Xuedan Wang v. Hearst Corp.

In the vast majority of FLSA cases, the defendant asserts that its violations of the FLSA, if any, were committed in “good faith,” such that the court may, in its discretion deny the plaintiff otherwise mandatory liquidated damages. In many of these cases, it is hard to imagine that a large corporate defendant who is asserting the “good faith” defense, has not actually sought the advice of counsel as part of the process of determining whether the policies at issue comply with the FLSA. In the past, to the frustration of plaintiffs’ counsel everywhere, most courts have held that the attorney-client privilege protects such communications between the defendant and its counsel, unless the defendant specifically claims that it relied on the advice of counsel in substantiating its “good faith” defense. Recently, Judge Baer in the Southern District of New York recognized that this approach is patently absurd and ordered an FLSA defendant to produce such communications with counsel, notwithstanding its claim that it would not rely upon an advice of counsel defense.

Rejecting the defendant’s assertion that such communications were non-discoverable and protected by the attorney-client privilege, the court reasoned:

According to the Second Circuit, “[i]t is well settled that ‘[t]he burden of establishing the existence of an attorney-client privilege, in all of its elements, rests with the party asserting it,’ ” In re Grand Jury Proceedings, 219 F.3d 175, 182 (2d Cir.2000) (quoting United States v. Int’l Bhd. of Teamsters, 119 F.3d 210, 214 (2d Cir.1997)). In particular, the Second Circuit “has recognized that implied waiver may be found where the privilege holder ‘asserts a claim that in fairness requires examination of protected communications.’ ” In re Grand Jury, 219 F.3d at 182 (quoting United States v. Bilzerian, 926 F.2d 1285, 1292 (2d Cir.1991)) (emphasis added in the original). “The key to a finding of implied waiver … is some showing by the party arguing for a waiver that the opposing party relies on the privileged communication as a claim or defense or as an element of a claim or defense.”   In re County of Erie, 546 F.3d 222, 228 (2d Cir.2008).

Defendant contends that the attorney-client privilege applies because its good faith defense would not rely on “legal advice,” citing court cases from other circuits for the proposition that “[t]here are many ways to establish good faith under the FLSA that do not involve the advice of counsel.” Not so here. In Bilzerian, for instance, the Second Circuit squarely rejected the defendant’s argument that there was no waiver because “the testimony he sought to introduce regarding his good faith … would not have disclosed the content or even the existence of any privileged communications or asserted a reliance of counsel advice.” 926 F.2d at 1291. The Circuit reasoned that the waiver principle was nonetheless applicable because the defendant’s “testimony that he thought his actions were legal would have put his knowledge of the law and the basis of his understanding of what the law required in issue,” and that “[h]is conversations with counsel regarding the legality of his schemes would have been directly relevant in determining the extent of his knowledge and, as a result, his intent.” Id. at 1292. More recently, the Circuit has reaffirmed the position that “the assertion of a good-faith defense involves an inquiry into state of mind, which typically calls forth the possibility of implied waiver of the attorney-client privilege.” In re County of Erie, 546 F.3d at 228–29. See also MBIA Ins. Corp. v. Patriarch Partners VIII, LLC, No. 09 Civ. 3255, 2012 WL 2568972, at *7 (S.D.N.Y. July 3, 2012) (rejecting the contention that the waiver occurs only when a party asserts a claim or defense that he intends to prove by use of the privileged materials); Arista Records LLC v. Lime Group LLC, No. 06 Civ. 5936, 2011 WL 1642434, *3 (S.D.N.Y. Apr. 20, 2011) (“Defendants’ assertion that Bilzerian does not apply because they may not be relying on advice of counsel for their good faith defense misreads the law.”)

Thus, Defendant’s good faith defense in this case undoubtedly raises the possibility of implied waiver, and the question before this Court is “[w]hether fairness requires disclosure” in the “specific context in which the privilege is asserted.” In re County of Erie, 546 F.3d at 229 (quoting In re Grand Jury, 219 F.3d at 183). Here, Plaintiffs have submitted, for the Court consideration, a deposition of Defendant’s human resources personnel indicating that the legal department, not the human resources department, would be able to answer why school credit letters were collected for unpaid interns. This is not exactly, as Plaintiffs represent in their letter, a statement that “the decision not to pay interns and to classify them as non-employees was made by Defendant’s legal department.” Nonetheless, in my view, Defendant’s assurance that it would “limit any good faith defense to one in which the state of mind was not formed on the basis of legal advice” amounts to little more than semantics without any concrete examples provided by Defendants. On the other hand, I find it difficult to imagine that a good faith defense regarding the FLSA raised by a corporation as large and as sophisticated as Hearst would not involve the advice of its legal department, and the section of the deposition provided to me confirms at least that much. The deposition, for instance, suggests that the human resources department may not itself be familiar with the reason why Defendant’s magazines require interns to submit school credit letters, which raises rather than diminishes the possibility of the legal department’s involvement.

Defendant’s argument that an order by this Court at this juncture in the litigation is premature is a valid argument but for the fact that discovery is over next month and later would hardly be better. The other concern is privilege. The emails to be produced are obviously the ones with respect to which the privilege is waived because they bear on Defendant’s state of mind, as discussed above. With respect to those emails, Defendant will produce a privilege log, and I will review the documents in camera, unless, of course, there are too many. In the latter case, I will appoint a special master at the expense of the parties. The material should all be produced by year’s end. Should this create a major problem, the parties should schedule a telephone conference this week.

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