“[T]he courts have emphasized that claw back requests should be made 17 immediately, with delays of even a few weeks determined to be too long . . . .” (emphasis added)
How later courts described this case
- “[T]he courts have emphasized that claw back requests should be made 17 immediately, with delays of even a few weeks determined to be too long . . . .” (emphasis added)
Written by the judges who cited it.
The opinion
1
2
3
4 UNITED STATES DISTRICT COURT
5 NORTHERN DISTRICT OF CALIFORNIA
6
7 PEIFA XU, et al., Case No. 21-cv-02623-EMC
8 Plaintiffs,
ORDER DENYING DEFENDANTS’
9 v. MOTION FOR RECONSIDERATION
10 FIBROGEN, INC., et al., Docket No. 172
11 Defendants.
12
13
14 On February 15, 2023, the parties filed a joint letter regarding a dispute over privilege.
15 Plaintiffs sought the production of PowerPoint slides Bates numbered FGEN-CA0353824 (the
16 “Presentation”), which Defendants claimed were protected by attorney-client privilege. Docket
17 No. 153. In its March 29 Order, the Court found that Defendants waived any privilege that may
18 have been afforded to the Presentation when they produced it to the U.S. Securities and Exchange
19 Commission (“SEC”). Docket No. 161. Defendants then sought, and the Court granted, leave to
20 file a motion for reconsideration so that the parties could further brief whether Defendants were
21 entitled to the safe harbor provided to some inadvertent disclosures under Federal Rule of
22 Evidence 502(b). Docket Nos. 168, 170. Having considered the parties’ additional briefs and
23 accompanying submissions, the Court hereby grants Defendants’ motion for reconsideration, but
24 DENIES their motion on the merits. Defendants waived through their disclosures any privilege
25 the Presentation may have been afforded, and Rule 502(b) does not provide them safe harbor
26 because their clawback was untimely.
27 ///
1 I. FACTUAL AND PROCEDURAL BACKGROUND
2 Plaintiffs filed this lawsuit against FibroGen and other individual defendants
3 (“Defendants”) for allegedly making false and misleading statements in violation of Section 10(b)
4 of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder. Docket No.
5 97 ¶¶ 281, 285. FibroGen is a biopharmaceutical company whose flagship drug, Roxadustat, is an
6 experimental pill designed to treat anemia in patients with chronic kidney diseases. Id. ¶ 4.
7 Plaintiffs allege that Defendants manipulated safety data and presented the skewed data to the
8 Food and Drug Administration (“FDA”) in the Roxadustat new drug application (“NDA”). Id. ¶
9 84. When FibroGen revealed its data deficiencies, the FDA panel voted against approving
10 Roxadustat for any patient population and FibroGen’s stock price plummeted. Id. ¶ 113.
11 Defendant Mark Eisner, FibroGen’s Chief Medical Officer, created the Presentation in
12 dispute, entitled “Pooled CV Analysis Update.” Docket No. 147-11 Ex. 10. The Presentation
13 contains a total of seventeen slides detailing the issues with and updates of the Roxadustat safety
14 analyses. Specifically, the second slide concerns the requirements of good clinical practice, the
15 third slide concerns the issue of the misleading NDA presentation, and the sixteenth slide concerns
16 contemplated next steps. Id. at 2, 3, 16. Of the seventeen slides, all but these three slides are
17 identical to those used in other non-privileged documents. See Docket No. 176 (Pls.’ Opp’n to
18 Defs.’ Mot. for Recons. (“Opp’n”)) at 6.
19 Dr. Eisner created the Presentation “at the request of FibroGen’s General Counsel, Michael
20 Lowenstein, to facilitate legal advice from in-house and outside counsel.” Docket No. 172 (Defs.’
21 Mot. for Recons. (“Mot.”)) at 4. This version of the Presentation is a first draft. Id. at 5. The final
22 version of the Presentation was presented to Defendants’ Board of Directors, at which time “in-
23 house counsel and outside counsel provided legal advice to the Board.” Id.
