# Window World of Baton Rouge, LLC v. Window World, Inc.; Window World of St. Louis, Inc. v. Window World, Inc.

> North Carolina Business Court · August 16, 2019 · 2019 NCBC 53

URL: https://www.frixlaw.com/law-library/cases/11058400

## Case

- **Court:** North Carolina Business Court
- **Decided:** August 16, 2019
- **Citations:** 2019 NCBC 53
- **Precedential status:** Published
- **Opinion:** Opinion by Louis A. Bledsoe, III
- **Cited by:** 4 later opinions in the Frix Law Library

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## Opinion text

Window World of Baton Rouge, LLC v. Window World, Inc.; Window World of St.
Louis, Inc. v. Window World, Inc., 2019 NCBC 53.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
WILKES COUNTY 15 CVS 1

WINDOW WORLD OF BATON
ROUGE, LLC; WINDOW WORLD OF
DALLAS, LLC; WINDOW WORLD
OF TRI STATE AREA, LLC; and ORDER AND OPINION ON
JAMES W. ROLAND, PLAINTIFFS’ PRIVILEGE MOTIONS,
WINDOW WORLD DEFENDANTS’
Plaintiffs, MOTION TO STRIKE, AND PARTIES’
RULE 53(G) EXCEPTIONS TO
v.
SPECIAL MASTER’S REPORT
WINDOW WORLD, INC.; WINDOW [Public]1
WORLD INTERNATIONAL, LLC;
and TAMMY WHITWORTH,

Defendants.

WILKES COUNTY 15 CVS 2

WINDOW WORLD OF ST. LOUIS,
INC.; WINDOW WORLD OF KANSAS
CITY, INC.; WINDOW WORLD OF
SPRINGFIELD/PEORIA, INC.;
JAMES T. LOMAX III; JONATHAN
GILLETTE; B&E INVESTORS, INC.;
WINDOW WORLD OF NORTH
ATLANTA, INC.; WINDOW WORLD
OF CENTRAL ALABAMA, INC.;
MICHAEL EDWARDS; MELISSA
EDWARDS; WINDOW WORLD OF
CENTRAL PA, LLC; ANGELL P.
WESNERFORD; KENNETH R. FORD,
JR.; WORLD OF WINDOWS OF
DENVER, LLC; RICK D. ROSE;
CHRISTINA M. ROSE; WINDOW

1 Recognizing that this Order and Opinion cites and discusses the subject matter of
documents that the Court has allowed to remain filed under seal in these actions, the Court
elected to file this Order and Opinion under seal on August 16, 2019. The Court then
permitted the parties an opportunity to propose redactions to the public version of this
document. Plaintiffs did not propose any redactions. The Court has accepted the redactions
currently proposed by Defendants Window World, Inc. and Window World International,
LLC.
WORLD OF ROCKFORD, INC.;
WINDOW WORLD OF JOLIET, INC.;
SCOTT A. WILLIAMSON; JENNIFER
L. WILLIAMSON; BRIAN C.
HOPKINS; WINDOW WORLD OF
LEXINGTON, INC.; TOMMY R.
JONES; JEREMY T. SHUMATE;
WINDOW WORLD OF PHOENIX
LLC; JAMES BALLARD; and TONI
BALLARD,

Plaintiffs,

v.

WINDOW WORLD, INC.; WINDOW
WORLD INTERNATIONAL, LLC; and
TAMMY WHITWORTH, individually
and as trustee of the Tammy E.
Whitworth Revocable Trust,

Defendants.

1. THIS MATTER is before the Court upon the following motions and related

matters in the above-captioned cases: (i) Plaintiffs’ Motion for Finding of Waiver of

Attorney-Client Privilege and Work-Product Doctrine as to Certain Topics (the

“Waiver Motion”); (ii) Plaintiffs’ Motion to Compel and Motion for Sanctions for

Defendants’ Wrongful Assertions of Privilege (the “Motion to Compel” and, together

with the Waiver Motions, the “Privilege Motions”); (iii) Defendants Window World,

Inc. and Window World International, LLC’s (together, “WW”) Motion to Preclude

Consideration and/or Strike Portions of the Affidavit of Sean Gallagher (the “Motion

to Strike,” and, together with the Privilege Motions, the “Motions”). Also before the

Court are (i) WW’s Rule 53(g) Exceptions to Report of Special Master (“WW’s
Exceptions”) and (ii) Plaintiffs’ Exceptions to Special Master’s Report (“Plaintiffs’

Exceptions,” and, together with WW’s Exceptions, the “Exceptions”).

2. Having considered the Motions and the Exceptions, the parties’ briefs in

support thereof and in opposition thereto, the relevant materials associated with the

Motions and the Exceptions, the January 3, 2019 report of the Special Master (the

“Master’s Report”), and the arguments of counsel at the hearings on August 22, 2018

(the “August 22 Hearing”) and December 19, 2018 (the “December 19 Hearing”) on

the Motions, the Court, in the exercise of its discretion and for good cause shown,

hereby rules upon the Motions and the Exceptions as set forth below.

Brooks, Pierce, McLendon, Humphrey & Leonard LLP, by Charles E.
Coble, Robert J. King III, Benjamin R. Norman, Jeffrey E. Oleynik, and
Andrew L. Rodenbough, and Keogh Cox & Wilson, Ltd., by Richard W.
Wolff, John P. Wolff, III, and Virginia J. McLin, for Plaintiffs Window
World of Baton Rouge, LLC, Window World of Dallas, LLC, Window
World of Tri State Area LLC, James W. Roland, Window World of St.
Louis, Inc., Window World of Kansas City, Inc., Window World of
Springfield/Peoria, Inc., James T. Lomax III, Jonathan Gillette, B&E
Investors, Inc., Window World of North Atlanta, Inc., Window World of
Central Alabama, Inc., Michael Edwards, Melissa Edwards, Window
World of Central PA, LLC, Angell P. Wesnerford, Kenneth R. Ford, Jr.,
World of Windows of Denver, LLC, Rick D. Rose, Christina M. Rose,
Window World of Rockford, Inc., Window World of Joliet, Inc., Scott A.
Williamson, Jennifer L. Williamson, Brian C. Hopkins, Window World
of Lexington, Inc., Tommy R. Jones, Jeremy T. Shumate, Window World
of Phoenix LLC, James Ballard, and Toni Ballard.

Laffey, Leitner & Goode LLC, by Mark M. Leitner, Joseph S. Goode,
Jessica L. Farley, Sarah E. Thomas Pagels, and John W. Halpin, and
Manning, Fulton & Skinner, P.A., by Michael T. Medford, Judson A.
Welborn, Natalie M. Rice, and Jessica B. Vickers, for Defendants
Window World, Inc. and Window World International, LLC.

Bell, Davis & Pitt, P.A., by Andrew A. Freeman and Alan M. Ruley, for
Defendant Tammy Whitworth.
Wilson Ratledge, PLLC, by Reginald B. Gillespie, Jr., for non-party Anna
Elizabeth Vannoy.

Bledsoe, Chief Judge.

I.

FINDINGS OF FACT2

3. WW is in the business of selling and installing windows, doors, and siding.

It operates several store locations and also franchises its business around the country.

Plaintiffs in these actions are various Window World franchisees and franchisee

owners. Plaintiffs allege, among other things, that WW (i) intentionally withheld

information that Plaintiffs were entitled to receive under the Federal Trade

Commission’s (“FTC”) Franchise Disclosure Rule, see 16 C.F.R. § 436.2, (ii) required

Plaintiffs to execute “license agreements” that purportedly concealed and disclaimed

the franchise relationships between WW and Plaintiffs, and (iii) misrepresented

pricing and rebate information concerning purchases from suppliers, including

Associated Materials, Inc. (“AMI”).

4. At issue in Plaintiffs’ Privilege Motions are various documents that WW

2 The procedural and factual background of these actions is set out more fully in Window
World of Baton Rouge, LLC v. Window World, Inc., 2019 NCBC LEXIS 11 (N.C. Super. Ct.
Feb. 11, 2019), Window World of Baton Rouge, LLC v. Window World, Inc., 2019 NCBC
LEXIS 7 (N.C. Super. Ct. Jan. 25, 2019), Window World of Baton Rouge, LLC v. Window
World, Inc., 2018 NCBC LEXIS 218 (N.C. Super. Ct. Dec. 19, 2018), Window World of Baton
Rouge, LLC v. Window World, Inc., 2018 NCBC LEXIS 102 (N.C. Super. Ct. Sept. 28, 2018),
Window World of Baton Rouge, LLC v. Window World, Inc., 2018 NCBC LEXIS 100 (N.C.
Super. Ct. Sept. 26, 2018), Window World of Baton Rouge, LLC v. Window World, Inc., 2018
NCBC LEXIS 79 (N.C. Super. Ct. Aug. 2, 2018), Window World of Baton Rouge, LLC v.
Window World, Inc., 2018 NCBC LEXIS 59 (N.C. Super. Ct. June 19, 2018), Window World
of Baton Rouge, LLC v. Window World, Inc., 2017 NCBC LEXIS 60 (N.C. Super. Ct. July 12,
2017), Window World of Baton Rouge, LLC v. Window World, Inc., 2016 NCBC LEXIS 82
(N.C. Super. Ct. Oct. 25, 2016), and Window World of St. Louis, Inc. v. Window World, Inc.,
2015 NCBC LEXIS 79 (N.C. Super. Ct. Aug. 10, 2015).
claims are protected by the attorney-client privilege and/or work-product immunity

doctrine. Specifically, through the Motion to Compel, Plaintiffs seek to compel from

WW certain documents that Plaintiffs contend WW improperly withheld on the basis

of privilege and request that the Court impose sanctions for WW’s improper privilege

assertions. Through the Waiver Motion, Plaintiffs seek an order finding that WW

waived the attorney-client privilege and the protections of work-product immunity as

to all documents generated before November 1, 2011 that generally relate to WW’s

contemplated compliance with state and federal franchise laws. Plaintiffs assert that

two grounds exist for finding WW waived any privilege or protection applicable to

these documents: (i) WW’s voluntary production of certain 2011 WW Board minutes

and (ii) the crime-fraud exception to the attorney client privilege. In addition to their

subject matter waiver arguments, Plaintiffs also contend that WW waived privilege

as to certain documents based on WW’s two-year delay in initiating a claw-back of

those documents. The Court heard arguments on the Privilege Motions at the August

22 Hearing, at which all parties and non-party Anna Elizabeth “Beth” Vannoy (“Ms.

Vannoy”) were represented by counsel.

5. By Order and Opinion dated September 28, 2018 (the “In Camera Review

Order”), the Court, in the exercise of its discretion and for good cause shown,

concluded that an in camera review of certain documents was necessary to assess the

propriety of WW’s claims of privilege and to assist the Court in resolving the Privilege

Motions. See Window World of Baton Rouge, LLC v. Window World, Inc., 2018 NCBC

LEXIS 102, at *14–15 (N.C. Super. Ct. Sept. 28, 2018). With the consent of the
parties, the Court appointed the Honorable W. David Lee (“Judge Lee,” the “Special

Master,” or “Master”) to conduct the in camera review by order dated October 12,

2018. Based on that review, Judge Lee submitted his Master’s Report on January 3,

2019.

6. Through the parties’ respective Exceptions, each brought pursuant to Rule

53(g) of the North Carolina Rules of Civil Procedure, WW and Plaintiffs separately

take exception to certain findings and conclusions set forth in the Master’s Report.

After full briefing, the parties stipulated to a waiver of any hearing rights under Rule

53 through a joint letter to the Court dated March 18, 2019. After consideration of

the parties’ briefing and submissions in connection with the Exceptions, the Court

concludes, in the exercise of its discretion, that a hearing will not assist the Court in

resolving the Exceptions. The Court therefore rules on the Exceptions without a

hearing as permitted by Business Court Rule (“BCR”) 7.4.

7. Finally, through the Motion to Strike, WW requests that the Court strike

and/or decline to consider portions of the affidavit of WW’s former employee, Sean

Gallagher (“Gallagher”), which Plaintiffs submitted as an exhibit in support of their

Waiver Motion (the “Gallagher Affidavit”). The Court heard arguments on the Motion

to Strike at the December 19 Hearing, at which all parties were represented by

counsel.

8. The Motions and the Exceptions are now ripe for resolution.
A. Relevant Factual Background

9. As early as 1998, WW entered into contracts titled “franchise agreements”

with various store owners. (See Pls.’ Br. Supp. Waiver Mot. Ex. A, at 1–25, ECF No.

