, pursuant to Fed.R.Civ.P. 26(c), for a protective order in response to the SEC's application.
In seeking a protective order, RJR is effectively asking the Court to modify the terms of the SEC's Subpoena. There is no question that federal courts have the authority to modify federal agency subpoenas. See Adair v. Rose Law Firm, 867 F.Supp. 1111, 1119 (D.D.C. 1994) ("It is a legitimate exercise of the [federal] court's authority to modify the terms of an agency subpoena by providing additional confidentiality protections for a person or entity to whom the subpoena is directed. . . ." (citing United States v. Exxon Corp., 628 F.2d 70, 77 (D.C. Cir. 1980))). To succeed on a request for a protective order, a requestor must make a showing of good cause. Equal Employment Opportunity Comm'n v. Nat'l Children's Center, Inc., 98 F.3d 1406, 1411 (D.C. Cir. 1996) (citing Seattle Times Co. v. Rhinehart, 467 U.S. 20, 37 (1984)). According to Rule 26(c),
[t]he court may make any order which justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue burden . . ., including . . . that a trade secret or other confidential research, development, or commercial information not be revealed or be revealed only in a designated way. . . .
Fed.R.Civ.P. 26(c)(7). A trial court possesses broad discretion in issuing a protective order and in determining what degree of protection is required. Purcell v. MWI Corp., 209 F.R.D. 21, 27 (D.D.C. 2002) (citing Seattle Times, 467 U.S. at 36). In exercising that discretion, the court must assess factors including the requestor's need for the information from this particular source, the relevance of the information to the litigation at hand, the burden of producing the sought-after material, and the harm which disclosure would cause to the party seeking to protect the information. Id. at 27-28 (citing Burka v. Dep't of Health and Human Servs., 87 F.3d 508, 517 (D.C. Cir. 1996)). RJR contends that the information that the SEC Subpoena seeks is highly sensitive and confidential and that a protective order should be issued because of the harms that would likely be precipitated by disclosure of that information.
The information requested by the Subpoena that RJR identifies as highly sensitive and confidential includes: (1) RJR's law department's periodic costs and expenses (Req. No. 6), and (2) the General Ledger, general administrative expense and selling, and general administrative detail reports (Req. Nos. 7 8). RJR Mot. at 10. RJR asserts that some of the materials and information that the SEC has requested either have never been disclosed before by RJR to opposing parties in litigation, competitors, the public at large, the SEC, or any other government agency, or are not available to any other person or entity outside of RJR besides RJR's outside auditors. RJR contends that it is a unique respondent because it currently is defending itself in nearly 6,000 tobacco-related cases, including a case in which the United States Department of Justice ("DOJ") seeks hundreds of billions of dollars from RJR and other tobacco companies (United States v. Philip Morris, Civ. A. No. 99-2496 (GK) (D.D.C. filed Sept. 22, 1999)).
The main thrust of RJR's arguments in favor of granting a protective order is that RJR, because of its unique posture as a popular litigation target, stands to suffer considerable harm if it were to disclose the information the SEC seeks. Specifically, RJR is concerned about the harm likely to ensue should sensitive information fall in the hands of the following groups: (1) RJR's litigation adversaries that number in the thousands; (2) RJR's competitors and joint defendants in the DOJ case; and (3) the DOJ itself. With respect to its litigation adversaries, RJR states that it believes that disclosure of the periodic costs and expenses of its law department to those adversaries, or to anti-smoking advocacy groups that support litigation against RJR, would allow such entities improperly to influence juries, thereby causing excessive compensatory or punitive damage awards against RJR; to gain important insight into RJR's litigation defense strategies, and changes in those strategies over time; to gauge the extent to which certain discovery or other litigation tactics could be used to increase RJR's cost of defending litigation; to determine how RJR is evaluating the relative risk of various cases by learning how much RJR is investing in the defense of them; and otherwise to embarrass, harass, and gain an advantage over RJR in litigation.
With respect to other tobacco companies facing similar tobacco-related litigation with whom RJR has allied itself in a joint-defense relationship, RJR is concerned that public disclosure of information like its various actual and projected legal department expenses could cause those joint-defense partners to cut back on their own joint defense activities, or to require RJR to assume different and additional burdens. RJR also speculates that costs and expenses like coupon pricing, consumer promotions, advertising and marketing expenses, actual and forecasted items like payroll, payroll-related costs, and legal expenses would be of incalculable value to its competitors who could use the information to plan, refine, and implement their own competitive pricing and marketing efforts to the detriment of RJR's competitive position. Moreover, RJR is concerned that tracking these expenses over time (from 1998 to the present) would allow its competitors to discern trends in RJR's marketing/advertising expenditures, which would allow them to anticipate RJR's future marketing plans.