24 Defendants produced the Presentation to Plaintiffs on December 8, 2022 and to the SEC
25 some months prior, well before the parties’ original February 2023 letter brief addressing
26 Defendants assertion of the attorney-client privilege was filed. Docket No. 153 at 2; Opp’n at 1.
27 Plaintiffs first cited to the Presentation in a January 16, 2023, discovery letter to Defendants; cited
1 Exhibit 10 to Plaintiffs’ motion for class certification filed on the night of January 27, 2023. Id. at
2 2-3; Docket No. 147-11 Ex. 10; Mot. at 3. Defendants contend that it was not until they
3 scrutinized Exhibit 10 that they first determined that they had produced a potentially privileged
4 document. This scrutiny occurred on either on January 27 or January 30.1 After launching an
5 investigation on January 30, Defendants clawed the Presentation back from Plaintiffs and the SEC
6 on February 3 and 6, respectively. Docket No. 153 at 3. On February 15, 2023, Plaintiffs and
7 Defendants filed a joint letter asking the Court to determine whether Presentation is protected by
8 attorney-client privilege and, if so, whether Defendants had waived that privilege. Id. at 1-3.
9 In that joint letter, the parties presupposed that a Stipulated Protective Order (“PO”) into
10 which the parties had entered governed the issue of waiver rather than Federal Rule of Evidence
11 502(b). Id. The Court, after analyzing the text of the PO, the text of Rule 502, and the Rule’s
12 accompanying committee note, held that Rule 502(b) exclusively governed the issue of waiver.2
13 Docket No. 161 at 3-4. The Court then determined that Defendants had not shown that they were
14 entitled to the safe harbor of Rule 502(b). Id. at 4-6. The Court held that Defendants waived any
15 privilege to which the Presentation was entitled when they produced it to the SEC. Id. However,
16 because “Defendants did not have a full opportunity fully to present facts material to a 502(b)
17
1 Defendants previously stated that they learned of the production on the night of January 27,
18
2023, when Plaintiffs attached the Presentation as Exhibit 10 to their motion for class certification.
Defendants stated so in their response to a motion to seal as well as in their initial letter brief on
19
this privilege issue. See Docket No. 150 at 6 (“Defendant FibroGen discovered the document was
produced inadvertently upon reviewing Plaintiffs’ Motion for Class Certification filing on January
20
27, 2023 and notified Plaintiffs on February 3, 2023 . . . .); Docket No. 153 (“Defendants became
aware of their inadvertent production when the draft was attached to Plaintiffs’ class certification
21
motion.”). However, after learning that the 502(b) factors governed the issue of waiver and not
the PO, Defendants attempted to change their story. Defendants now claim that they only
22
discovered that they inadvertently produced the Presentation the next business day—Monday,
January 30. See Docket No. 177 (Defs’ Reply in Supp. of Defs’ Mot. for Recons. (“Reply”)) at 3
23
(stating that although they initially reviewed the January 27 filing, Defendants “did not review it
closely enough to realize that one of the eleven exhibits may have been privileged until the next
24
business day”). While the Court is skeptical of Defendants’ about-face, Defendants have offered
to produce billing documents supporting their position in camera. Id. Because this issue is not
25
material to the Court’s decision, the Court will reference both dates.
26
2 The parties had stipulated in the PO that “[i]nadvertence shall be determined based on the good
faith representation of the Producing Party . . . . The privilege shall be deemed waived if the
27
Privileged information is . . . made known in writing to the Producing Party by the Receiving
1 analysis,” the Court granted Defendants’ motion for leave to file a motion for reconsideration.3
2 Docket No. 170. Defendants then filed their motion for reconsideration, which the Court now
3 considers.
4 II. LEGAL STANDARD
5 “Issues concerning application of the attorney-client privilege in the adjudication of federal
6 law are governed by federal common law.” United States v. Ruehle, 583 F.3d 600, 608 (9th Cir.