447.2.)3 Beginning in the early 2000s, however, WW began titling its contracts with

store owners, including Plaintiffs, as “licensing agreements.” According to Plaintiffs,

by no later than May 2010, WW knew that its business relationships with these store

owners, including Plaintiffs, were properly characterized as franchisor-franchisee

relationships under applicable federal law.4 Plaintiffs argue that despite this

knowledge, WW presented at least seventeen contracts to Plaintiffs between May

2010 and May 2011 that were titled “licensing agreements,” each of which expressly

and fraudulently disclaimed the existence of a franchisor-franchisee relationship

3 For ease of reference, all ECF citations in this Order and Opinion are to the Court’s e-
docket in 15 CVS 1.

4 For purposes of the federal regulations at issue here, a “franchise” is defined as “any
continuing commercial relationship or arrangement, whatever it may be called, in which the
terms of the offer or contract specify, or the franchise seller promises or represents, orally or
in writing,” that:

(1) The franchisee will obtain the right to operate a business that is identified or
associated with the franchisor’s trademark, or to offer, sell, or distribute goods,
services, or commodities that are identified or associated with the franchisor’s
trademark;

(2) The franchisor will exert or has authority to exert a significant degree of control
over the franchisee’s method of operation, or provide significant assistance in the
franchisee’s method of operation; and

(3) As a condition of obtaining or commencing operation of the franchise, the
franchisee makes a required payment or commits to make a required payment to
the franchisor or its affiliate.

16 C.F.R. § 436.1(h).
with Plaintiffs. (See Pls.’ Br. Supp. Waiver Mot. Ex. G, at 64–66, ECF No. 447.8.)

Plaintiffs further contend that WW knowingly and intentionally violated the FTC’s

Franchise Disclosure Rule5 by failing to provide to Plaintiffs the required Franchise

Disclosure Documents (“FDDs”). According to Plaintiffs, WW used its in-house

counsel, Ms. Vannoy, to perpetrate these alleged frauds.

10. Ms. Vannoy was hired as WW’s in-house counsel in June 2010, (B. Vannoy

Dep. 25:22–26:5, ECF No. 447.10), within a month of when Plaintiffs claim WW knew

it was operating franchisor-franchisee relationships with Plaintiffs. Ms. Vannoy had

previously worked as an attorney at WW’s primary outside law firm, Vannoy,

Colvard, Triplett & Vannoy, since 2008. Shortly after she began working in-house at

WW, Ms. Vannoy went on maternity leave from July 2010 through October 2010. (B.

Vannoy Dep. 202:8–15.)

11. According to Ms. Vannoy, at some point around May 2010, while she was

working at her former law firm, she began conducting “due diligence to learn what

[she] could about franchise systems to prepare [her] to meet with” a franchising

attorney concerning WW. (B. Vannoy Dep. 136:23–139:16; see B. Vannoy Dep.

140:11–13 (“Q. Why were you doing the due diligence? A. It was suggested to me that

5 The Franchise Disclosure Rule provides that, “[i]n connection with the offer or sale of a
franchise,” a franchisor must “furnish a prospective franchisee with a copy of the franchisor’s
current disclosure document . . . at least 14 calendar-days before the prospective franchisee
signs a binding agreement with, or makes any payment to, the franchisor or an affiliate in
connection with the proposed franchise sale.” 16 C.F.R. § 436.2(a). The Rule further provides
that at least seven calendar-days before “alter[ing] unilaterally and materially the terms and
conditions of the basic franchise agreement or any related agreements attached” to the FDD,
a franchisor must “furnish[] the prospective franchisee with a copy of each revised
agreement[.]” Id. § 436.2(b).
I look into it at some point.”), 141:1–7 (“[Q.] Who suggested that? A. Jay Vannoy.”).)

As part of those preparations, Ms. Vannoy avers that she “started gathering

information based on what [she] had learned would go into” an FDD. (B. Vannoy

Dep. 124:21–23, 125:16–23. But see B. Vannoy Dep. 127:10–15.)

12. Over a year later, in June 2011, Ms. Vannoy and her husband, John “Jay”

Vannoy (“Mr. Vannoy”), WW’s outside counsel and a member of WW’s Board of

Directors (the “WW Board”), met with Ritchie Taylor (“Taylor”), an attorney with

Manning, Fulton & Skinner, P.A. in Raleigh with significant experience in

franchising issues, to obtain legal advice concerning WW’s obligations under

franchise laws. (B. Vannoy Dep. 82:14–16.) Ms. Vannoy avers that, before meeting

with Taylor, WW did not know whether federal franchise law applied to WW’s

business relationships with its store owners, including Plaintiffs. (B. Vannoy Dep.

226:9–24; see J. Vannoy Dep. 94:9–14, ECF No. 483.7; McBride6 Dep. 133:5–14, ECF

No. 483.5.)

13. Ms. Vannoy and others at WW aver that after meeting with Taylor, WW

decided to convert from a licensing system to a franchise system and that the

conversion was accomplished in the fall of 2011. (B. Vannoy Dep. 179:3–181:12; J.

Vannoy Dep. 71:1–7, 122:23–123:5; McBride Dep. 291:25–292:6; Whitworth7 Dep.

251:1–7, ECF No. 483.8. But cf. B. Vannoy Dep. 105:8–16 (“Q. [W]as there a change

6 James “Jamie” McBride (“McBride”) is a member of the WW Board.

7 Defendant Tammy Whitworth (“Whitworth”) is WW’s Chief Executive Officer and Board
Chair.
in the way business was done that caused [WW] to become a franchise system? . . . .

A. And once again, I’ll just say I don’t know. As I sit here today, I don’t know.”).)

14. In October 2011, WW sent letters to Plaintiffs and the other store owners

operating under purported licensing agreements acknowledging that WW had “failed

to comply with Federal and State Laws” by not presenting the store owners with an

FDD prior to their purchase of a WW “license” (i.e., franchise). (Pls.’ Br. Supp. Waiver

Mot. Ex. K, ECF No. 447.12.) It is undisputed that WW did not provide an FDD to

any Plaintiff until October 2011. (Cf. Wellborn Aff. Supp. WW’s Mot. Recons. Ex. R,

ECF No. 621.18.)

B. WW’s Conduct in Discovery

15. In April 2016, several months after the parties began rolling document

productions, WW claims it learned that a large number of documents WW had

previously produced to Plaintiffs in discovery were inadvertently and inappropriately

coded as not confidential, privileged, or eligible for redactions based on privilege.

(Goode Aff. ¶ 20, ECF No. 577.) As a result, on April 28, 2016, WW’s counsel informed

Plaintiffs’ counsel via telephone that WW intended to invoke the claw-back provision

of the Court’s July 31, 2015 Protective Order to claim privilege on these documents.8

8 The claw-back provision of the Protective Order provides, in relevant part, as follows:

If a Document containing information subject to the Attorney-Client Privilege or
Work Product Doctrine . . . is inadvertently disclosed, the inadvertent disclosure
shall not constitute a waiver by a Party . . . of the Attorney-Client Privilege or Work
Product Doctrine . . . . Upon notification by a Party . . . to the person to whom the
Document was inadvertently disclosed, either (a) the person must immediately
return it, including any copies, and shall destroy any notes or work product
concerning the Document and the information therein; or (b) if the person to whom
the Document was inadvertently disclosed disagrees with the claim or privilege . . .,
(Goode Aff. ¶ 22; see Protective Order 6, ECF No. 68.) The next day, WW’s counsel

served a letter on Plaintiffs’ counsel indicating that WW was clawing back 320

previously produced documents (the “2016 Claw-back”). (Goode Aff. ¶ 23.) Two weeks

later, on May 11, 2016, WW relinquished its claim of privilege on 50 of the 320

documents identified in the 2016 Claw-back, leaving 270 documents subject to the

claw-back. (Goode Aff. ¶ 26.)

16. WW contends that after the 2016 Claw-back, WW’s counsel investigated the

scope of the inadvertent disclosure leading to the claw-back and established a

secondary review process (the “Secondary Review”) to re-review all documents

previously reviewed by the outside attorney WW contends inappropriately coded the

documents subject to the 2016 Claw-back. (Goode Aff. ¶ 24.) According to WW, on

May 11, 2016, WW’s counsel completed the Secondary Review and determined that

an additional 375 documents should be clawed-back, and that 48 other documents

should be subjected to a third-pass review. (Goode Aff. ¶ 27.) WW contends, however,

that its counsel “inadvertently failed to pull the documents flagged by May 11, 2016

into a third-pass review set” due to “numerous time-sensitive tasks, motion practice,

and discovery deadlines[.]” (Goode Aff. ¶ 28.)

17. Nearly two years later, in the course of preparing for the April 19, 2018

deposition of Ms. Vannoy, WW’s counsel “noticed that a number of documents in the

binder prepared for counsel’s deposition-preparation session with Ms. Vannoy

that person must not use the Document and the information therein until allowed
to do so by an Order of the Court.

(Protective Order 6.)
appeared to be privileged communications[.]” (Goode Aff. ¶ 43.) WW’s counsel

asserts that WW “concluded that 24 documents in the binder were inadvertently

produced and should have been clawed back . . . and identified [an additional] 4

documents that required partial claw back.” (Goode Aff. ¶ 45.) WW further contends

that, on April 9, 2018, WW’s counsel “discovered for the first time that more than 400

documents from the 2016 Secondary Review had been marked as needing claw-back

. . . in May of 2016, but had not yet been clawed back.” (Goode Aff. ¶ 46.)

18. On April 13, 2018, without advance notice to Plaintiffs and just days before

Ms. Vannoy’s deposition, WW’s counsel sent Plaintiffs’ counsel a second claw-back

letter identifying 336 documents that WW contended had been “inadvertently

produced” and now required claw-back (the “2018 Claw-back”). (Goode Aff. ¶ 48; see

Pls.’ Resp. Goode Aff. 5, ECF No. 583.) While WW contends that the 2018 Claw-back

“was the result of a realization on April 9, 2018 that the 2016 [C]law-back had not

been fully completed,” (Goode Aff. ¶ 66), the 2018 Claw-back included at least 50

documents that were not produced until after the 2016 Claw-back had been initiated,

(Pls.’ Resp. Goode Aff. 2–3; see Pls.’ Br. Supp. Mot. Compel 5, ECF No. 449). Thus,

together with the 320 documents sought in the 2016 Claw-back, WW initiated claw-

back to a remarkable 656 documents that it previously had produced. In response to

numerous objections by Plaintiffs, WW ultimately relinquished its claim of privilege

and released—in full or with redactions—a significant number of the 2018 Claw-back

documents on April 17, May 18, and June 27, 2018.9 (Goode Aff. ¶¶ 52, 57, 59, 64.)

9 As discussed infra, WW has offered conflicting accounts as to the exact number of
documents actually released from the 2018 Claw-back.
19. As required by the Case Management Order (the “CMO”), WW logged

documents that it withheld in whole or in part on either a privilege log or a privilege

redaction log (together, the “Logs”).10 As early as February 2017, WW acknowledged

to Plaintiffs that its Logs were incomplete. (Pls.’ Br. Supp. Mot. Compel Ex. G, ECF

No. 449.8.) Although WW committed to providing Plaintiffs with updated Logs by

June 30, 2017, (Goode Aff. ¶ 40), WW did not provide updated Logs until April 13,

2018 (the “2018 Logs”)—the same day as the 2018 Claw-back, (Goode Aff. ¶ 41).

WW’s counsel attributes the fourteen-month delay to the “extensive work in this

litigation.” (Goode Aff. ¶ 40.)

20. WW’s 2018 Logs contain numerous document descriptions that are

materially different from the descriptions included in prior Logs. The document

descriptions in the 2018 Logs contain considerably less detail than prior versions, and

Plaintiffs argue that many descriptions were “suspiciously altered.” (Pls.’ Resp.

Goode Aff. 12.) In particular, although WW’s earlier Logs from February 2017 (the

“2017 Logs”) included document descriptions referencing franchise disclosures as

early as May 2010, (see Pls.’ Br. Supp. Mot. Compel Exs. D, F, ECF Nos. 449.5, 449.7),

WW revised the 2018 Logs to omit all pre-October 2011 references to franchising.

C. In Camera Review

21. Through the Motion to Compel, Plaintiffs requested, among other things,

that the Court or a special master conduct an in camera review of (i) 280 documents

10 WW served its initial privilege log on September 25, 2015 and served revised or
supplemental Logs on November 17, 2015, July 29, 2016, January 13, 2017, February 14,
2017, and April 13, 2018. (Goode Aff. ¶¶ 33–41.)
that were included in the 2018 Claw-back for which Plaintiffs challenge WW’s

assertion of privilege (the “Challenged Claw-back Documents” or “CCDs”) and (ii) all

documents identified on WW’s 2018 Logs (a total of approximately 1,500 documents).

