Sparrow Fund Management LP v. Mimedx Group, Inc.

Background

Sparrow brought claims against MiMedx for defamation and malicious prosecution. The claims arose from an earlier case in which MiMedx alleged that Sparrow or its principals authored anonymous blog posts under the name Aurelius Value. The posts accused MiMedx of fraud and inaccurate sales figures. Sparrow denied being Aurelius and contended that MiMedx lacked a good-faith basis to sue and continued the earlier litigation after receiving information that Sparrow said showed it was not Aurelius.

Discovery in this case focused on why MiMedx believed Sparrow was Aurelius and why MiMedx continued the earlier case. MiMedx said it relied on investigations involving the Mintz Group, a forensic linguistic expert, and the Kasowitz Firm. MiMedx produced some investigation materials but withheld other communications as protected by attorney-client privilege or the work-product doctrine. Sparrow moved to compel production, arguing that MiMedx had waived those protections and that the crime-fraud exception applied.

Privilege and waiver

Because state law governed the claims, the court applied New York law to attorney-client privilege and federal law to work-product protection. Attorney-client privilege protects confidential communications between a client and lawyer made for the purpose of obtaining legal advice. Work-product protection generally covers materials prepared because of anticipated litigation. The party asserting either protection bears the burden of establishing it and showing that it was not waived.

The court held that MiMedx had waived privilege and work-product protection as to the facts collected during its pre-filing and post-filing investigations, communications relaying those facts, and factual conclusions drawn from those facts. MiMedx had already produced the entirety of its pre-filing investigation, and the court concluded that fairness required disclosure of the corresponding factual materials.

The court rejected Sparrow’s argument that MiMedx’s good-faith defense to the malicious prosecution claim placed all litigation-strategy advice at issue. The court reasoned that MiMedx’s assertion that it lacked malice or bad faith was part of responding to Sparrow’s malicious prosecution claim, rather than an affirmative defense for which MiMedx independently bore the burden of proof. MiMedx therefore did not waive protection for confidential attorney-client communications discussing litigation strategy based on the investigation results.

Crime-fraud exception

The crime-fraud exception removes privilege or work-product protection for communications made to further a crime, fraud, or an intentional tort that undermines the adversary system. The party seeking disclosure must show probable cause—a reasonable basis for believing both that a crime or fraud occurred and that the particular protected communications furthered it.

The court found that Sparrow had not made that showing. Although former MiMedx officers had been convicted of fraud involving MiMedx’s sales revenue, that fact alone did not establish probable cause that MiMedx’s earlier defamation lawsuit was malicious or that the withheld attorney communications furthered a crime, fraud, or qualifying intentional tort. The court’s private review of sample documents also did not support applying the exception.

Rulings on sample documents

The court ruled as follows:

- MMIG-02514901: MiMedx did not have to disclose the redacted paragraph because it was privileged and did not undermine MiMedx’s good faith. - MMIG-02517039, MMIG-02532847, and MMIG-02683731: The parties reported that these documents had already been produced without redactions. - MMIG-02527726: MiMedx did not have to produce this privileged email chain concerning a conflict issue from the earlier litigation because it was irrelevant to this action. - MMIG-02528961: Most of the email chain could remain redacted as privileged, but the last two sentences of the last email, dated October 21, 2017, had to be produced because they described part of MiMedx’s post-filing investigation. - MMIG-02691037: MiMedx had to produce the email without redactions because it did not provide legal advice and contained factual conclusions based on the investigation. - MMIG-03193923: MiMedx had to produce the email without redactions because it reported information about an attorney’s claimed knowledge of Aurelius’s identity and related to the investigation. - MMIG-05757822: MiMedx did not have to produce the privileged email chain concerning a response letter to the Financial Industry Regulatory Authority because it was not particularly relevant and the draft letter had already been produced. - MMIG-06078859: MiMedx did not have to produce the privileged email chain concerning edits to a proposed letter to Sparrow’s counsel because it did not relate to the investigation into Aurelius’s identity.

The Audit Committee report was not submitted for private review with the other sample documents. MiMedx represented that the report contained confidential witness interviews and legal advice concerning possible liability and litigation. The court directed MiMedx to submit the report for private review by May 17, 2021, so the court could determine which portions, if any, were protected.

Disposition

The court granted in part and denied in part Sparrow’s motion to compel. It ordered the parties to meet and confer about remaining production issues using the guidance in the opinion. The opinion was issued by Katharine H. Parker, United States Magistrate Judge.