7 2009) (quoting Clarke v. Am. Com. Nat. Bank, 974 F.2d 127, 129 (9th Cir. 1992)). “The attorney-
8 client privilege protects confidential communications between attorneys and clients, which are
9 made for the purpose of giving legal advice.” United States v. Sanmina Corp., 968 F.3d 1107,
10 1116 (9th Cir. 2020). “Because it impedes full and free discovery of the truth, the attorney-client
11 privilege is strictly construed.” Ruehle, 583 F.3d at 607 (quoting Weil v. Inv./Indicators, Research
12 & Mgmt., Inc., 647 F.2d 18, 24 (9th Cir.1981)). “The burden of proving that the attorney-client
13 privilege applies rests not with the party contesting the privilege, but with the party asserting it.”
14 Conceptus, Inc. v. Hologic, Inc., No. C 09-02280 WHA, 2010 WL 3911943, at *1 (N.D. Cal. Oct.
15 5, 2010); see also In re Qualcomm Litig., No. 3:17-CV-108-GPC-MDD, 2018 WL 6617294, at
16 *2-4 (S.D. Cal. Dec. 18, 2018) (holding that the party asserting attorney-client privilege also has
17 the burden of showing that Rule 502(b) is applicable).
18 When a party discloses a privileged document, the disclosure normally operates as a
19 waiver unless three conditions are satisfied under Rule 502(b): “(1) the disclosure is inadvertent;
20 (2) the holder of the privilege or protection took reasonable steps to prevent disclosure; and (3) the
21 holder promptly took reasonable steps to rectify the error.” Conceptus, 2010 WL 3911943, at *1
22
3 The Court did not grant Defendants’ motion for leave so that they could quibble over whether
23
Rule 502(b) applies. Rule 502(b), and not the PO, governs the issue of waiver for the reasons
outlined in the Court’s initial order. See Docket No. 161 at 3-4. Even if the Court were to
24
consider the issue, Defendants’ arguments are unpersuasive. Indeed, Defendants’ most availing
argument relies on an affirmative misrepresentation of Plaintiffs’ position. Compare Mot. at 7
25
(“Thus, the Court concluded that Rule 502(b) governs the waiver analysis here, as opposed to the
PO. But that was not the parties’ intention . . . .), with Opp’n at 13 n.5 (“Defendants’ unsupported
26
argument about ‘the parties’ intention’ in drafting the PO is both incorrect and irrelevant. In fact,
Plaintiffs repeatedly stated during PO negotiations that Plaintiffs’ intention in drafting certain
27
language in Section 11.1 was to avoid this precise situation—Defendants belatedly attempting a
1 (quoting Fed. R. Evid. 502(b)). While “Rule 502(b) does not require a producing party to engage
2 generally in a post-production review to determine whether any privileged documents or
3 information have been produced by mistake . . . . ‘the rule does require the producing party to
4 follow up on any obvious indications that a protected communication or information has been
5 produced inadvertently.’” AdTrader, Inc. v. Google LLC, 405 F. Supp. 3d 862, 866 (N.D. Cal.
6 2019) (quoting Fed. R. Evid. 502(b) advisory committee's note, explanatory note revised
7 11/28/2007). Thus, a party must begin taking steps to rectify an inadvertent production after they
8 are put on actual or constructive notice—i.e., when they should know—that they may have
9 produced a privileged communication. See Luna Gaming-San Diego, LLC v. Dorsey & Whitney,
10 LLP, No. 06CV2804 BTM (WM), 2010 WL 275083, at *6 (S.D. Cal. Jan. 13, 2010) (finding,
11 where plaintiff was “on notice that its document production was defective,” that after being put on
12 notice they “should have taken prompt and diligent steps to reassess its document production”);
13 IGT v. All. Gaming Corp., No. 2:04-CV-1676-RCJ RJJ, 2006 WL 8071393, at *7 (D. Nev. Sept.
14 28, 2006) (“[E]ven if the relevant time by which to measure is ‘actual discovery,’ courts should
15 also look to when the party, acting with reasonable diligence, should have discovered the
16 inadvertent disclosure.”). This waiver analysis is not mechanical; rather, it considers the entire
17 circumstances surrounding the inadvertent disclosure. See Calendar Rsch. LLC v. StubHub, Inc.,
18 No. CV 17-4062 SVW (SSX), 2019 WL 1581406, at *5 (C.D. Cal. Mar. 14, 2019) (citing United
19 States v. de la Jara, 973 F.2d 746, 749-750 (9th Cir. 1992); Hanson v. Wells Fargo Home Mortg.,
20 Inc., No. C13-0939JLR, 2013 WL 5674997, at *5-6 (W.D. Wash. Oct. 17, 2013) (collecting cases
21 and stating that since 502(b) codified existing common law, courts still use a “totality of the
22 circumstances approach,” including “the overriding issue of fairness” when conducting 502(b)
23 analyses).