As reflected in the In Camera Review Order, the Court concluded that an in camera

review of certain documents was necessary to assess the propriety of WW’s claims of

privilege and to assist the Court in resolving the Privilege Motions. See Window

World of Baton Rouge, LLC, 2018 NCBC LEXIS 102, at *14–15. Specifically, the

Court ordered the Master to conduct an in camera review of (i) the 280 Challenged

Claw-back Documents and (ii) approximately 10% of the documents identified in

WW’s 2018 Logs (the “Sample Log Documents” or “SLDs” and, together with the

Challenged Claw-back Documents, the “Review Documents”). Id. at *19–20. The

Court deferred ruling on the Privilege Motions pending the results of the in camera

review.

22. Consistent with the In Camera Review Order, the parties submitted for the

Special Master’s consideration a Joint Factual Background Statement (the “Joint

Factual Background”), which included competing Statements of Additional Material
Facts. (See Joint Factual Background Statement [hereinafter “JFB”].)11 WW also

tendered electronic and hard copies of the Review Documents to the Special Master.12

23. After conducting his review, Judge Lee submitted his Special Master’s

Report on January 3, 2019. The Report set forth the Master’s findings and

conclusions as to (i) the propriety of WW’s claim of privilege for each Review

Document and (ii) the accuracy and adequacy of the document descriptions in WW’s

2018 Logs for each Sample Log Document. (See Special Master’s Report [hereinafter

“Master’s Rpt.”], ECF No. 684.)

24. As to the Challenged Claw-back Documents, the Special Master concluded

as follows:

The undersigned has determined that one hundred sixty-six (166) of the
[280 Challenged Claw-back Documents] may properly be considered
privileged. The undersigned has further determined that eighty-seven
(87) of the [280 Challenged Claw-back Documents] are not privileged. Of
the [280 Challenged Claw-back Documents] there were an additional
twenty-five (25) Documents wherein each “document” consisted of
multiple communications, usually in the form of emails, involving non-
privileged third party communications as well as privileged
attorney-client communications. . . .

11 The parties also submitted for the Special Master’s consideration copies of the 2018 Logs,
(JFB Exs. 4, 7); a list of key persons, (JFB Ex. 2); a list of the Challenged Claw-back
Documents which indicated when certain documents were relinquished from the 2018 Claw-
back, (JFB Ex. 3); a list of litigation matters involving WW, (JFB Ex. 5); and a list of the
Sample Log Documents, (JFB Ex. 6). The Joint Factual Background and other in camera
review materials have not been filed on the Court’s dockets but have been retained and can
be made a part of the court record in the event of an appeal.

12 WW tendered the Review Documents to the Master in “families,” meaning that e-mail
attachments were submitted with the corresponding e-mails to which they were attached and
vice versa. As to Review Documents that WW produced to Plaintiffs in part (i.e., with
redactions), WW included a watermarked redaction box identifying the redacted portion. For
some of the electronic versions of the Review Documents, the watermark box made the
covered text (i.e., the redacted text) difficult, but not impossible, to read.
There were two (2) [Challenged Claw-back Documents] as to which attorney
work product was asserted. The undersigned determined one Document
was protected by the work product doctrine and the other Document
was not protected by that doctrine.

[T]he undersigned also assessed the nature of the thirty-six (36)
[Challenged Claw-back Documents] wherein it is noted that the privilege
claim has been relinquished. The undersigned determined that thirty (30)
of these Documents were not privileged.13

(Master’s Rpt. 5.)

25. As to the Sample Log Documents, the Special Master concluded as follows:

The undersigned has determined that seventy-six (76) of the [150 Sample
Log Documents] are privileged. The undersigned has further determined
that forty-six (46) of the [150 Sample Log Documents] are not privileged.
The remaining twenty-eight (28) [Sample Log Documents] include
“documents” containing multiple communications, a portion of which are
not privileged and a portion of which may properly be considered to be
privileged.14

(Master’s Rpt. 21.)

13 In WW’s Statement of Additional Material Facts, WW suggested that, while WW was
providing all 280 Challenged Claw-back Documents for in camera review, it had decided to
relinquish its privilege claim to 51 of the Challenged Claw-back Documents and that
therefore the Special Master “should only review privilege determinations for the 229
remaining documents.” (JFB 8.) Not only does this misrepresent the number of Challenged
Claw-back Documents that WW actually released (i.e., 36, not 51), WW’s attempt to
unilaterally limit the scope of the in camera review is contrary to the plain text of the In
Camera Review Order. See Window World of Baton Rouge, LLC, 2018 NCBC LEXIS 102, at
*10, *14.

14Of the twenty-eight Sample Log Documents involving multiple communications, the Court
has concluded that sixteen were properly redacted so as to omit only the privileged
communications. Specifically, the Court finds that WW properly redacted Sample Log
Document Nos. 76, 89, 97, 98, 102, 114, 115, 125, 134, 138, 139, 140, 144, 148, 149, and 150,
and these documents are no longer at issue. The Court finds otherwise as to the other twelve
Sample Log Documents involving multiple communications (Nos. 2, 88, 91, 110, 111, 113,
121, 126, 127, 128, 136, and 137), as will be explained in more detail below.
26. The Special Master also made findings concerning the accuracy and

adequacy of WW’s document descriptions for the Sample Log Documents in the 2018

Logs, concluding as follows:

The undersigned has determined that seventy-four (74) of the [150 Sample
Log Document] descriptions are accurate, and that seventy-six (76) of the
[150 Sample Log Document] descriptions are inaccurate.

[T]he email descriptions overwhelming[ly] utilize catch phrases such as
“regarding legal advice” or “relating to legal compliance” without reference to
the specific subject of the email. The undersigned has determined that no
less than ninety-five (95) of the [150 Log entries associated with the Sample
Log Documents] describe an email or draft as either regarding or relating to
“legal advice.” (Presumably, all [150 Sample Log Documents] are regarding
or relating to legal advice.) Such a description provides no enlightenment and
renders the entry wholly inadequate in affording an adverse party a fair
opportunity to assess the validity of the privilege claim. Moreover, at least
thirty (30) of the [150 Sample Log Documents] merely describe the document
as a “draft.” Such a description likewise fails to identify the subject matter
of the communication sufficient to demonstrate why the privilege applies.

The undersigned has determined that only four (4) of the [150 Sample Log
Document] descriptions provide sufficient detail of the subject matter of the
Document to arguably permit an assessment as to why the privilege applies.

(Master’s Rpt. 21.)

27. After reviewing the Master’s Report and carefully examining the Sample

Log Documents that the Master identified either as not privileged or as containing

non-privileged communications, the Court determined, by order dated January 17,

2019 (the “January 17 Order”), that WW should have an opportunity to present

argument and evidence, on a sealed and ex parte basis, concerning its assertion of

privilege as to forty-two specifically identified Sample Log Documents the Special
Master had determined were inappropriately withheld from production (the

“Identified Sample Log Documents”).15

28. By letter to the Court dated January 18, 2019, WW requested that the Court

allow WW to file exceptions to the Master’s Report pursuant to Rule 53(g). The Court

held a telephone conference with counsel for all parties on January 23, 2019 to

address the issues raised in WW’s January 18, 2019 letter. By Order dated January

24, 2019, the Court concluded that the January 17 Order should be modified, and the

Court authorized WW to submit a brief and supporting materials setting forth its

position as to the forty-two Identified Sample Log Documents (the “Sample Log

Submission”) and to permit both WW and Plaintiffs to submit exceptions to the

Master’s Report.

29. WW submitted its Sample Log Submission on February 11, 2019. (See WW’s

Br. Sample Docs., ECF No. 692.) WW’s Rule 53(g) Exceptions, which incorporate

WW’s Sample Log Submission by reference, also were submitted on February 11,

15 The Identified Sample Log Documents included Sample Log Document Nos. 5; 11; 12; 19
as to the March 15, 2012 Notice of Electronic Filing; 29; 30; 31; 32; 36; 40; 42 as to Deem’s
November 7, 2013 e-mail and McBride’s November 7, 2013 e-mail; 43; 45; 53; 59; 60; 61; 62;
63 as to Ms. Vannoy’s November 5, 2014 e-mail to Taylor; 65; 69; 72; 80 as to Taylor’s October
18, 2011 e-mail to Ms. Vannoy; 83; 84 as to Ms. Vannoy’s November 9, 2011 e-mail to Mr.
Vannoy and Deem’s November 9, 2011 e-mail to Ms. Vannoy; 87 as to Deem’s November 23,
2011 e-mail to Ms. Vannoy; 109 as to Ms. Vannoy’s March 25, 2013 e-mail to Taylor and
Mathis’s e-mail to Ms. Vannoy; 110 as to Deem’s March 16, 2013 e-mail to Ms. Vannoy; 111
as to Deem’s April 17, 2013 e-mail to Ms. Vannoy; 113 as to Ms. Vannoy’s May 15, 2013 e-
mail to Deem; 122 as to Ms. Vannoy’s August 12, 2013 e-mail to Taylor and Deem’s August
12, 2013 e-mail; 126; 127 as to Ms. Vannoy’s January 6, 2014 e-mail to Taylor and Deem’s
January 6, 2014 e-mail to Ms. Vannoy; 128 as to Mr. Vannoy’s February 26, 2014 e-mail; 130;
133 as to Ms. Vannoy’s April 24, 2014 e-mail to Mathis and Taylor’s April 24, 2014 e-mail to
Ms. Vannoy; 135 as to Deem’s June 2, 2014 e-mail to Ms. Vannoy; 136 as to Ms. Vannoy’s
July 23, 2014 e-mail; 137; 142 as to Taylor’s November 6, 2014 e-mail to Ms. Vannoy; 143;
and 146 as to McBride’s February 18, 2015 e-mail and Whitworth’s February 18, 2015 e-mail.
2019. (See WW’s Rule 53(g) Exceptions Report Special Master [hereinafter “WW’s

Exceptions”], ECF No. 697.) WW specifically takes exception to the Master’s privilege

determinations as to (i) the forty-two Identified Sample Log Documents; (ii) sixteen

additional Sample Log Documents;16 and (iii) fifty-six Challenged Claw-back

Documents.17 WW also asserts a general exception to the Master’s conclusions that

the Sample Log Document descriptions in the 2018 Logs were inaccurate and/or

inadequate.

30. Plaintiffs filed their Rule 53(g) Exceptions on February 11, 2019. (See Pls.’

Exceptions Special Master’s Report [hereinafter “Pls.’ Exceptions”], ECF No. 690.)

Plaintiffs contest the Master’s rulings on seventy-three Challenged Claw-back

Documents.18

16WW takes exception to the Master’s rulings on the following sixteen additional Sample
Log Documents: 2, 3, 4, 6, 9, 16, 17, 35, 88, 91, 93, 104, 117, 119, 121, and 147.

17 WW excepts to the Master’s rulings on the following fifty-six Challenged Claw-back
Documents: 4, 5, 6, 20, 22, 32, 33, 35, 49, 51, 109, 133, 142, 144, 147, 149, 150, 155, 158, 161,
165, 167, 168, 169, 186, 187, 201, 204, 205, 214, 216, 219, 220, 221, 227, 229, 231, 239, 246,
247, 248, 249, 250, 252, 254, 255, 257, 259, 260, 261, 269, 276, 277, 278, 279, and 280.
Although WW initially took exception to the Master’s ruling as to Challenged Claw-back
Document No. 281, WW later relinquished its claim of privilege and withdrew its exception
to that document. (WW’s Notice Withdrawal Exceptions & Privilege Claims Challenged
Document No. 281, ECF No. 707.)

18 Plaintiffs take exception to the Master’s findings that the following seventy-three
Challenged Claw-back Documents are privileged: 9, 11, 12, 13, 14, 15, 23, 42, 43, 46, 47, 48,
50, 52, 54, 61, 62, 65, 79, 80, 81, 87, 90, 95, 101, 102, 106, 107, 108, 111, 112, 116, 118, 119,
131, 146, 148, 156, 157, 160, 162, 163, 164, 176, 177, 189, 191, 195, 197, 198, 200, 206, 207,
208, 209, 210, 211, 218, 222, 223, 226, 230, 232, 233, 238, 240, 241, 242, 243, 244, 258, 260,
and 270. Because Plaintiffs do not have access to the Sample Log Documents, they are unable
to take exception to the Master’s findings as to any of those documents.
31. WW has withdrawn its claim of privilege to a number of the Review

Documents. As noted previously, WW relinquished its privilege claim to 36 of the

280 Challenged Claw-back Documents prior to the in camera review.19 Moreover, in

a footnote to WW’s Exceptions, WW indicated that it “will agree to produce” seven

additional Challenged Claw-back Documents and one Sample Log Document.20

(WW’s Exceptions 6 n.8.) In addition, on April 15, 2019, WW relinquished its

privilege claim as to Challenged Claw-back Document No. 281. (WW’s Notice

Withdrawal Exceptions & Privilege Claims Challenged Document No. 281, ECF No.

