Courts and counsel have long recognized joint defense agreements as a powerful tool to promote efficiency in civil litigation and encourage early settlements. In recent years, the use of written agreements to memorialize the intentions of the parties has become commonplace in mass tort litigation. One consequence of this trend has been a growing number of judicial decisions defining the scope, validity, and enforceability of joint defense agreements. With increased documentation comes increased controversy. While joint defense agreements are not the cones of silence defense lawyers would like them to be, neither are they the impediments to justice that plaintiffs' lawyers fear. An overview of several recent decisions suggests that the protections afforded by these confidential compacts may be far less than the parties expect.

The joint defense --or common interest-- doctrine generally allows the exchange of privileged information between parties as long as the information relates to a common issue, facilitates representation of the parties, and the privilege has not otherwise been waived. See In re Bevill, Bresler & Schulman Asset Management Corporation, 805 F. 2d 120 (3d Cir. 1986); In re LTV Securities Litigation, 89 F.R.D. 595 (N.D. Tex. 1981). In essence, it allows a party to extend the attorney-client and attorney work product privileges to other parties whose interests are aligned.

One common misconception is that the joint defense doctrine shields from disclosure information and communications that do not otherwise fall within the protection of a pre-existing privilege. Because the joint defense doctrine does not provide blanket protection for any and all communications affiliated with the preparation of a defense (see U.S. v. Keplinger, 776 F.2d 678, 701 (7th Cir. 1985) cert. denied, 476 U.S. 1183 (1986), counsel should carefully consider four areas of inquiry before revealing client secrets and strategies: Who, Where, What and When.

To whom will the disclosure be made?

Communications with insurers. In In re Imperial Corp. of America, 167 F.R.D. 447 (S.D. Cal. 1995), a joint defense agreement signed by defendants and their insurers did not protect from disclosure two status and evaluation letters sent by defendants' counsel to their insurer. The joint defense agreement stated that its purpose was "to share confidential information to facilitate defense of the claims in the underlying action." Id. at 450. The insurer, however, had no duty to defend under the directors' and officers' policy it had issued, and it neither paid for nor controlled the preparation of the defense. Absent a duty to defend, the court held that there was no attorney-client privilege between the insureds and their insurers.

Defense counsel, nevertheless, argued that the signed joint defense agreement protected their shared attorney work product. The court disagreed. Although the court acknowledged that its inquiry "must necessarily focus on the joint defense agreement," it essentially ignored the written agreement and conducted its own evaluation of whether the communications were part of a joint defense effort. Id. at 455. Characterizing the letters as "normal business communication between an insured and an insurer," the court found no indication that the insurer and insured had joined forces to set up a common defense strategy. Consequently, letters between them were discoverable.

While the decision in In re Imperial Corp. of America, 167 F.R.D. 447 (S.D. Cal. 1995) addressed communications with an insurer obliged only to indemnify its insured, the court in First Pacific Networks, Inc. v. Atlantic Mutual Ins. Co., 163 F.R.D. 574 (N.D.Cal. 1995) reached a similar conclusion with respect to communications with an insurer that agreed to provide a defense subject to a reservation of rights. In that case, the court granted a request to compel the production of correspondence between the insured's independent counsel and the insurer. Applying California law, the federal court held that communications between the insured's counsel and the insurer merely fulfilled a contractual obligation to keep the insurer apprised of the status of the lawsuit, and were not "reasonably necessary to achieve the ends for which the lawyer is being consulted." Id. at 581. In fact, the court noted that it was clearly foreseeable by the insured that the insurer might use the communications against the insured in a subsequent insurance coverage lawsuit. Thus, the communications were not protected by a joint defense privilege.

Communications with corporate attorneys. Most corporate and outside counsel are well aware that communications with corporate counsel are not privileged unless made for the purpose of rendering a legal opinion. Nevertheless, counsel often assume that as long as the communication has at least one legal purpose, the communication is privileged. Several recent decisions suggest that courts have become more stringent in their recognition of these privileged communications. Specifically, courts may require disclosure of attorney communications if they find even one legitimate business purpose for the communication other than obtaining legal advice. It therefore bears repeating that communications with corporate attorneys are protected only if made "primarily for the purpose of generating legal advise." Griffith v. Davis, 161 F.R.D. 687, 697 (C.D. Cal. 1995)(citing McCaugherty v. Siffermann, 132 F.R.D. 234, 238 (N.D.Cal. 1990) (emphasis in original); see also Sackman v. Liggett Group, Inc., 167 F.R.D. 6 (E.D.N.Y. 1996); U.S. v. Brennan, 938 F. Supp. 1111 (E.D.N.Y. 1996).

Communications between clients. At least one court has held, in a criminal context, that communications between clients represented by the same attorney were not privileged where their counsel was not also present at the time of the discussions. See U.S. v. Gotti, 771 F. Supp. 535, 545 (E.D.N.Y. 1991). Although the Gotti decision also indicates that the substance of the client communications did not warrant a joint defense privilege, the presence of counsel at defense meetings will go a long way toward later invoking the protection of the joint defense doctrine.

