Rekor Systems, Inc. v. Loughlin

Background

At a pretrial conference, Suzanne Loughlin, Harry Rhulen, and James Satterfield asked the court to preclude, meaning prevent, Rekor Systems, Inc. from using four emails at trial. The emails, identified as PX-94, PX-101, PX-106, and PX-108, were communications between Defendants and their lawyer, Gary Silver, about the Membership Interest Purchase Agreement under which Defendants sold their interests in Firestorm Solutions LLC and Firestorm Franchising LLC to Rekor.

The parties did not substantially dispute that the communications were initially confidential attorney-client communications. The emails were stored in Firestorm Solutions LLC’s files and email accounts. Rekor gained access to them when it acquired the company’s equity. Rekor attached three of the emails to an affidavit filed in this litigation in June 2021, and later produced all four emails to Defendants in December 2021.

Legal standard

The court applied New York law because the agreement selected New York law and the litigation involved New York-law claims based on diversity jurisdiction. Under New York law, the attorney-client privilege protects confidential communications between a lawyer and client made to obtain or provide legal advice. The party claiming the privilege must establish that the communication was confidential and must take reasonable steps to preserve that confidentiality. Voluntarily disclosing confidential material to a third party, including through a public filing, waives the privilege as to the disclosed material.

Court’s reasoning

The court did not need to decide whether the New York rule discussed in Tekni-Plex applied to this transaction. That rule can distinguish between privileged communications about a company’s ongoing operations and communications about an acquisition. Even assuming the rule applied, the court held that Defendants waived the privilege by failing to act promptly or reasonably to protect the emails.

Defendants had used Firestorm Solutions’ corporate electronic facilities for the communications. After they sold their interests, control over the company’s data passed to Rekor. The court also noted that Rekor’s policies, which Loughlin had worked on and circulated as Rekor’s general counsel, warned that information stored on or transmitted through company electronic facilities might be disclosed inside or outside the company.

Defendants did not request the communications’ return when they resigned from Rekor and Firestorm in December 2018. They also did not seek sealing or return when Rekor filed three emails publicly in June 2021, did not act when Rekor produced the emails in December 2021, and waited until the final pretrial conference—two business days before trial—to object. The court further noted that one email had been used at Rhulen’s deposition without an objection, even though Defendants later asserted privilege during Satterfield’s deposition.

Ruling

Judge Lewis J. Liman held that Defendants had waived whatever attorney-client privilege might otherwise have protected the four emails. Because the documents had been publicly available for nearly two years, the court found no basis to prevent Rekor from using them in the litigation. The court therefore rejected Defendants’ motion to preclude the documents from trial.