707.) Thus, as of the date of this Order and Opinion, WW has relinquished its claim

of privilege as to forty-four Challenged Claw-back Documents and one Sample Log

Document.

19 Prior to the in camera review, WW relinquished its claim of privilege as to Challenged
Claw-back Document Nos. 1, 8, 19, 21, 28, 30, 36, 37, 39, 42, 58, 59, 70, 71, 72, 74, 75, 76, 85,
88, 89, 91, 92, 93, 97, 134, 175, 245, 256, 262, 266, 268, 271, 272, 273, and 275. WW previously
offered conflicting accounts concerning the number of Challenged Claw-back Documents
actually released. (See Pls.’ Resp. Goode Aff. 10 n.8; Pls.’ Resp. WW’s Exceptions 3 n.2.) First,
WW represented to the Court—through counsel’s sworn testimony—that, as of the August
22 Hearing, WW had released 90 of the 280 Challenged Claw-back Documents (76 in full and
14 in part). (See Goode Aff. ¶ 64.) Next, WW represented to the Master that “[i]n preparing
the [Challenged Claw-back Documents] for review, WW’s counsel determined that 51
documents . . . do not require a ruling because WW is no longer claiming its privilege over
them.” (JFB 8.) Of the 280 Challenged Claw-back Documents that WW actually submitted
for the in camera review, however, only 36 were marked as “RELINQUISHED.” (See JFB
Ex. 3.) Indeed, contrary to its earlier representations, WW conceded in a footnote to its
Exceptions that only 36 Challenged Claw-back Documents were released prior to the in
camera review. (WW’s Exceptions 4 n.3.)

20 Through WW’s Exceptions, WW relinquished its claim of privilege as to Sample Log
Document No. 65 and Challenged Claw-back Document Nos. 10, 66, 73, 77, 122, 123, and
127. (WW’s Exceptions 6 n.8.)
II.

CONCLUSIONS OF LAW

A. Attorney-Client Privilege and Work-Product Immunity

32. “The attorney-client privilege is well-grounded in the jurisprudence of this

State” and is “based upon the belief that only ‘full and frank’ communications between

attorney and client allow the attorney to provide the best counsel to his client.” In re

Investigation of the Death of Miller, 357 N.C. 316, 328–29, 584 S.E.2d 772, 782 (2003)

(quoting Upjohn Co. v. United States, 449 U.S. 383, 389 (1981)). Our Supreme Court

has set forth a five-part test to determine whether a particular communication is

protected by the attorney-client privilege:

(1) the relation of attorney and client existed at the time the communication
was made, (2) the communication was made in confidence, (3) the
communication relates to a matter about which the attorney is being
professionally consulted, (4) the communication was made in the course of
giving or seeking legal advice for a proper purpose although litigation need
not be contemplated and (5) the client has not waived the privilege.

Id. at 335, 584 S.E.2d at 786 (quoting State v. McIntosh, 336 N.C. 517, 523–24, 444

S.E.2d 438, 442 (1994)). “If any one of these five elements is not present in any

portion of an attorney-client communication, that portion of the communication is not

privileged.” Id. While “[t]he burden is always on the party asserting the privilege to

demonstrate each of its essential elements,” the “responsibility of determining

whether the attorney-client privilege applies belongs to the trial court, not to the

attorney asserting the privilege.” Id. at 336, 584 S.E.2d at 787–88; cf. Evans v. United

Servs. Auto. Ass’n, 142 N.C. App. 18, 31, 541 S.E.2d 782, 790 (2001) (“[C]ourts are
obligated to strictly construe the privilege and limit it to the purpose for which it

exists.”).

33. In contrast to the attorney-client privilege, the work-product immunity

doctrine protects from discovery only materials “prepared in anticipation of

litigation.” Sessions v. Sloane, 248 N.C. App. 370, 383, 789 S.E.2d 844, 855 (2016).

“Materials prepared in the regular course of business are, however, not protected.”

Id. In order to determine whether a document was prepared in anticipation of

litigation or in the regular course of business, our courts consider:

whether, in light of the nature of the document and the factual situation in
the particular case, the document can fairly be said to have been prepared or
obtained because of the prospect of litigation. But the converse of this is that
even though litigation is already in prospect, there is no work product
immunity for documents prepared in the regular course of business rather
than for purposes of the litigation.

Id. (quoting Cook v. Wake Cty. Hosp. Sys., Inc., 125 N.C. App. 618, 624, 482 S.E.2d

546, 551 (1997)). “ ‘Because work product protection by its nature may hinder an

investigation into the true facts, it should be narrowly construed consistent with its

purpose[,]’ which is to ‘safeguard the lawyer’s work in developing his client’s case.’ ”

Evans, 142 N.C. App. at 29, 541 S.E.2d at 789 (quoting Suggs v. Whitaker, 152 F.R.D.

501, 505 (M.D.N.C. 1993)). At the same time, however, the protections of the work

product immunity may apply even absent “the direct involvement of an attorney[.]”

Sessions, 248 N.C. App. at 384, 789 S.E.2d at 855.

B. Waiver Motion

34. Through the Waiver Motion, Plaintiffs seek an order ruling that WW waived

the protections of the attorney-client privilege and work-product immunity as to all
documents generated prior to November 1, 2011 that generally relate to WW’s

compliance with federal or state franchise laws, including, among other things,

(i) WW’s “efforts to determine whether WW was subject to . . . franchise laws,” (ii) the

“drafting and contents” of all licensing agreements and franchise agreements, and

(iii) the “drafting and contents of any [FDD], including the collection, compiling,

creation, and gather[ing] of any information for inclusion or possible inclusion” in an

FDD.21 (Pls.’ Waiver Mot. 1–2, ECF No. 446.) Plaintiffs argue that WW waived

privilege as to franchise law compliance issues by voluntarily producing certain

attorney-client communications related to this topic and by operation of the crime-

fraud exception. Separate from their subject matter waiver arguments, Plaintiffs

also contend that WW waived privilege as to all of the Challenged Claw-back

Documents based on WW’s two-year delay in initiating the 2018 Claw-back. The

Court will address each of Plaintiffs’ arguments.

1. Waiver by Disclosure

35. Plaintiffs argue that WW waived the protections of the attorney-client

privilege and work-product immunity doctrine by producing certain privileged

documents. Plaintiffs specifically contend that WW waived privilege (i) as to all

documents related to franchising issues by voluntarily and selectively disclosing

certain privileged communications concerning those subjects and (ii) as to the

21 In addition to their request for a privilege waiver as to franchise issues, Plaintiffs seek an
order (i) precluding WW from instructing witnesses not to answer questions relating to
franchise issues on privilege grounds and (ii) requiring Ms. Vannoy to submit to a second
deposition and provide full and complete testimony on this topic. Plaintiffs also ask that the
Court or a special master review in camera all documents identified on WW’s 2018 Logs to
determine whether the documents fall within scope of the alleged subject matter waiver.
Challenged Claw-back Documents by failing to claw back those documents for nearly

two years.

36. “Generally, communications between an attorney and client are not

privileged if made in the presence of a third party because those communications are

not confidential and because that person’s presence constitutes a waiver.” Berens v.

Berens, 247 N.C. App. 12, 20, 785 S.E.2d 733, 740 (2016). “The attorney-client

privilege can be waived by either intentional disclosure or inadvertent disclosure. In

either case, a finding of waiver depends on the particular circumstances surrounding

the disclosure.” Blythe v. Bell, 2012 NCBC LEXIS 44, at *21 (N.C. Super. Ct. July

26, 2012) (citations omitted).

a. Waiver as to Challenged Claw-back Documents

37. The Court first concludes that WW has waived any claim of privilege as to

the 280 Challenged Claw-back Documents. While the Protective Order in these cases

provides that a party’s inadvertent disclosure of documents containing privileged

information shall not constitute a waiver, (Protective Order 6), WW improperly seeks

to use this provision as a sword to gain strategic advantage, which the Court will not

allow.

38. Courts balance the following factors to determine whether inadvertent

production of privileged materials waives the attorney-client privilege: “(1) the

reasonableness of the precautions taken to prevent inadvertent disclosure; (2) the

number of inadvertent disclosures; (3) the extent of the disclosures; (4) any delay in

measures taken to rectify the disclosures; and (5) overriding interests in justice.”
Morris v. Scenera Research, LLC, 2011 NCBC LEXIS 34, at *28 (N.C. Super. Ct. Aug.

26, 2011) (citing Victor Stanley, Inc. v. Creative Pipe, Inc., 250 F.R.D. 251, 259 (D.

Md. 2008)). “The reasonableness of the privilege holder in protecting and asserting

the privilege is paramount to overcoming the consequences of an inadvertent waiver.”

Id. (quoting Martin v. State Farm Mut. Auto. Ins. Co., No. 3:10-CV-0144, 2011 U.S.

Dist. LEXIS 36058, at *13 (S.D. W. Va. Apr. 1, 2011)).

39. While this Court has noted that “it is only necessary to turn to these factors

if the parties have not reached agreement on procedures to be followed in the event

of the production of privileged materials,” id., where, as here, a party utilizes a claw-

back or non-waiver agreement to gain a strategic advantage or to make unfair use of

a prior disclosure, privilege may nevertheless be waived, cf. Johnson v. Oakland

Univ., No. 15-12482, 2016 U.S. Dist. LEXIS 141049, at *3 (E.D. Mich. Oct. 12, 2016)

(“The Magistrate decided not to enforce the claw-back provision after analyzing the

disclosure of the document under the five-step process from Victor Stanley, and the

Court does not find this clearly erroneous or contrary to law.”); Crosmun v. Trs. of

Fayetteville Tech. Cmty. Coll., No. COA18-1054, 2019 N.C. App. LEXIS 658, at *40

n.17 (N.C. Ct. App. Aug. 6, 2019) (noting that claw-back and “quick peek”

“agreements appear to be generally disfavored as the exclusive means of protecting

privilege in most contexts”).

40. Additionally, although North Carolina has not adopted an equivalent rule,

the Court considers federal case law addressing waiver by disclosure under Federal

Rule of Evidence 502 instructive on this matter. Rule 502(b) provides that
inadvertent disclosure in a federal proceeding does not operate as a waiver if “(1) the

disclosure is inadvertent; (2) the holder of the privilege or protection took reasonable

steps to prevent disclosure; and (3) the holder promptly took reasonable steps to

rectify the error, including (if applicable) following Federal Rule of Civil Procedure

26(b)(5)(B).” Fed. R. Evid. 502(b); see also Fed. R. Evid. 502(d) (“A federal court may

order that the privilege or protection is not waived by disclosure connected with the

litigation pending before the court[.]”).

41. Federal courts have adopted differing approaches when considering the

extent to which a claw-back order or agreement displaces Rule 502(b). Compare

United States v. Wells Fargo Bank, N.A., No. 12-CV-7527 (JMF), 2015 U.S. Dist.

LEXIS 113546, at *5 (S.D.N.Y. Aug. 26, 2015) (“[W]here parties have entered into a

protective order that includes a non-waiver provision, as here, courts have found

waiver only where the producing party acted in a ‘completely reckless’ manner with

respect to its privilege.”), with Northrop Grumman Sys. Corp. v. United States, 120

Fed. Cl. 436, 438 (2015) (“[T]he protective order’s claw back provision is subject to the

implicit requirements that the initial privilege review must have been reasonable and

its assertion of the privilege timely[.]”), with U.S. Home Corp. v. Settlers Crossing,

LLC, No. DKC 08-1863, 2012 U.S. Dist. LEXIS 101778, at *18 (D. Md. July 23, 2012)

(“To find that a court order or agreement under Rule 502(d) or (e) supplants the

default Rule 502(b) test, courts have required that concrete directives be included in

the court order or agreement regarding each prong of Rule 502(b). In other words, if

a court order or agreement does not provide adequate detail regarding what
constitutes inadvertence, what precautionary measures are required, and what the

producing party’s post-production responsibilities are to escape waiver, the court will

default to Rule 502(b) to fill in the gaps[.]”), and Tadayon v. Greyhound Lines, Inc.,

No. 10-1326 (ABJ/JMF), 2012 U.S. Dist. LEXIS 78288, at *4 (D.D.C. June 6, 2012)

(“Since the right to clawback was not so conditioned, the agreement stands as written

and defendant may recall the privileged documents, irrespective of whether or not its

initial production was negligent.”).

42. Here, paragraph 6 of the Protective Order provides that “[i]f a Document

containing information subject to the Attorney-Client Privilege or Work Product

Doctrine . . . is inadvertently disclosed, the inadvertent disclosure shall not constitute

a waiver by a Party . . . of the Attorney-Client Privilege or Work Product Doctrine[.]”