Communications with plaintiffs' counsel. The joint defense doctrine is not just for defendants. It can shield communications between plaintiffs' counsel and defense counsel if they share a common interest. See Loustalet v. Refco, Inc., 154 F.R.D. 243 (C.D. Cal. 1993). Courts also have applied it to communications between two plaintiffs' counsel in two different lawsuits against the same defendant, see Schacher v. American Academy of Ophthalmology, Inc., 106 F.R.D. 187 (N.D. Ill. 1985), and to work product documents prepared by plaintiff's attorney and shared with the government, even though the government was not a party to plaintiff's action against the defendant. U.S. v. Denardi Corp., 167 F.R.D. 680, 685-686 (S.D. Cal. 1996).

Moreover, a written joint defense agreement between defendants does not necessarily prohibit one defendant from settling with the plaintiffs and agreeing to cooperate in the plaintiffs' case against the other defendants. See Waller v. Financial Corporation Of America, 828 F.2d 579 (9th Cir. 1987). In Waller, plaintiffs in a shareholder derivative action sued the corporation, several of its officers and directors, and its accountants. The defendants signed a joint defense agreement which provided, in part, that privileged communications would remain privileged when communicated to other defendants or their counsel, and that defendants who settled or were dismissed would continue to protect the confidentiality of joint defense information. Id. at 581. Defendants also agreed to toll the statute of limitations with respect to any claims against each other. When the corporation settled with the plaintiffs, the non-settling defendants argued that the corporation's pledge to cooperate with the plaintiffs violated their joint defense agreement. The court ruled that the settlement did not violate the joint defense agreement, and that the non-settling defendants' only remedies were to seek injunctive relief to prohibit disclosure or to move for the disqualification of counsel.

Where is the action venued?

Where an action is venued will play an important role in determining the scope of any joint defense privilege. Federal Rule of Evidence 501 provides that "the privilege of a witness . . . shall be determined by the principles of the common law as they may be interpreted by the courts of the United States . . . . However, in civil actions and proceedings, with respect to an element of a claim or defense as to which State law supplies the rule of decision, the privilege of a witness . . . shall be determined in accordance with state law."

As recognized by the Advisory Committee Notes, Rule 501 is "pregnant with litigious mischief." While "the Federal law of privileges should apply with respect to pendent State law claims when they arise in federal question cases," the Notes also provide that "State rules of privilege should apply in diversity cases which turn on substantive question of State law." Moreover, if Rule 501 results in conflicting laws of privilege applying to the same piece of evidence in the same case, the Notes state that the rule favoring reception of the evidence should be applied. Id.

Although Rule 501 appears to address the application of any privilege in a diversity case, several courts have held that it does not apply to the attorney work product doctrine. In In re Combustion, Inc., 161 F.R.D. 51, 52 ( W.D. La. 1995), the court held that federal law governed application of the work product doctrine, and defined the scope of any joint defense privilege, in a diversity action based on state law claims because the work product doctrine is not a substantive privilege within the meaning of Rule 501. By contrast, in Burton v. R.J. Reynolds Tobacco Co., 167 F.R.D. 134 (D. Kan. 1996), the court held that Kansas state law governed application of the joint defense privilege in a federal diversity action based on Kansas state law.

Because state privilege laws vary, communications protected in one state may be subject to discovery in another. For example, in Hawaii, the joint defense privilege does not extend to pre-litigation communications. In Boston Auction Co., Ltd. v. Western Farm Credit Bank, 925 F. Supp. 1478, 1482 (D. Hawaii 1996), the court required disclosure of pre-litigation settlement negotiations because the state law privilege did not attach absent a "pending action." And in California, courts have required an "identical interest" between the parties in order to extend the benefits of the joint defense privilege. See e.g., Insurance Co. of North America v Superior Court, 108 Cal. App. 3d 758, 769 (1980).

What types of information will be exchanged?

In addition to attorney-client communications and attorney work product, defendants have also relied on the joint defense doctrine to protect the confidentiality of settlement negotiations and judgment sharing agreements between defendants. In In re Brand Name Prescription Drugs Antitrust Litigation, 1995 WL 221853 (N.D. Ill. 1995), defendants entered a judgment sharing agreement that created a joint defense fund under which the one group of defendants (the manufacturers) agreed to reimburse another group of defendants (the wholesalers) for the first $9 million in attorneys' fees and disbursements. In addition, the agreement capped the liability of the wholesalers at a specific dollar figure. The manufacturers also agreed to a formula for allocating liability between themselves. The agreement permitted any defendant to settle at any time, but stated that settlement did not extinguish that party's contractual liability to the other defendants unless the settlement agreement with the plaintiffs contained certain offset provisions.

