Last Thursday the Supreme Court of Nevada decided Wynn Resorts v. Okada, resolving two questions about how contentions during a lawsuit may result in an attorney-client privilege being waived. This is the second published decision addressing discovery questions in this long running dispute.
The first question addressed was “whether documents otherwise protected by the attorney-client privilege must be disclosed when the business judgment rule is asserted as a defense and under what circumstances a document may be protected by the work-product privilege even if it is at issue in the litigation.” Wynn asserted the business judgment rule as a defense and had consulted with a law firm before making its business decision. Okada sought to compel the documents the law firm generated in providing that advice.
The second question was whether Wynn “waived the attorney-client privilege by placing a report (the Freeh Report) at issue in the initial litigation.” Wynn had retained Louis Freeh to perform an investigation concerning Okada’s business activities and apparently relied upon it in making its business decision. A copy of the report was attached to the complaint Wynn filed, however when Wynn responded to a request for production seeking the documentation upon which the Freeh Report was based, it responded with a privilege log listing approximately 6,000 documents as protected by either the attorney-client or work-product doctrines.
The Supreme Court first concluded both sets of documents were at least potentially covered by the attorney-client privilege. It then evaluated each issue individually.
As to the business judgment rule, the scope of a claim or defense based upon it restricts a court to evaluating certain factors. A court may not review the substantive reasonableness of the challenged decision.
Because we determine that Nevada’s statutory business judgment rule precludes courts from reviewing the substantive reasonableness of a board’s business decision, we conclude that an evaluation of the substance of the advice the Board received from its attorney, and thus discovery regarding the substance of that advice, is unnecessary in determining whether the Board acted in good faith.
This was pivotal, because if the substance of the advice is beyond the scope of the business judgment defense, then it was not discoverable. Consequently, Wynn was not required to disclose the documentation it received from the law firm.
As to the Freeh Report, Wynn disclosed it “by voluntarily and intentionally placing protected information into the litigation. Wynn Resorts voluntarily filed its complaint, seeking to have the court affirm its business decision and, in doing so, attached a copy of the Freeh Report.” As a result, the attorney-client privilege was waived as to the report and the documentation supporting it.
However, the Court then considered whether the work-product doctrine applied to the Freeh Report. First noted there are generally two tests for evaluating whether information is protected by this doctrine: “(1) the ‘primary purpose’ test or (2) the ‘because of’ test. We take this opportunity to join a majority of courts and adopt the ‘because of’ test for determining whether work was done ‘in anticipation of litigation.’”
Using that test, “documents are prepared in anticipation of litigation when 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.” This definition matched the scope of prior Nevada case law, “protecting records prepared by or at the request of an attorney, but not records prepared in the normal course of business since those are not prepared because of the prospect of litigation.”
To evaluate whether the document was created “because of” potential litigation, the Court then adopted a “totality of the circumstances” standard. To apply it, a district court “considers the totality of the circumstances and affords protection when it can fairly be said that the document was created because of anticipated litigation, and would not have been created in substantially similar form but for the prospect of that litigation.” Insufficient information was in the appellate record to determine if this standard was met, so the issue was remanded and may become the basis for Wynn v. Okaka III.
What does this all mean?
If you do not have cases involving the business judgment rule, the first part of the decision means very little to you. However, nearly everyone has some information that would qualify for work-product protection, so that part of the decision may be important in daily use.