(Protective Order 6.) The provision does not address what constitutes inadvertent

disclosure, what precautionary measures are required of a producing party, or the

post-production responsibilities of the producing party.

43. Rather than permit a carte blanche invitation to negligent or bad faith

production, the Court interprets its own Order to contain implicit requirements that

a producing party’s initial privilege review must have been reasonable and its

assertion of privilege and claw-back must have been timely. See Northrop Grumman

Sys. Corp., 120 Fed. Cl. at 438; Crosmun, 2019 N.C. App. LEXIS 658, at *40 n.17

(noting that claw-back agreements “are best considered as an additional protective

measure rather than the primary prophylactic”). The Court further concludes that

waiver may be found notwithstanding an agreement or order to the contrary where,
as here, a producing party acts in a completely reckless manner with respect to its

privilege. See Wells Fargo Bank, N.A., 2015 U.S. Dist. LEXIS 113546, at *5.

44. WW’s whipsaw pattern of producing documents, then later clawing back

large numbers of those documents based on privilege, only to then again withdraw

its assertions of privilege as to many of those clawed back documents—a pattern WW

followed in 2016 and again in 2018—reflects a cavalier disregard for the rules of

discovery and appears motivated more by WW’s shifting theory of its defense rather

than by genuine concerns over the proper assertion of privilege. The sheer volume of

documents affected by WW’s on-again, off-again privilege claims is remarkable, as is

WW’s extraordinary delay in initiating the 2018 Claw-back after becoming aware of

its inadvertent production two years before. WW’s conduct cannot be condoned.

Indeed, numerous courts have refused to enforce far shorter claw-back delays than

WW attempts here. See, e.g., Skansgaard v. Bank of Am., N.A., No. C11-0988 RJB,

2013 U.S. Dist. LEXIS 48176, at *9 (W.D. Wash. Mar. 6, 2013) (“[C]ourts have

emphasized that claw back requests should be made immediately, with delays of even

a few weeks determined to be too long, much less nearly two months.”); United States

Fid. & Guar. Co. v. Braspetro Oil Servs. Co., No. 97-Civ.-6124 (JGK) (THK), 2000

U.S. Dist. LEXIS 7939, at *23 (S.D.N.Y. June 7, 2000) (“Although inordinate delay in

claiming the privilege may result in a waiver, the length of delay in claiming the

privilege should be measured from the time the producing party learns of the

disclosure, not from the time of the disclosure itself.”); Apex Mun. Fund v. N-Group
Sec., 841 F. Supp. 1423, 1433 (S.D. Tex. 1993) (“Simply put, a one-year delay in taking

any action to attempt to preserve the privilege exemplifies carelessness.”).

45. As noted, the 2016 Claw-back involved 320 documents, (Goode Aff. ¶ 22), a

total later reduced to 270 after WW released its privilege claim to 50 of those

documents, (Goode Aff. ¶ 26). Then, after concluding in May 2016 that 375 additional

documents should be clawed back and that 48 documents should be subjected to a

third-pass review, (Goode Aff. ¶ 27), WW waited almost two years, until April 13,

2018—and only days before the depositions of key WW witnesses—to claw back 336

of these documents through the 2018 Claw-back. As had become its pattern, WW

then withdrew its privilege claim, either in whole or in part, to 98 of these 336

documents—nearly 30% of the documents included in the 2018 Claw-back. Ninety-

one of these ninety-eight documents, however, were only released after important

WW witness depositions had been completed.22

46. While WW contends that the 2018 Claw-back “was the result of a

realization . . . that the 2016 claw-back had not been fully completed,” (Goode Aff.

¶ 66), the 2018 Claw-back included at least 50 documents that were not produced

until after the 2016 Claw-back, (Pls.’ Resp. Goode Aff. 2–3). Moreover, several of the

2018 Claw-back documents were previously introduced at depositions, including at

least one document introduced by WW’s own counsel. (Pls.’ Resp. Goode Aff. 2–3.)

22 It is worth noting that WW’s related privilege log practices were similarly improper. As
noted previously, on April 13, 2018—the day of the 2018 Claw-back and after a fourteen-
month delay—WW tendered the 2018 Logs to Plaintiffs. In those Logs, WW re-wrote nearly
every description of previously identified documents to remove critical details, including all
pre-October 2011 references to franchising.
Remarkably, several of the documents in the 2018 Claw-back were included in the

2016 Claw-back, only to be released in 2016 and later clawed back yet again in 2018.

47. Finally, as discussed below in connection with Plaintiffs’ request for

sanctions and as set forth in Appendix B to this Order and Opinion, a substantial

number of the Challenged Claw-back Documents are not privileged at all. Indeed,

based on its review of the Challenged Claw-back Documents, the Court has concluded

that no less than 122 of the 280 documents—a staggering 44%—are non-privileged

in whole or in part, further evidencing WW’s reckless approach to discovery and

insouciant reliance on assertions of privilege.

48. Based on this record, the Court concludes that (i) WW’s 2018 Claw-back was

unreasonable, both in its scope and its substance; (ii) WW’s 2018 Claw-back was not

timely and involved unreasonable, unjustified, and excessive delay; and (iii) WW

acted in a completely reckless manner with respect to its privilege, as shown through

the 2018 Claw-back.

49. Moreover, Plaintiffs contend, and the Court agrees based on the evidence

submitted, that WW’s unreasonable delay in initiating the 2018 Claw-back and in

serving the 2018 Logs “upended Plaintiffs’ preparation for and conduct of a number

of the most important depositions” in these cases, including the depositions of Ms.

Vannoy, Mr. Vannoy, McBride, Mathis, and Blackburn. (Pls.’ Resp. Goode Aff. 7.)

The Court finds entirely plausible Plaintiffs’ contention that in the years since their

production, many of the 2018 Claw-back documents have been “woven into Plaintiffs’

strategy” and that the 2018 Claw-back “limited or foreclosed altogether—with very
little notice—areas of examination that are central to the franchise issues in the case

and that Plaintiffs had long intended to pursue with these witnesses.” (Pls.’ Resp.

Goode Aff. 8.) Accordingly, the Court concludes that Plaintiffs have been unfairly

and unduly prejudiced by the 2018 Claw-back.

50. For these reasons, to the extent that the Challenged Claw-back Documents

are in fact privileged, the Court concludes, in the exercise of its discretion, that WW

has waived any such claim of privilege or work-product immunity as to those

documents. The Challenged Claw-back Documents shall therefore be produced to

Plaintiffs and made available for use by any party to these actions for purposes of

this litigation.

b. Subject Matter Waiver by Voluntary Production

51. Plaintiffs further argue that by voluntarily producing privileged documents

reflecting discussions with counsel about franchise compliance issues, WW waived

the protections of the attorney-client privilege and work-product immunity doctrine

more broadly as to that same subject matter. On this issue, the Court disagrees.

52. Plaintiffs base their argument on WW’s voluntary production of certain

minutes from meetings of WW’s Board in 2011 (the “Minutes”), (Pls.’ Br. Supp.

Waiver Mot. Ex. S [hereinafter “Minutes”], ECF No. 447.20), and, in particular, from

an August 11 Board meeting (the “August 2011 Minutes”). The August 2011 Minutes

describe in detail an exchange between Ms. Vannoy, Mr. Vannoy, and the WW Board

about WW’s non-compliance with certain franchising laws, (Minutes 1–4), and

specifically report that Ms. Vannoy told the WW Board that, based on her
conversation with outside counsel Taylor, “our franchises do not comply” with certain

laws and “we are hoping to get a handle on how franchises are to be handled in each

state,” (Minutes 2). WW has not sought to claw back these Minutes.

53. According to Plaintiffs, WW selectively produced the Minutes to create the

appearance that WW was not aware of the applicability of franchise laws prior to

August 2011. Plaintiffs further contend that WW, in an effort to paint a false

narrative, clawed back all pre-August 2011 documents relating to franchise law

compliance issues and instructed Ms. Vannoy not to answer related deposition

questions, including questions concerning the August 2011 Minutes, on the basis of

privilege.

54. While WW failed to respond to Plaintiffs’ subject matter waiver argument

in its brief in opposition to the Waiver Motion, WW’s counsel argued at the August

22 Hearing that WW produced the Minutes because the same set of documents had

been previously produced to third parties in a prior lawsuit and thus could not be

claimed as privileged in these actions. WW’s counsel contended that subject matter

waiver is inappropriate because WW’s production was not made to gain a strategic

advantage.

55. “Deciding whether a waiver of privilege as to one communication ‘also ends

the privilege as to any related but not disclosed communications’ is a difficult question

that has often divided courts.” Technetics Grp. Daytona, Inc. v. N2 Biomedical, LLC,

2018 NCBC LEXIS 116, *15–16 (N.C. Super. Ct. Nov. 8, 2018) (quoting In re Teleglobe

Commc’ns Corp., 493 F.3d 345, 361 (3d Cir. 2007)). In Technetics Group Daytona,
Inc., this Court considered the extent to which the disclosure of privileged information

results in subject matter waiver. Id. at *15–19. After describing positions taken by

various federal courts, this Court applied a fairness balancing approach in which

subject matter waiver is applied for remedial, rather than punitive, purposes. Id. at

*16–19; see Wi-LAN, Inc. v. LG Elecs., Inc., 684 F.3d 1364, 1373 (Fed. Cir. 2012)

(“[T]he heavy weight of current authority . . . comes down on the side of employing

fairness considerations to decide the scope of waivers.”).

56. Under this balanced approach, “when a party reveals part of a privileged

communication to gain an advantage in litigation, the party waives the attorney-

client privilege as to all other communications relating to the same subject matter.”

United States v. Jones, 696 F.2d 1069, 1072 (4th Cir. 1982); see In re Teleglobe

Commc’ns Corp., 493 F.3d at 361 (“When one party takes advantage of another by

selectively disclosing otherwise privileged communications, courts broaden the

waiver as necessary to eliminate the advantage.”). “On the other hand, ‘when the

disclosure does not create an unfair advantage, courts typically limit the waiver to

the communications actually disclosed.’ ” Technetics Grp. Daytona, Inc., 2018 NCBC

LEXIS 116, at *18 (quoting In re Teleglobe Commc’ns Corp., 493 F.3d at 361). “This

is especially so in the case of an extrajudicial disclosure made outside the context of

litigation.” Id.; see XYZ Corp. v. United States (In re Keeper of the Records), 348 F.3d

16, 24 (1st Cir. 2003) (“[T]he extrajudicial disclosure of attorney-client

communications, not thereafter used by the client to gain adversarial advantage in

judicial proceedings, cannot work an implied waiver of all confidential
communications on the same subject matter.”); In re von Bulow, 828 F.2d 94, 103 (2d

Cir. 1987) (“[W]here . . . disclosures of privileged information are made extrajudicially

and without prejudice to the opposing party, there exists no reason in logic or equity

to broaden the waiver beyond those matters actually revealed.”).

57. Here, taking WW’s counsel at its word that the Minutes were only produced

to Plaintiffs in these actions because the Minutes were previously disclosed to third

parties in unrelated litigation, the Court concludes, in the exercise of its discretion,

that production was not made to gain a litigation advantage in these actions and thus

that subject matter waiver is not appropriate on the facts of record here. Therefore,

the Waiver Motion shall be denied to the extent Plaintiffs seek a finding that WW

waived privilege as to franchise compliance law issues by voluntarily producing the

Minutes.

2. Crime-Fraud Exception23

58. Although “the attorney-client privilege is one of the oldest recognized

privileges for confidential communications” and “promote[s] broader public interests

in the observance of law and the administration of justice[,]” Dickson v. Rucho, 366

N.C. 332, 340, 737 S.E.2d 362, 368 (2013) (quoting Swidler & Berlin v. United States,

524 U.S. 399, 403 (1998)), there exists a crime-fraud exception to the privilege, which

23 The Special Master was not asked to consider, and thus did not consider, the applicability
of the crime-fraud exception. Moreover, the Court has not reviewed in camera those Sample
Log Documents that the Master concluded were properly withheld on the basis of privilege.
In addition, for the reasons discussed infra, the Court declines to consider the Gallagher
Affidavit. Thus, the Court’s analysis as to the applicability of the crime-fraud exception is
based on its review of the Challenged Claw-back Documents, the Sample Log Documents that
the Master found to be non-privileged, and other evidence offered by Plaintiffs in support of
the Waiver Motion, with the exception of the Gallagher Affidavit.
may be invoked in “certain extraordinary circumstances,” Miller, 357 N.C. at 335, 584

S.E.2d at 786 (“When certain extraordinary circumstances are present, the need for

disclosure of attorney-client communications will trump the confidential nature of

the privilege.”). The crime-fraud exception exists to recognize that “the attorney-

client privilege cannot serve as a shield for fraud or as a tool to aid in the commission

of future criminal activities; if a communication is not ‘made in the course of seeking

or giving legal advice for a proper purpose,’ it is not protected.” Id. (quoting State v.