24 III. DISCUSSION
25 Plaintiffs and Defendants dispute whether the Presentation is protected by attorney client
26 privilege. See Mot. at 4-5; Opp’n at 19-24. The parties also dispute if Defendants’ production of
27 the Presentation to the SEC waived any existing privilege or if Rule 502(b)’s safe harbor applies
1 and prevents waiver.4 See Mot. at 9-15; Opp’n at 13-19. Although Defendants now make a more
2 convincing showing that the Presentation is privileged and that they have satisfied the first two
3 prongs of Rule 502(b), they still do not show that they have satisfied the third prong. In the
4 Court’s initial Order, the Court held that Defendants did not demonstrate that they promptly took
5 reasonable steps to rectify their allegedly inadvertent production. See Docket No. 161 at 5. This
6 same analysis is still mostly applicable.
7 However, on closer examination, the Court concludes that the relevant period of delay was
8 eleven days, not ten as stated in the previous order. Plaintiffs put Defendants on notice of their
9 production of the Presentation through a letter sent on January 26, 2023. 5 See Docket No. 176-13
10 Ex. 12, at 1, 5. Plaintiffs devote a bullet point to discussing the Presentation within the main text
11 (i.e., not in a footnote) of their 11-page letter of January 26. Docket No. 176-13 Ex. 12, at 5. This
12 letter quotes from portions of the Presentation that only appeared in privileged materials and
13 identifies when the Presentation was given and by whom. Id. Counsel at Cooley, the firm
14 representing Defendants, had attended the Board of Directors meeting at which the Presentation
15 was presented and, according to Defendants, saw the Presentation used to help communicate legal
16 advice. Mot. at 4-5; Reply at 6 n.2. The January 26 letter, which references when the Presentation
17 was presented and by whom, is thus an obvious indication that Defendants had produced
18 privileged material. Undoubtedly, Defendant should have known this privileged material had been
19 given to the Plaintiffs and the SEC.
20 After it was given constructive notice on January 26 of the production of the Presentation,,
21 Defendants waited until Monday, February 6 to claw back the Presentation from the SEC. Id.
22 This eleven-day delay was not prompt. The Court so held in its initial Order, and Defendants do
23
4 Defendants also claim that because the SEC did not challenge Defendants’ clawback, Plaintiffs
24
cannot now argue that Defendants waived privilege. See Mot. at 7. However, Defendants cite no
case law supporting this contention, and so have not met their burden in showing that privilege
25
applies for this reason.
26
5 Plaintiffs had also referenced the Presentation in a letter they sent to Defendants on January 16,
2023; however, Plaintiffs only cited to the Presentation’s Bates number and only quoted from
27
portions of the Presentation that also appeared in non-privileged productions. See Docket No.
1 not show otherwise. Nor was the eight-day delay in seeking to claw the material back from
2 Plaintiffs. Defendants argue that their clawback was prompt since “[t]he number of days
3 Defendants took to claw back the Presentation should be calculated starting from the date
4 Defendants confirmed the Presentation was in fact privileged.” Mot. at 12. Defendants also
5 contend that, regardless of if the Court considers their investigation, their delay was prompt. Id. at
6 13-15. Both arguments are unconvincing.
