Iowa Allows Inquiry Notwithstanding Privilege

The Iowa Supreme Court has allowed discovery into otherwise privileged information in a matter involving a former employee who complained about racial discrimination only after departing from the employment. 

The decision was a 4-3 split.

The attorney had investigated the allegations as counsel to the employer.

Fenceroy stopped working for Gelita in March 2013. He filed a complaint with the Iowa Civil Rights Commission (ICRC) a short time later. The complaint charged Gelita with race discrimination. Upon receipt of Fenceroy’s ICRC charge, Gelita retained attorney Ruth Horvatich and tasked her with developing a strategy to defend the company during administrative proceedings.

Pursuant to this representation, Horvatich interviewed several Gelita employees to ascertain the merits of Fenceroy’s complaint. [Company Vice President] Tolsma was present for and participated in each interview. A union representative, John Hoswald, was also present during the employee interviews. At the end of each interview, Horvatich drafted a witness statement that summarized the employee’s account and instructed the employee to sign the document.

Horvatich’s investigation revealed some Gelita employees had made racially disparaging comments in the workplace. Gelita subsequently terminated one employee, Bob Kersbergen, and disciplined others, including Kent Cosgrove, Tom Haire, and Lewis Bergenske. Horvatich did not participate in any of the disciplinary decisions.

The court

This review presents a significant issue regarding the boundaries of attorney–client privilege and work-product protection. We must decide whether plaintiff’s counsel may depose defense counsel and obtain counsel’s prelawsuit work product. After leaving his job, plaintiff filed an administrative complaint charging his former employer with race discrimination. In response to the charge, the employer hired an attorney to defend the company and investigate the merits of the charge. The employer filed an administrative position statement wherein it relied upon the attorney’s investigation to support its Faragher–Ellerth affirmative defense. In the subsequent civil action, the employer retained the same attorney and again raised the affirmative defense. The employer claimed attorney–client privilege and work-product protection over the investigation and moved for a protective order to prevent plaintiff from deposing defense counsel and obtaining her investigation notes. Yet, in its motion for summary judgment, the employer again relied upon the investigation to support its defense. The district court denied the protective order, and we granted the employer’s interlocutory appeal.

We conclude the district court did not abuse its discretion by denying the defendants’ protective order. When an employer raises a Faragher–Ellerth affirmative defense and relies upon an internal investigation to support that defense, the employer waives attorney–client privilege and nonopinion work-product protection over testimony and documents relating to the investigation. On remand, the employer is permitted to amend its answer and brief to limit the affirmative defense to only the period of plaintiff’s employment. If the employer declines to so amend, it may not claim attorney–client privilege or work-product protection over the 2013 investigation, and plaintiff may depose defense counsel as well as obtain counsel’s investigation notes. 

Justice Waterman dissented

I respectfully dissent and would hold the district court abused it discretion by compelling the deposition of Gelita’s trial counsel Ruth Horvatich and production of her notes prepared in anticipation of litigation.

First, Gelita never waived its attorney–client privilege or work product protection by pleading or arguing the Faragher–Ellerth defense in district court. That defense was based solely on Mr. Fenceroy’s failure to use Gelita’s reporting procedures during his employment, before he retired and filed his discrimination complaint. The majority, contrary to precedent, finds that Gelita impliedly waived the confidentiality of its lawyer’s private notes and client communications by including this sentence in its lengthy brief supporting its motion for summary judgment: “Even though Plaintiff was no longer with Gelita at the time of his Complaint, in response to his charge, the Company investigated his allegations, discharged one employee, and disciplined three others.” I disagree that sentence constitutes an implied waiver. Gelita never relied on confidential attorney–client communications in asserting its defenses. Gelita was not using the attorney–client privilege as both a sword and shield and never blocked proper discovery into a matter it placed at issue.

Second, even if it was a waiver, Gelita clearly has retracted it. The majority questions that a retraction has occurred but allows Gelita the opportunity to retract the waiver on remand. I think this is unnecessary based on a fair reading of the record and Gelita’s appellate briefs.

Third, the majority also misses the opportunity to adopt the showing required under Shelton v. American Motors Corp., 805 F.2d 1323, 1327 (8th Cir. 1986), and confirm that compelling depositions of opposing trial counsel during litigation should be a rare last resort, even when information might be obtained that is not subject to a privilege. This aspect of the court’s ruling could lead to a flurry of depositions of opposing counsel and a corresponding decline in civility in the Iowa bar. Frequently, both plaintiff’s counsel and defendant’s counsel have various nonprivileged interactions with others in the course of working on a case. The majority leaves the door open to each side deposing the other on these interactions. I would not do this. Fenceroy is not entitled to depose Gelita’s trial attorney Horvatich under Shelton…

Going forward, I also fear today’s decision will have a chilling effect on the routine practice of retaining outside counsel to investigate discrimination claims. If the employer’s lawyer can be deposed by plaintiff merely because the employer pleads a Faragher–Ellerth defense, will two different law firms have to be retained—one to investigate and the other to try the case? Will employers limit what they tell their lawyer who may be compelled to testify by the litigation adversary? Or will some employers be reluctant to retain a lawyer who might be compelled to provide adverse testimony? Will such employers lose the benefit of sound legal advice that would otherwise help them improve compliance with employment laws?

Two justices joined the dissent.

As noted, enjoy the improved transparency of the Iowa Supreme Court. (Mike Frisch)