Jennings, 333 N.C. 579, 611, 430 S.E.2d 188, 204 (1993)); see State v. Davenport, 227

N.C. 475, 498, 42 S.E.2d 686, 702–03 (1947) (“[T]he communication must have been

made in the course of seeking legal advice for a proper purpose; hence, no privilege

exists where advice is sought in aid of a contemplated violation of law.”).

59. Plaintiffs argue that the crime-fraud exception should apply here because

WW was aware that it was required to comply with franchise laws by no later than

May 2010 but (i) continued to push Plaintiffs to sign “licensing agreements” that

expressly disclaimed a franchise relationship with WW24 and (ii) failed to make

certain disclosures required of franchisors under applicable law, including the FTC’s

24 According to Plaintiffs, WW used Ms. Vannoy to draft licensing agreements and present
the agreements to Plaintiffs for execution while fully aware that these agreements falsely
disclaimed the existence of a franchise relationship between the parties. (See, e.g., Lomax
Dep. 111:14–112:1, ECF No. 447.9; B. Vannoy Dep. 242:19–248:17; Ingle Dep. 140:24–141:6;
Pls.’ Br. Supp. Waiver Mot. Ex. J, at 10–11, ECF No. 447.11 (“Nothing in this Licensing
Agreement shall be deemed to create any type of . . . franchise, or other business relationship
other than LICENSOR and LICENSEE.”).)
Franchise Disclosure Rule. As noted previously, Plaintiffs contend that WW used its

in-house counsel, Ms. Vannoy, to perpetrate these alleged frauds.25

60. WW responds that (i) Plaintiffs have not alleged the type of crime or fraud

necessary to trigger the exception, (ii) Plaintiffs have not shown any privileged

communications were in furtherance of a crime or fraud, and (iii) even if the exception

applies, Plaintiffs’ proposed application here overreaches the exception’s boundaries.

Additionally, Ms. Vannoy argues that the exception does not apply because neither

she nor WW were aware that WW was subject to franchise laws and thus could not

have been involved in a fraud to conceal such information from Plaintiffs.26

61. WW first argues that Plaintiffs have not “shown the type of crime or fraud

necessary to trigger the exception” because there “is nothing inherently immoral

about not registering a franchise, or otherwise complying with the technical rules

governing franchises.” (WW’s Resp. Pls.’ Waiver Mot. 8–9, ECF No. 481.) In making

this argument, WW relies on Hughes v. Boone, 102 N.C. 137, 9 S.E. 286 (1889), a long-

ago case in which our Supreme Court noted that, for the exception to apply, triggering

conduct “must be an act criminal, per se, not simply malum prohibitum.”27 Id. at 160,

25 Under North Carolina law, fraud has five essential elements: “(1) False representation or
concealment of a material fact, (2) reasonably calculated to deceive, (3) made with intent to
deceive, (4) which does in fact deceive, (5) resulting in damage to the injured party.” Head v.
Gould Killian CPA Grp., P.A., 371 N.C. 2, 9, 812 S.E.2d 831, 837 (2018) (quoting Watts v.
Cumberland Cty. Hosp. Sys., Inc., 317 N.C. 110, 117, 343 S.E.2d 879, 884 (1986)).

26While Ms. Vannoy is not a party to these actions, the Court, by Order dated May 17, 2018,
granted Ms. Vannoy leave to submit a responsive brief in opposition to Plaintiffs’ Waiver
Motion and to participate in the August 22 Hearing.

27 “An offense malum in se is properly defined as one which is naturally evil as adjudged by
the sense of a civilized community, whereas an act malum prohibitum is wrong only because
made so by statute.” State v. Horton, 139 N.C. 588, 592, 51 S.E. 945, 946 (1905).
9 S.E. at 292. WW does not cite, and the Court’s research has not disclosed, any

subsequent North Carolina case applying this standard. Additionally, the few

modern North Carolina decisions discussing the crime-fraud exception make no

distinction between acts criminal per se and acts malum prohibitum.28 See Miller,

357 N.C. at 335, 584 S.E.2d at 786; Davenport, 227 N.C. at 498, 42 S.E.2d at 702–03.

Accordingly, the Court concludes that Hughes does not provide the rule of decision

here. The Court thus holds that application of the crime-fraud exception is not

limited only to cases involving acts that are criminal per se.

62. While the Court rejects Hughes as controlling, the Court nevertheless

acknowledges that there is little case law in this State applying the crime-fraud

exception or defining its contours. Decisions from federal courts, however, provide

28 It appears that beginning at the end of the nineteenth century, courts largely abandoned
the standard followed in Hughes. One scholar has described the evolution of the crime-fraud
exception in the United States in this way:

Until a century ago, the [crime-fraud] exception was only available if the client
consulted the attorney intending to commit some crime that was malum in se. The
difficulty . . . was that crimes mala in se were not co-extensive with actions generally
held to be morally wrong. In particular, a fraudulent conveyance was merely malum
prohibitum, perhaps because it was neither an indictable offense at common law nor
a statutory felony, but a statutory misdemeanor of Elizabethan date. The decision
of the Queen’s Bench in Regina v. Cox[, 14 Q.B.D. 153 (1884)] was revolutionary
partly because it disregarded the distinction between mala in se and mala prohibita.
On the other hand, Cox can be read as reaffirming the importance of the real or
underlying distinction by focusing on the blameworthiness of the clients’ intention
as viewed by the standards of ordinary commercial morality. By contrast, the
overwhelming modern tendency is to extend the exception to all crimes, without
regard to the blameworthiness of the client’s exploitation of the attorney’s advice. If
a client consults an attorney in furtherance of some action prohibited by statute, the
privilege is dissolved without any examination of whether the breach is morally
reprehensible.

David J. Fried, Too High a Price for Truth: the Exception to the Attorney-client Privilege for
Contemplated Crimes & Frauds, 64 N.C.L. Rev. 443, 470 (1986).
useful guidance.29 Federal decisions hold that the party invoking the crime-fraud

exception must make a prima facie showing that otherwise privileged

communications fall within the exception. See, e.g., United States v. Under Seal (In

re Grand Jury Proceedings #5), 401 F.3d 247, 251 (4th Cir. 2005). The invoking party

must show that “(1) the client was engaged in or planning a criminal or fraudulent

scheme when he sought the advice of counsel to further the scheme, and (2) the

documents containing the privileged materials bear a close relationship to the client’s

existing or future scheme to commit a crime or fraud.” Id. “Prong one of this test is

satisfied by a prima facie showing of evidence that, if believed by a trier of fact, would

establish the elements of some violation that was ongoing or about to be committed.”

Id. “Prong two may be satisfied with a showing of a close relationship between the

attorney-client communications and the possible criminal or fraudulent activity.” Id.

63. Although courts routinely apply the two-pronged test enumerated above,

they “are divided as to the appropriate quantum of proof necessary to make a prima

facie showing.” In re Grand Jury, 705 F.3d 133, 151–53 (3d Cir. 2012). The Third

Circuit recently described the differing articulations of the proper measure of proof

as follows:

Some [courts] require there to be probable cause or a reasonable basis to
suspect or believe that the client was committing or intending to commit a
crime or fraud and that the attorney-client communications were used in
furtherance of the alleged crime or fraud. Other courts call for evidence
sufficient to compel the party asserting the privilege to come forward with an

29 In defining the contours of other exceptions to the attorney-client privilege, the Supreme
Court of North Carolina has recognized that it is appropriate to look to federal case law for
guidance. See, e.g., Miller, 357 N.C. at 330–31, 584 S.E.2d at 783–84 (“Significantly, our
General Assembly has not seen fit to enact . . . statutory provisions for the attorney-client
privilege, and we must look solely to the common law for its proper application.”).
explanation for the evidence offered against the privilege. Still other courts
demand a showing of evidence that, if believed by a trier of fact, would
establish that some violation was ongoing or about to be committed and that
the attorney-client communications were used in furtherance of that scheme.

Id. at 152 (citations omitted) (applying a “reasonable basis” standard); see In re Grand

Jury Proceedings #5, 401 F.3d at 251 (“[T]he proof ‘must be such as to subject the

opposing party to the risk of non-persuasion if the evidence as to the disputed fact is

left unrebutted.’ ” (quoting Duplan Corp. v. Deering Milliken, Inc., 540 F.2d 1215,

1220 (4th Cir. 1976))). At least one court has imposed a higher standard for invoking

the crime-fraud exception in the civil context, recognizing that different interests are

involved in a grand jury or criminal proceeding. See UMG Recording, Inc. v.

Bertelsmann AG (In re Napster Copyright Litig.), 479 F.3d 1078, 1094–96 (9th Cir.

2007) (adopting a “preponderance of the evidence” standard in a civil case and noting

that a lower “reasonable cause” standard is appropriate in the grand jury context).30

64. In light of the “public’s interest in protecting the attorney-client privilege,”

Miller, 357 N.C. at 328, 584 S.E.2d at 782, and the “dangers associated with invoking

30 Many cases addressing the crime-fraud exception involve grand jury investigations. While
the attorney-client privilege generally functions identically in both civil and criminal
proceedings, see Swidler & Berlin, 524 U.S. at 408–09, several courts have recognized that
the crime-fraud exception may apply differently in the grand jury context, see In re Napster
Copyright Litig., 479 F.3d at 1094–95 (“[I]n a civil case the burden of proof that must be
carried by a party seeking outright disclosure of attorney-client communications under the
crime-fraud exception should be preponderance of the evidence.”); Haines v. Liggett Grp., Inc.,
975 F.2d 81, 97 n.8 (3d Cir. 1992) (“We confine our discussion regarding the appropriate
procedures to be followed in ascertaining the applicability of the crime-fraud exception to the
civil context and intimate no view as to whether the same procedures should be used in the
grand jury context.”); see also United States v. Auster, 517 F.3d 312, 319 (5th Cir. 2008) (“The
public interest at stake in a criminal trial of any sort is substantial, more so than in a civil
case[.]”); In re Sealed Grand Jury Subpoenas, 810 F. Supp. 2d 788, 793 (W.D. Va. 2011)
(“Based at least in part on the public’s strong interest in investigating and prosecuting crime,
the federal courts . . . have recognized a ‘crime-fraud’ exception to the attorney-client
privilege.” (emphasis added)).
exceptions” to the privilege, id. at 331, 584 S.E.2d at 784, the Court concludes that a

preponderance of the evidence standard is appropriate in the civil context, see Napster

Copyright Litig., 479 F.3d at 1095 (“[R]equiring a moving party to establish the

existence of the crime-fraud exception by a preponderance of the evidence is

consonant with the importance of the attorney-client privilege. . . . It would be very

odd if in an ordinary civil case a court could find such an important privilege vitiated

where an exception to the privilege has not been established by a preponderance of

the evidence.”). Indeed, under North Carolina Rule of Evidence 104(a), preliminary

questions of fact concerning privileges must be established by a preponderance of the

evidence. State v. McGrady, 368 N.C. 880, 892, 787 S.E.2d 1, 10 (2016); see Napster

Copyright Litig., 479 F.3d at 1095–96 (concluding “preliminary questions concerning

the existence or non-existence of the attorney-client privilege—including whether the

crime-fraud exception terminate[s] the privilege—must be established under

[Federal Rule of Evidence] 104(a).” (citations and quotation marks omitted)). Thus,

the Court concludes that a party seeking to invoke the crime-fraud exception to defeat

the attorney-client privilege in a civil case must bear the burden of showing by a

preponderance of the evidence that the opposing party was committing or intending

to commit a crime or fraud and that the attorney-client communications were used in

furtherance of the alleged crime or fraud.

65. “While [a prima facie] showing may justify a finding in favor of the offering

party, it does not necessarily compel such a finding.” Duplan Corp., 540 F.2d at 1220

(emphasis added). A trial court’s determination that a party “made a prima facie
showing of crime or fraud should be upheld absent a clear showing of abuse of

discretion.” In re Grand Jury Proceedings #5, 401 F.3d at 254 (quotation marks

omitted).

66. In applying the crime-fraud exception, “it is the client’s knowledge and

intentions that are of paramount concern because the client is the holder of the

privilege.” Id. at 251. In this instance, Ms. Vannoy’s knowledge and intentions must

be carefully examined because WW’s alleged fraudulent conduct occurred through

Ms. Vannoy’s service as WW’s in-house counsel. See Norburn v. Mackie, 262 N.C. 16,

24, 136 S.E.2d 279, 285 (1964) (“[A] principal is chargeable with . . . the knowledge of

or notice to his agent received while the agent is acting as such within the scope of

his authority and in reference to a matter over which his authority extends, although

the agent does not in fact inform his principal thereof.”).