7 While the Court considers Defendants’ investigation in determining whether they acted
8 promptly, this does not change the Court’s conclusion.6 First, Defendants’ argument that their
9 delay in clawing back documents was prompt irrespective of their investigation is unsupported by
10 caselaw. Defendants cite two cases finding privilege was not waived; however, these cases
11 concern waiver analyses governed by parties’ stipulated protective orders and are completely
12 inapposite. In Stamps.com, Inc. v. Endicia, Inc., the Court’s waiver analysis is wholly governed
13 by the parties’ stipulated protective order, in which parties set and adhered to an explicit five-day
14 clawback period, not Rule 502(b). See Stamps.com, Inc. v. Endicia, Inc., 2008 WL 11338241, at
15 *2 n.2 (C.D. Cal. Oct. 6, 2008) (finding no waiver where plaintiff notified defendants of
16 inadvertent production within five business days of becoming aware of production). In
17 Mformation Technologies, Inc. v. Research in Motion Ltd.,2010 WL 3154441, at *2 (N.D. Cal.
18 Aug. 9, 2010), the waiver analysis was similarly governed by a stipulated protective order. There,
19 the parties’ stipulated protective order stated that “an inadvertent production of privileged
20 materials will not constitute a waiver ‘provided that the Producing Party notifies the Receiving
21 Party in writing within ten (10) calendar days after discovery of such inadvertent production or
22 disclosure.’” Id. Defendants cite one case finding that a comparable period of delay before a
23 clawback was prompt. See Njenga v. San Mateo Cnty. Superintendent of Sch., No. C-08-04019
24 EDL, 2010 WL 1261493, at *17 n.2 (N.D. Cal. Mar. 30, 2010) (holding, within a footnote, that
25 “[d]efendants also took prompt and reasonable steps to rectify the error by sending a letter one
26 week after it discovered the inadvertent disclosure when the exhibit was filed in Plaintiff's
27
1 opposition”). However, this case is not persuasive because the period of delay was less than the
2 delay here, and the court came to its conclusion without any analysis or citations to caselaw.
3 Second, Defendants’ investigation does not render their delay prompt. Upon learning that
4 the Presentation had been produced and might be privileged, Defendants could and should have
5 immediately informed Plaintiffs of their potential privilege claims and then embarked upon their
6 investigation. This is precisely what the court held in Mycone Dental Supply Co., Inc. v. Creative
7 Nail Design Inc., No. C-12-00747-RS (DMR), 2013 WL 4758053, at *3 (N.D. Cal. Sept. 4, 2013)
8 (“[A]t the least, Gel should have recalled the document that was used in the deposition
9 immediately after the deposition and then conducted a more thorough and timely investigation into
10 the rest of the production after the initial clawback request.”); see also Ecological Rts. Found. v.
11 Fed. Emergency Mgmt. Agency, No. 15-CV-04068-DMR, 2017 WL 24859, at *7 (N.D. Cal. Jan.
12 3, 2017) (noting, obiter dicta, that “numerous courts have held that ‘once a party realizes a
13 document has been accidentally produced, it must assert privilege with virtual immediacy.’”)
14 (emphasis added) (quoting Sikorsky Aircraft Corp. v. United States, 106 Fed. Cl. 571, 585
15 (2012))); Skansgaard v. Bank of Am., N.A., No. C11-0988 RJB, 2013 WL 828210, at *3 (W.D.
16 Wash. Mar. 6, 2013) (“[T]he courts have emphasized that claw back requests should be made
17 immediately, with delays of even a few weeks determined to be too long . . . .” (emphasis added));
18 Datel Holdings Ltd. v. Microsoft Corp., No. C-09-05535 EDL, 2011 WL 866993, at *5 (N.D. Cal.
19 Mar. 11, 2011) (“As soon as Defendant obtained the entire text of the emails while the deposition
20 was still ongoing, Defendant interrupted the deposition to put its privilege assertion on the record.