But perhaps RJR's paramount concern relates to the formidable litigation adversary it has in the DOJ. RJR represents that the SEC has refused to assure RJR that it will not give DOJ lawyers working on the tobacco litigation the confidential information obtained during the SEC investigation, to which the DOJ would have no right otherwise. RJR believes that it would be seriously prejudiced by the release of such information to DOJ lawyers.
The SEC argues that the information at issue is not confidential and, even if it were, does not merit protections above and beyond those that are already in place under SEC and Exchange Act Rules. The SEC maintains that there is no authority to support RJR's contention that the SEC's "usual precautions" are inadequate and that its data should be provided with additional confidential protections. According to the SEC, it is authorized by Congress to serve as the chief law enforcement agency with respect to the federal securities laws and, therefore, its function in that capacity would be seriously impeded if it were required to enter into any agreement restricting its Congressionally-granted powers. SEC Reply at 25. Furthermore, the SEC notes that its investigations are non-public except as provided by 17 C.F.R. § 240.0-4 or where the subpoena recipient makes it public. Id.
Under Fed.R.Civ.P. 26(c), it is the movant's burden to make the necessary showing of good cause for the issuance of a protective order. RJR contends that it has demonstrated good cause to warrant a protective order through the harms that it identifies as likely to flow from the disclosure of RJR's law department's periodic costs and expenses (Req. No. 6) and its General Ledger, GAE and SGA detail reports (Req. Nos. 7 8). To begin with, however, the dispute over the production of documents responsive to Requests Nos. 6-8 has narrowed considerably and now focuses only on (1) the monthly GAE and SGA numbers for 1998 and the first half of 1999, and (2) the sub-ledger that RJR uses to reconcile its litigation-related fees and expenses to the GAE line item on its general ledger. See Status Report by the SEC (January 15, 2004) at 1. Even so, to the extent that RJR's arguments apply to the documents still in dispute, the harms described by RJR are ones that would flow in the event that the information at issue were disclosed not to the SEC, but to third parties like RJR's litigation adversaries, RJR's competitors, and the DOJ. The Court's analysis therefore focuses on whether there are sufficient protections in place before any third party disclosures would occur.
The Court proceeds with this analysis on the assumption that the materials at issue qualify as "confidential" under the applicable standard.
A. Potential Disclosure to Third Parties
Freedom of Information Act ("FOIA") protections apply when third parties make requests to the SEC for information. 17 C.F.R. § 200.83. When RJR produces a document to the SEC, it may designate it as confidential and the SEC will place that document in a non-public file for 10 years, unless prior to that time a third party submits to the SEC a request for access under FOIA.See SEC Applic. at 25. Once a third party request is made, the SEC will notify RJR so that it may provide written substantiation as to why its documents are confidential and should not be disclosed to the requesting party. Id. (citing 17 C.F.R. § 200.83(d)(1)). The SEC then makes a determination regarding whether or not RJR's information should remain confidential.Id. If RJR disagrees with the SEC's determination, it can appeal to the General Counsel and, ultimately, commence an action seeking judicial review.
RJR articulates its concern that in order to prevent the disclosure of sensitive information to its numerous and aggressive litigation adversaries, it will be forced repeatedly to seek review from the federal courts. RJR notes that if the Court granted a protective order now, RJR would be saved the inconvenience and expense that the FOIA process potentially presents, because the SEC could respond to third party FOIA requests simply by honoring the confidential nature of RJR's documents. Although the Court appreciates the efficiency that this option may afford RJR, it must weigh any convenience to RJR against the SEC's mandate. This Court has previously held that FOIA protection, by affording the document producer with notice in the event that the SEC determines that material requested by a third party under FOIA is not confidential and can be disclosed, is sufficient. SEC v. Dresser Industries, Inc., 453 F.Supp. 573 (D.D.C. 1978), aff'd, 628 F.2d 1368 (D.C. Cir.), cert. denied, 449 U.S. 993 (1980). RJR does not cite any authority that supports its contention that it is entitled to greater confidentiality than that provided by FOIA and the SEC's FOIA process.
RJR does, however, argue that the protections afforded confidential information by Rule 26 in a normal litigation context are different from those afforded in the context of a FOIA request. See Tr. at 74, ll. 15-25. Under Rule 26, relevance to the litigation at hand is a factor to be considered in determining whether material qualifies as confidential and, therefore, is undiscoverable. See Purcell, 209 F.R.D. at 27 (decision to limit or deny discovery under Rule 26 protective order rests on balancing of several factors including its relevance to the litigation at hand). Under FOIA, however, relevance is not taken into account when determining whether or not information should be disclosed pursuant to a third party request. See National Parks and Conservation Ass'n v. Kleppe, 547 F.2d 673, 677-78 (D.C. Cir. 1976). RJR argues, therefore, that RJR's thousands of adversaries in litigation could make an end run around the Rule 26 confidentiality obstacles by seeking the same information through a FOIA request. Tr. at 73-76. Indeed, such an attempted use of FOIA to bypass or supplement civil discovery is not uncomon in the federal courts.