67. Plaintiffs offer evidence purporting to show that, by no later than May 2010,

WW generally, and Ms. Vannoy in particular, were aware that WW was operating as

a franchisor under applicable law. In its brief in opposition to the Waiver Motion,

WW neither concedes nor disputes Plaintiffs’ contention that WW knew it was a

franchisor by May 2010. (See WW’s Resp. Pls.’ Waiver Mot. 11 (“Plaintiffs spend

much of their brief quibbling about when WW knew that it was a franchisor and

whether it should have made the conversion sooner[.] But WW cured its alleged

violation seven years ago and gave the Plaintiffs the right to leave the WW system if

they were dissatisfied after receiving the FDD’s full disclosure.”).) Ms. Vannoy,

however, contends that (i) WW was not subject to state or federal franchise laws prior
to its conversion to a franchise system in October 2011 and (ii) even if WW had been

a covered franchisor prior to that time, neither she nor WW was aware of that fact

prior to the October 2011 “conversion.”31

68. Turning first to whether WW was subject to franchise laws prior to October

2011, it is important to note that, for purposes of the federal Franchise Disclosure

Rule, a business arrangement is considered a “franchise” if it meets three definitional

elements. See 16 C.F.R. § 436.1(h). The FTC, which oversees enforcement of the

Franchise Disclosure Rule, has stated that “[t]he name given to the business

arrangement is irrelevant in determining whether it is covered” by the Rule. FTC

Franchise Rule Compliance Guide 1 (2008); (see Hurwitz Aff. ¶ 16, ECF No. 481.7

(“[W]hat determines a franchise is not the label you apply to the relationship but the

substance of the relationship.”).)

69. Neither WW nor Ms. Vannoy offer evidence to suggest that WW changed its

business methods between May 2010 and the fall of 2011 so as to create a franchise

relationship with its store owners when such a relationship had not existed

previously. (Cf. B. Vannoy Dep. 105:8–16 (“Q. [W]as there a change in the way

business was done that caused [WW] to become a franchise system? . . . . A. And

once again, I’ll just say I don’t know. As I sit here today, I don’t know.”), 113:19–

114:6, 182:19–183:2; J. Vannoy Dep. 71:18–72:5 (“Q. Was there anything that

changed in the way that [WW] conducts its business between the time that it was

31 In briefing the Waiver Motion, WW did not address whether it “converted” to a franchise
system. At the August 22 Hearing, however, WW’s counsel suggested that whether WW
converted to a franchise system should be an issue resolved at trial.
operating and treating itself as a licensor as opposed to today? . . . [A.] Well, we –

I’m not a franchise lawyer, but, you know, we – as a franchisor, we do things that the

state and federal laws require that we do under franchising law. That’s the best way

I know how to answer that.”).)

70. In October 2011, WW acknowledged that it had previously been operating

as a franchisor in violation of federal law and the laws of certain states.32 In an

October 28, 2011 letter from Whitworth and WW’s then-President Dana Deem

(“Deem”)33 to store owners, including Plaintiffs, WW stated as follows:

As you all know, [WW] defines our business relationship with you as a
Licensor/Licensee relationship. We have determined however that the
Federal Trade Commission, and some states that have franchise laws, would
classify our relationship as a Franchisor/Franchisee relationship rather than
that of a Licensor/Licensee. Once we made this determination and learned
that we were in violation of certain Federal and State Franchise Laws, we
began working toward compliance, which ultimately means redefining our
business relationship with you as that of a Franchisor and Franchisee.

....

As part of this conversion process, and because [WW] failed to comply with
Federal and State Laws by presenting to you a Franchise Disclosure
Document prior to your purchase of a license to own and operate your [WW]
business, we must now offer you two options: 1) you may convert from a
licensee to a franchisee; or 2) you may rescind your [WW] Licensing
Agreement and end your business relationship with [WW].

32 In 2011, WW entered into a Stipulation to Desist and Refrain Order with the California
Corporations Commissioner in which WW acknowledged that, beginning in 2002, WW
unlawfully sold numerous franchises (within the meaning of the California Corporations
Code) pursuant to “Licensing Agreements.” The California Corporations Code’s definition of
“franchise” contains three definitional elements similar to those in the FTC’s Franchise
Disclosure Rule. Compare Cal. Corp. Code § 31005(a), with 16 C.F.R. § 436.1(h).

33 Deem served as WW’s President from 2011 until 2015, having previously served as WW’s
Vice President.
(Pls.’ Br. Supp. Waiver Mot. Ex. K, ECF No. 447.12 (emphasis added). Accordingly,

the Court concludes that there exists substantial evidence tending to show that WW

was operating a franchise system at the time Ms. Vannoy became WW’s in-house

counsel in June 2010 and thus prior to its purported “conversion” in October 2011.

71. Ms. Vannoy argues against the Court’s conclusion, but her testimony that

WW did not operate a franchise system until its October 2011 conversion, (see, e.g.,

B. Vannoy Dep. 101:7–14 (“Q. When did [WW] start operating a franchise system? A.

After we sought the advice of counsel and made the decision to convert based on

feedback received from registration states. Q. And that was in the fall of 2011; is that

correct? A. Correct.”); 181:3–12 (“It is my testimony that [WW] was not a franchise

system prior to consulting with Ritchie Taylor, therefore, we were not required to

comply with franchise laws.”)), is at odds with WW’s August 2011 Board minutes,

which report that Ms. Vannoy told the Board that, based on her conversation with

Taylor, “our franchises do not comply” with certain franchise laws and “we are hoping

to get a handle on how franchises are to be handled in each state[,]” (Pls.’ Br. Supp.

Waiver Mot. Ex. S, at 2, ECF No. 447.20). As a result, the Court does not find Ms.

Vannoy’s contentions persuasive on this issue.

72. The Court turns next to whether Plaintiffs have carried their burden of

showing by a preponderance of the evidence that WW and/or Ms. Vannoy were aware

that WW was operating franchise relationships with Plaintiffs at the time Ms.

Vannoy presented them “licensing agreements” disclaiming any such relationship.
73. In support of their position that WW was aware that it was subject to state

and federal franchise laws no later than May 2010, Plaintiffs principally rely on the

following evidence:

a. A $300,000 payment to Ted Moore (“Moore”). In May or June 2010, Moore,

a non-Plaintiff store owner, approached WW and informed Ms. Vannoy, Mr.

Vannoy, Whitworth, WW’s then-President Blair Ingle (“Ingle”),34 and then-

Vice President Deem that, by claiming store owners were “licensees” when

they were actually franchisees, WW was violating applicable franchising

laws. (Moore Dep. 48:15–50:17, 70:19–71:22, 76:14–78:10, ECF No. 447.4;

B. Vannoy Dep. 127:17–148:19, 154:11–14; J. Vannoy Dep. 126:19–133:21,

226:5–229:20.) WW subsequently paid Moore $300,000 under a written

“consulting agreement,” (Moore Dep. 88:12–89:19), although Moore

contends that he did not perform any consulting services for WW under the

alleged agreement, (Moore Dep. 49:7–11, 85:8–16, 90:4–9; see J. Vannoy

Dep. 227:14–19; Gallagher Dep. 337:16–338:21, ECF No. 447.2). According

to Moore, the consulting agreement—which is not in the record before the

Court—included a confidentiality provision. (Moore Dep. 90:24–91:2.)

Plaintiffs contend that the $300,000 payment was intended to buy Moore’s

silence concerning the franchise nature of WW’s business relationships

with Plaintiffs and other store owners. (See Moore Dep. 70:19–71:22, 97:1:–

25.) Ms. Vannoy and Mr. Vannoy, however, testified that the payment was

34 Ingle served as WW’s President from 2009 through 2011.
an effort to resolve several, as yet unidentified issues, only one of which was

related to franchising.35 (B. Vannoy Dep. 143:5–17; J. Vannoy Dep. 127:5–

10.)36

b. Deposition testimony of WW’s in-house accountant, Bridgett Mathis

(“Mathis”),37 stating that WW commissioned an audit in May 2010 because

WW “needed [an audit] in order to be a franchisor.” (Mathis Dep. 103:21–

104:14, ECF No. 447.14.)

35 While Plaintiffs’ brief in support of the Waiver Motion prominently argues that WW’s
payment to Moore was intended to keep him quiet about WW’s non-compliance with franchise
laws, WW’s response brief does not mention Moore. Nor did WW’s counsel address Plaintiffs’
allegations relating to Moore at the August 22 Hearing. Ms. Vannoy, however, through her
brief in opposition to the Waiver Motion, argues that Moore only raised the franchise law
issue as a “negotiating stratagem” and that WW reached “a voluntary settlement with Moore
on the legitimate issues he raised,” and that “[a]ny contention that WW was violating any
franchise laws was not one of those legitimate issues.” (Resp. Anna Elizabeth Vannoy Pls.’
Waiver Mot. 12–13, ECF No. 483.) Ms. Vannoy’s brief does not identify the “legitimate
issues” Moore raised to justify the $300,000 settlement, however. Rather, Ms. Vannoy cites—
without explanation—to vague deposition testimony concerning “grey territory.” (B. Vannoy
Dep. 131:10–21 (“Q. [W]alk me through that conversation [with Moore]. A. I recall there
being an issue over grey territory. I don’t recall the specifics of that discussion, and I recall
[Moore] telling us that his neighbor thought that we were a franchise system.”); J. Vannoy
Dep. 127:5–10 (“Q. [W]hat do you recall Mr. Moore asserting? A. I think Mr. Moore had an
issue, as best I can recall, about the grey territories. I think there was an issue about his
particular license and – and franchising.”).) On the current record, the significance, if any,
of “grey territory” is unclear.

36 Ms. Vannoy and Mr. Vannoy both testified that Moore’s allegations concerning WW’s non-
compliance with franchise laws did not prompt them to consider whether WW was in fact
violating franchise laws. (J. Vannoy Dep. 127:21–128:16 (“Q. And as corporate counsel, did
you look into [Moore’s] assertions to determine whether or not he was correct? [A.] No. . . .
Q. Okay. Did anybody? [A.] Not to my knowledge, no.”); B. Vannoy Dep. 137:6–138:9. But
see B. Vannoy Dep. 136:16–137:14 (“Q. Did you look into the issue of whether or not Window
World should be complying with franchise laws after Mr. Moore raised that issue? . . . A.
Well, I sought the advice of counsel eventually, yes.”), 138:10–20.)

37 Mathis (formerly Bridgett Beck and Bridgett Pratt) served as WW’s Controller and later
became WW’s Chief Financial Officer. She joined the WW Board in 2015.
c. A May 24, 2010 e-mail from WW’s outside accountant, Randy Blackburn

(“Blackburn”), to Ingle in which Blackburn stated that, “[a]fter speaking

with [Mr. Vannoy] last week, I understand that [the audit] would be a

requirement of [WW’s] disclosures needed for acting as franchisor instead

of a licensor moving forward.” (Pls.’ Br. Supp. Waiver Mot. Ex. N, ECF No.

447.15.)

d. Documents titled “franchise agreements” entered between WW and store

owners in 1998. (Pls.’ Br. Supp. Waiver Mot. Ex. A, at 1–25.)

e. WW’s profit and loss statement from September 2003 which identifies

“Franchise Income” as a line item. (Pls.’ Br. Supp. Waiver Mot. Ex. A, at

34.)

f. Internal WW documents from 2001, 2005, and 2007 in which WW referred

to stores as “Franchise[s].” (Pls.’ Br. Supp. Waiver Mot. Ex. A, at 29–31,

37–39, 52–54.)

g. A complaint filed in 2007 by a store owner against WW in Washington

alleging violations of the Washington Franchise Investment Protection Act.

(Pls.’ Br. Supp. Waiver Mot. Ex. A, at 41–50.)

h. Minutes from a March 2011 meeting of the WW Board which identified

“Franchising Disclosure” as a topic of discussion. (Pls.’ Br. Supp. Waiver

Mot. Ex. A, at 56.)
i. WW’s description in its 2017 Logs of a May 2010 e-mail from Deem to Ms.