Plaintiffs moved to declare the judgment sharing agreement unlawful and to obtain discovery relating to it. In denying plaintiffs' motion, the court rejected plaintiffs' argument that the judgment sharing agreement impeded the possibility of settlement. Rather, the court relied on studies conducted by the Senate Judiciary Committee and the Antitrust Section of the American Bar Association, which found that sharing agreements not only do not prevent individual settlements, but also provide a means of discouraging coerced settlements:

"Absent a judgment sharing agreement, plaintiffs' attorneys are primed to exploit the immense exposure of the last defendant to settle. The plaintiffs "take small amounts ... at the beginning of the settlement process" and larger amounts as time progresses. 1982 Senate Hearings at 482 (testimony of Stephen D. Susman). The relative culpability of the defendant is no longer pertinent. Instead, a sort of "game theory" element emerges. Where, as under most judgment sharing agreements, each defendant is responsible for damages relating to its own sales, however, the "game theory" element of the settlement process is eliminated. "[Settlement discussions occur on a more rational basis ... and settlement is thus promoted." ABA Report, 49 Antitrust L.J. at 295. Given the real threat of otherwise coerced settlements and the benefits of achieving judgment based on some degree of relative fault, we do not believe that the defendants' judgment sharing agreement acts as an improper barrier to settlements. The defendants' judgment sharing agreement is not unlawful." Id. at *4.

The court also ruled that "[judgment sharing agreements are, in effect, a form of settlement, and drafts of settlements and settlement negotiations among counsel are generally not discoverable." Id.

To date, few courts have addressed the validity and enforceability of judgment sharing agreements in mass tort litigation. Historically, judgement sharing agreements have been upheld in antitrust cases, such as the one discussed above, because antitrust law provides no right of contribution among defendants. Similarly, funding agreements are frequently used in environmental litigation to avoid the often harsh results of the environmental clean-up regulations. In mass tort litigation, however, confidential alliances between defendants have rarely been subject to attack, and little precedent exists on the issue of whether judgment sharing or funding agreements are subject to discovery. One argument in favor of discovery is that because judgment sharing agreements are akin to insurance agreements (i.e., the obligations of the parties depends on the occurrence of a future event), they should be subject to disclosure in the same fashion as insurance agreements. Under this line of reasoning, settlement negotiations would remain privileged, but once a final agreement is reached, the settlement itself would be subject to discovery.

Unlike most insurance agreements, however, judgment sharing agreements are not entered until the event potentially giving rise to liability occurs. Moreover, the public policy reason for allowing discovery of insurance policies is to facilitate settlements. As the studies by the American Bar Association demonstrate, judgment sharing agreements also facilitate settlements. Allowing discovery of these agreements would discourage defendants from making them, and would undermine the policy of encouraging early settlement agreements.

The policy underlying disclosure of insurance agreements also does not apply to joint defense agreements that relate to the funding of defense costs. Requiring defendants to disclose the amount or percentage of funds they intend to invest mounting a defense has no bearing on the amount of money potentially available to satisfy a judgment. The only apparent basis for requesting this information would be to gain an unfair advantage in settlement negotiations, or to uncover the defendants' tactics and strategies.

Another argument often advanced in favor of disclosure is that secret alliances between defendants may cause undue prejudice and conceal the bias and motivation of testifying witnesses. These arguments attempt to mimic the arguments in opposition to "Mary Carter" agreements, where plaintiff settles with one defendant who agrees to participate at trial and stands to gain financially if plaintiff recovers from the non-settling defendant. See e.g., Ratterree v. Bartlett, 707 P. 2d 1063 (Kan. 1985) (finding a great potential for injustice if secret settlements are not disclosed to other parties and the jury); State ex rel. Vapor Corp v. Narick , 320 S.E. 2d 345 (W. Va. 1984) (holding that disclosure of Mary Carter agreement to other parties and jury is required). Significant differences, however, between judgment sharing agreements and Mary Carter agreements compel the conclusion that judgment sharing agreements should not be subject to discovery. First, judgment sharing agreements do not position defendants to gain by plaintiffs' recovery from another defendant. Unlike the situation presented by Mary Carter agreements, an alliance between defendants is not unusual or unexpected. Moreover, no legal basis entitles plaintiffs to participate in the resolution of defendants' claims for contribution and indemnity. To the contrary, most state laws provide that an action for indemnity or contribution does not accrue until an adverse judgment is rendered.

When do the protections of the joint defense doctrine apply?

Numerous federal courts have held that the protections of the attorney work product doctrine do not extend definitely to all subsequent litigation. See e.g., U.S. v. International Business Machines Corp., 66 F.R.D. 154, 178 (S.D.N.Y. 1974); In re Grand Jury Proceedings, 73 F.R.D. 647, 653 (M.D. Fla. 1977). Other courts have required disclosure of pre-litigation communications. Boston Auction Co. Ltd. v. Western Farm Credit bank, 925 F. Supp. 1478, 1482 (D. Hawaii 1996). More recently, courts have relied on compelling public policy interests to override the attorney-work product privilege. See e.g., Sackman v. Liggett Group, Inc. 167 F.R.D. 6, 19 (E.D. N.Y. 1996). These decisions reflect a decreasing judicial tolerance for shielding information based solely on the stated intentions of the parties. Determining whether an exchange of information will be protected by a joint defense privilege requires a thorough analysis of the position of the parties, the applicable laws, the type of information exchanged, and an intuitive assessment of whether some court, at some future date, might seize hold of a "compelling public policy" to override an otherwise privileged exchange.