Again, however, RJR is not able to point to any authority to support the proposition that a protective order should be put in place because of concerns that material that would not be relevant in some other litigation could be obtained by a party to that other litigation through FOIA from a government body that is in possession of it. See Tr. at 77, ll. 2-12. The Court also observes that even if the SEC were to determine under FOIA, without taking into account relevancy, that material requested by a third party litigation adversary or competitor of RJR's was not confidential and could be disclosed, FOIA still provides RJR the opportunity to make its relevancy argument to a federal court by means of a "reverse FOIA" action before disclosure would take place. This Court therefore concludes that FOIA protections are sufficient to protect RJR from the harm that it fears would flow from disclosure to the SEC (and thereafter potentially to third parties) of the materials requested by the Subpoena.
B. Potential Disclosure to the DOJ
The DOJ is currently litigating against RJR and other tobacco companies in an action brought pursuant to the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962 et seq. See United States v. Philip Morris, Civ. A. No. 99-2496 (GK) (D.D.C.). FOIA confidentiality protection does not apply with respect to the DOJ. Accordingly, RJR expresses its concern that sensitive information produced to the SEC may be shared with the DOJ lawyers litigating against RJR in Philip Morris. Indeed, sections 21(b) and 24(c) of the Exchange Act, and Rule 24c-1 thereunder, allow the SEC to share documents and information with other law enforcement agencies (including DOJ) and regulatory organizations when the SEC deems it appropriate.See 15 U.S.C. § 78x(c); 17 C.F.R. § 240.24c-1. The statutory and regulatory language is broad:
The Commission may, in its discretion and upon a showing that such information is needed, provide all "records" . . . and other information in its possession to such persons, both domestic and foreign, as the Commission by rule deems appropriate if the person receiving such records or information provides such assurances of confidentiality as the Commission deems appropriate.15 U.S.C. § 78x(c).
The SEC represented at the hearing on January 8, 2004, however, that whether the SEC deems it appropriate to share information with an agency like the DOJ depends on whether the SEC "feel[s] it's important to the enforcement of the federal securities laws, to forward information to the attorney general and to a whole host of other government and law enforcement agencies." Tr. at 35, ll. 13-16. Even so, should the SEC deem it appropriate to share information with the DOJ, it would do so without providing any notice to RJR or any opportunity for RJR to contest the disclosure as being inconsistent with the SEC's securities enforcement authority. Although the SEC resolutely maintains that the target of an investigation is not entitled to know when the SEC determines that it is appropriate to share information with another government agency, the Court is troubled by the lack of any procedural check or balance in this unique context where another government agency is presently actively litigating against the subject of the SEC's investigation. In Dresser, this Court examined a claim of impropriety where simultaneous investigations of the respondent were being undertaken by the SEC and the DOJ and SEC attorneys were assigned to assist the DOJ in its criminal investigation. The Court was assured that the attorneys assigned to the DOJ were not involved in the SEC investigation, but the District Court still felt compelled to admonish the SEC in that circumstance, where the investigated entity knew of the assignments of attorneys, to maintain strict ethical standards in order to avoid the appearance of impropriety. See 453 F.Supp. at 576.
Given the breadth of discretion that a trial court possesses in issuing a protective order and in determining what degree of protection is required, see Purcell, 209 F.R.D. at 27 (citingSeattle Times, 467 U.S. at 36), and this Court's concern for the lack of an opportunity by RJR to address any potential decision by the SEC to share information obtained pursuant to this investigation with the DOJ, and in the same spirit of the mild admonition made in Dresser, this Court proposes a limited protective order that, while not curtailing in any way the securities enforcement authority and rights granted to the SEC by Congress, would effectively provide RJR with an assurance that the SEC will not share with the DOJ the information RJR produces to it in a circumstance inconsistent with the strictures of the SEC's securities enforcement mandate. That order will provide that, before the SEC provides any information obtained pursuant to the Subpoena to lawyers or other persons involved in thePhilip Morris case, the SEC shall, through an ex parte process, advise and obtain the permission of this Court.
CONCLUSION
For the foregoing reasons, the Court will grant in part and deny in part the SEC's application for an order compelling obedience to its Subpoena, and will grant in part and deny in part RJR's motion for protective order. The Court concludes that RJR's forecasted litigation costs broken down on a case-by-case basis are protected from disclosure by the opinion work product doctrine. The Court also will enter a limited protective order requiring the SEC to obtain, through an ex parte process, advance permission of this Court before providing information obtained pursuant to the Subpoena to any lawyers or other persons at the DOJ litigating against RJR in the Philip Morris case. A separate order accompanies this memorandum opinion.