21 Then, within a few days, Defendant reviewed its entire production to identify other documents
22 affected by the glitch. These steps constitute a prompt and immediate response to the inadvertent
23 production.” (emphasis added)).7
24
7 Defendants argue that when the production of privileged documents is disclosed during a
25
deposition—which is what occurred in Mycone, Skansgaard, and Datel—they must be clawed
back with greater immediacy than typical disclosed documents. Mot. at 12-13 n.2. They thus
26
contend that cases dealing with deposition disclosures are inapposite. Id. While Defendants are
correct that parties must object to the use of privileged documents during the deposition, the
27
parties must also claw back the documents with immediacy regardless of whether the document
1 The Court fails to see why Defendants needed an entire week to investigate whether the
2 Presentation was privileged.8 See Opp’n at 16-18 (suggesting that Defendants should have had
3 enough information to claw back the Presentation by Monday, January 3). As Defendants argued
4 in asserting the privilege, the facts should have been readily available to them, and the importance
5 of this document should have been obvious and commanded priority. Defendants’ general
6 counsel, Mr. Lowenstein, requested that Dr. Eisner create the Presentation “to facilitate legal
7 advice from in-house and outside counsel to the Company.” Mot. at 4. The final version of the
8 Presentation was presented to Defendants’ Board of Directors, at which time “in-house counsel
9 and outside counsel provided legal advice to the Board” (presumably with the aid of the final
10 version of the Presentation). Id. at 5 (emphasis added). Plaintiffs clearly identified when the
11 presentation was given by whom in both their January 26 letter and January 27 filing. See Docket
12 Nos. 176-13 Ex. 12, at 3; 147-1 at 2. The Presentation was clearly an important document—it was
13 presented at a meeting of the Board of Directors—and more than twelve versions of it had already
14 been marked as privileged. See Opp’n at 17. There is no reason why Defendants’ in-house and
15 outside counsel needed this much time to exchange emails and make phone calls with each other
16 and with Dr. Eisner, an officer of FibroGen, to determine the privileged nature of the document.
17 Given the Presentation’s importance and straightforward provenance, Defendants’ week-long
18 investigation was too long. See Mycone, 2013 WL 4758053, at *3 (finding a 45-day investigation
19 unreasonable and not prompt where the “research covered three or four essentially identical
20 sentences in nine essentially identical form transmittal letters, the author of which was obvious on
21 the face of the letters”). This is not a case where origin of the document in question was uncertain
22 and warranted a lengthy investigation. Cf. Valentin v. Bank of New York Mellon Corp, No. 09
23 CIV. 9448 GBD JCF, 2011 WL 1466122, at *1 (S.D.N.Y. Apr. 14, 2011), objections overruled,
24
828210, at *3 (holding that privilege was waived because the producing party did not timely
25
object, and also that the clawback occurred too late because it was not made “immediately”);
Mycone, 2013 WL 4758053, at *2-3 (noting, where party had properly objected to a privileged
26
document during the deposition, that the party should have initiated a clawback “immediately”
afterwards).
27
1 No. 09 CV 09448 GBD, 2011 WL 2437644 (S.D.N.Y. May 31, 2011).
2 In sum, Defendants first produced the Presentation to Plaintiffs in December 2022 and to
3 the SEC some months prior; were put on notice of its production on January 26, 2023; began their
4 investigation on Monday, January 30; failed to put Plaintiffs or the SEC on notice of its
5 investigation; and did not claw back the Presentation from Defendants until Friday, February 3
6 and from the SEC until Monday, February 6. Defendants did not promptly take reasonable steps
7 to rectify the Presentation’s production to Plaintiffs and the SEC. See IGT, 2006 WL 8071393, at
8 *6-9 (finding that a delay of two weeks between actual discovery and clawback was too long
9 where producing party should have been aware of the production much earlier); S.E.C. v. Cassano,
10 189 F.R.D. 83, 84-6 (S.D.N.Y. 1999) (holding—in a situation where the producing party should
11 have investigated the privileged documents provenance immediately after production—that a
12 twelve-day delay between an inadvertent document production and investigation (after which the
13 document was immediately clawed back) was not prompt). Accordingly, Defendants do not
14 satisfy the third prong of 502(b), and their disclosure does not qualify for the provision’s safe
15 harbor. Defendants waived their privilege.
16 IV. CONCLUSION
17 Upon reconsideration of Defendants’ motion, the motion is DENIED. Defendants shall
18 produce to Plaintiffs the Presentation within five (5) days of the date of this order.
19 This order disposes of Docket No. 172.
20
21 IT IS SO ORDERED.
22
23 Dated: May 15, 2023
24
25 ______________________________________
EDWARD M. CHEN
26 United States District Judge
27