Vannoy as “[e]mail correspondence . . . regarding information needed for

FDD.”38

74. Ms. Vannoy vigorously disputes the inferences Plaintiffs urge the Court to

draw from this evidence. In particular, Ms. Vannoy testified that (i) her “due

diligence” beginning in May 2010 was not to determine whether WW was subject to

franchise laws, but rather because Mr. Vannoy “suggested” that she “look into it at

some point,” and “to prepare [herself] to meet with Mr. Taylor,” to access his franchise

law expertise, (B. Vannoy Dep. 136:16–141:7); (ii) no later than July 2010, she

“started gathering information based on what [she] had learned would go into” an

FDD, and she “used the guidelines for the FDD in order to know what kind of

information would need to be analyzed by an expert,” here Taylor, (B. Vannoy Dep.

124:21–23, 200:1–203:20); (iii) prior to contacting Taylor in June 2011, she had not

“started gathering documents for the FDD,” (B. Vannoy Dep. 127:10–15); (iv) neither

she nor WW was aware of the application of federal franchise law prior to her June

2011 meeting with Taylor, (B. Vannoy Dep. 226:9–24); and (v) she had not started

38 WW’s 2018 Logs, which WW tendered just days before Ms. Vannoy’s deposition, describe
the same document as e-mail correspondence “regarding data gathering with respect to
potential compliance issues.” According to Plaintiffs, the revised document descriptions in
WW’s 2018 Logs, coupled with WW’s decision to simultaneously claw back previously
produced documents related to franchising, “appears to be a ham-fisted effort to conform the
documentary evidence to Vannoy’s anticipated deposition testimony.” (Pls.’ Br. Supp. Waiver
Mot. 4, ECF No. 447.)
taking steps to bring WW into compliance with franchise laws prior to her meeting

with Taylor,39 (B. Vannoy Dep. 197:15–23).

75. While the evidence Plaintiffs have offered to show that WW, and Ms. Vannoy

in particular, knew or, at least, should have known that WW was operating as a

franchisor for purposes of the FTC’s Franchise Disclosure Rule is compelling, the

Court is not prepared, on this record and in the context of these motions, to conclude,

based on the preponderance of the evidence, that WW and Ms. Vannoy knew that

WW was subject to state and federal franchise laws no later than May 2010.

76. First, while Plaintiffs have offered evidence tending to show that WW,

through Ms. Vannoy, began researching franchise law and systems by no later than

May 2010 (as WW’s outside counsel), they have not offered evidence on which the

Court is prepared to conclude that her conduct was motivated by WW’s knowledge

that it was then violating franchise laws. According to Ms. Vannoy, “business reasons

were the sole impetus for considering a possible conversion to a franchise system –

not any regulatory compliance concerns.” (Resp. Anna Elizabeth Vannoy Pls.’ Waiver

Mot. 14, ECF No. 483.)

77. In addition, Ingle, a witness now hostile to WW, testified that, in 2010, WW

was “going through the process of moving . . . to a franchisor state.” (Ingle Dep.

135:21–136:4, ECF No. 447.3.) Ingle further testified that “it [was] a business

39 Ms. Vannoy further contends that she “did not begin preparing an FDD before meeting
with Mr. Taylor[.]” (Resp. Anna Elizabeth Vannoy Pls.’ Waiver Mot. 15; see B. Vannoy Dep.
205:1–4 (“Q. [D]id you try to prepare an FDD yourself and then realize, you know, I really
need to go see an expert? A. No.”).) She also asserts that, between July 2010 and the fall of
2011, she did not attempt to revise WW’s licensing agreements so they would comply with
franchise laws. (B. Vannoy Dep. 205:5–12.) [REDACTED]
decision to go in this [franchising] direction” and noted his disagreement with the

suggestion that WW’s movement towards a franchising model was an “attempt to

comply” with franchise laws. (Ingle Dep. 135:6–136:21.) While Ms. Vannoy and WW

may well have erroneously concluded that WW’s chosen labels—“licensor” or

“franchisor”—controlled its legal obligations, based on the current record, the Court

does not conclude that WW and Ms. Vannoy acted as they did because they

understood that WW was then violating federal and state franchise laws.40

78. Additionally, it is undisputed that Ms. Vannoy is not an expert in franchise

law and, as a 2006 law school graduate, had very limited practice experience when

these events unfolded. It is also undisputed that, as of May 2010, Ms. Vannoy did

not have training or education in franchising law, with the exception of a CLE course

on franchise law that she attended in January 2010. (B. Vannoy Dep. 32:7–33:9.)

Ms. Vannoy credibly claims that she did “not feel that [she] was that educated on

franchise laws” and was unable to render an opinion as to whether WW was in fact a

franchisor. (B. Vannoy Dep. 203:2–7.) She also offers the affidavit of Ann Hurwitz,

a franchising expert, to support her position that her conduct was reasonable, given

the complexity of franchise law. (See Hurwitz Aff. ¶ 30 (“These are not easy

determinations to make, and many businesses (and their counsel) struggle with these

issues.”).)

79. Moreover, Ms. Vannoy began working as WW’s sole in-house counsel in June

2010, (B. Vannoy Dep. 25:22–26:5), was on maternity leave from early July 2010

40 The Court notes, however, that a jury at trial, or the Court upon presentation of further
evidence in later proceedings, may certainly conclude otherwise.
through October 2010, (B. Vannoy Dep. 202:8–15), and testified that upon her return,

“there were other things that Blair [Ingle] wanted [her] to do right away,” (B. Vannoy

Dep. 202:2–7). Taken together, Ms. Vannoy’s limited training, experience, and time

on the job in the period between May 2010 and June 2011 make credible her

contention that she did not know what WW’s legal obligations were and, further, that

she was researching franchise disclosure obligations and preparing for the day when

WW might determine, or be advised, that its business relationships with Plaintiffs

and other store owners was that of franchisor-franchisee.41

80. In reaching these conclusions, it bears restating both that the purpose of the

attorney-client privilege “is to encourage full and frank communication between

attorneys and their clients and thereby promote broader public interests in the

observance of law and administration of justice,” Upjohn Co., 449 U.S. at 389, and

that our Supreme Court has cautioned of the “dangers associated with invoking

exceptions” to the privilege, Miller, 357 N.C. at 331, 584 S.E.2d at 784; see also

Duplan Corp., 540 F.2d at 1220 (“While [a prima facie] showing may justify a finding

in favor of the offering party, it does not necessarily compel such a finding.”). In the

circumstances and record presented here, the Court concludes that Plaintiffs have

failed to carry their burden to show by a preponderance of the evidence that the crime-

41 The Court hastens to add that Ms. Vannoy’s credibility will certainly be an issue at any
trial of this matter, particularly given the clear conflict between statements she made in e-
mails she sent during the relevant time period and her deposition testimony in these actions.
The Court’s recognition of these discrepancies in testimony, however, which largely concern
the actions she took in preparing FDDs and when, do not dissuade the Court from its
conclusion on the Waiver Motion that Ms. Vannoy has not been shown, on this record, to have
been preparing the FDDs because she knew WW was then in violation of federal and state
franchise laws.
fraud exception applies in the present actions. Accordingly, Plaintiffs’ Waiver Motion

shall be denied to the extent Plaintiffs seek an order finding WW waived the attorney-

client privilege by operation of the crime-fraud exception.

C. Plaintiffs’ Motion to Compel and the Parties’ Exceptions42

81. “The primary purpose of the discovery rules is to facilitate the disclosure

prior to trial of any unprivileged information that is relevant and material to the

lawsuit so as to permit the narrowing and sharpening of the basic issues and facts

that will require trial.” Friday Invs., LLC v. Bally Total Fitness of the Mid-Atl., Inc.,

805 S.E.2d 664, 667 (N.C. 2017) (quoting Bumgarner v. Reneau, 332 N.C. 624, 628,

422 S.E.2d 686, 688–89 (1992)). To that end, Rule 26 allows parties to “obtain

discovery regarding any matter, not privileged, which is relevant to the subject

matter involved in the pending action.” N.C. R. Civ. P. 26(b)(1). As an enforcement

mechanism, Rule 37 allows for the filing of a motion to compel where a party has not

responded to a discovery request or the party’s responses are “evasive or incomplete.”

N.C. R. Civ. P. 37(a)(2)–(3).

82. “The party resisting discovery bears the burden of showing why the motion

to compel should not be granted.” Nat’l Fin. Partners Corp. v. Ray, 2014 NCBC

42This section includes a discussion of the Court’s review of the Sample Log Documents (i.e.,
documents which WW withheld from Plaintiffs in whole or in part on the basis of privilege or
work-product immunity). Given the procedural posture of these actions, and in light of WW’s
indication that it may appeal the Court’s rulings on the Privilege Motions, (see WW’s Resp.
Pls.’ Waiver Mot. 13 (“[N]o documents should be released or disclosed to Plaintiffs without
sufficient advance notice to WW to allow WW an opportunity to file an appeal[.]”), the Court
has written the Order and Opinion to avoid disclosure of the substantive content of any
Sample Log Document, unless WW has previously disclosed or produced the content of the
document to Plaintiffs. All documents discussed, however, are identified by Sample Log
Document number and are available for review on appeal.
LEXIS 50, at *26 (N.C. Super. Ct. Oct. 13, 2014) (quoting Smithfield Bus. Park, LLC

v. SLR Int’l Corp., No. 5:12-CV-282-F, 2014 U.S. Dist. LEXIS 110535, at *7 (E.D.N.C.

Aug. 11, 2014)). “Whether or not the party’s motion to compel discovery should be

granted or denied is within the trial court’s sound discretion and will not be reversed

absent an abuse of discretion.” Phelps-Dickson Builders, LLC v. Amerimann

Partners, 172 N.C. App. 427, 433, 617 S.E.2d 664, 668 (2005) (quoting Wagoner v.

Elkin City Sch. Bd. of Educ., 113 N.C. App. 579, 585, 440 S.E.2d 119, 123 (1994)).

83. Through the Motion to Compel, Plaintiffs requested that the Court

(i) conduct an in camera review of the Challenged Claw-back Documents and all

documents identified on WW’s 2018 Logs to assess the propriety of WW’s privilege

assertions; (ii) determine whether counsel improperly instructed Ms. Vannoy not to

answer deposition questions on the basis of privilege; (iii) compel WW to produce any

non-privileged Challenged Claw-back Documents and any non-privileged documents

identified on the 2018 Logs; and (iv) impose appropriate sanctions including, among

other things, requiring Ms. Vannoy and other WW witnesses to sit for a further

deposition concerning the documents WW improperly withheld or clawed back.

Through the In Camera Review Order, the Court granted the Motion to Compel to

the extent Plaintiffs sought an in camera review of the Challenged Claw-back

Documents and Sample Log Documents (i.e., 10% of the documents identified on the

2018 Logs) and, with the parties’ consent, the Court appointed the Master to conduct

the review. The Court deferred further ruling on the issues raised in the Motion to

Compel.
1. Exceptions

84. Plaintiffs and WW separately assert exceptions to the Master’s Report

pursuant to Rule 53(g). Rule 53(g) provides, in relevant part, that “[a]ll or any part

of the report may be excepted to by any party” and that the Court “may adopt, modify

or reject the report in whole or in part, render judgment, or may remand the

proceedings to the referee with instructions.” N.C. R. Civ. P. 53(g)(2). The Court of

Appeals has described the trial court’s task under Rule 53(g) as follows:

[When] exceptions are taken to a referee’s findings of fact and law, it is the
duty of the [trial] judge to consider the evidence and give his own opinion and
conclusion, both upon the facts and the law. He is not permitted to do this in
a perfunctory way, but he must deliberate and decide as in other cases—use
his own faculties in ascertaining the truth and form his own judgment as to
fact and law. This is required not only as a check upon the referee and a
safeguard against any possible errors on his part, but because he cannot
review the referee’s findings in any other way.

Bullock v. Tucker, 822 S.E.2d 654, 659 (N.C. Ct. App. 2018) (quoting Quate v. Caudle,

95 N.C. App. 80, 83, 381 S.E.2d 842, 844 (1989)).

85. WW takes exception to nearly every adverse finding and conclusion in the

Master’s Report. (See WW’s Exceptions 6 n.8 (“Other than . . . eight documents . . . ,

[WW] except[s] to all of the Master’s determinations that a Review Document (or

portion thereof) is not privileged.”).)

86. As to the Sample Log Documents, WW takes exception to the Master’s ruling

that fifty-eight Sample Log Documents are not protected by the attorney-client

privilege and/or work-product doctrine.43 WW also asserts a general exception to the

43 Of the fifty-eight Sample Log Documents at issue in WW’s Exceptions, forty-two are the
Identified Sample Log Documents addressed by WW’s Sample Log Submission.
Master’s conclusions that descriptions of many of the Sample Log Documents in the

2018 Logs were inaccurate and/or inadequate. For the reasons discussed below, the

Court concludes that no less than 42 of the 150 Sample Log Documents (i.e., 28%)

were improperly withheld or improperly redacted so as to deprive Plaintiffs of non-

privileged information. The Court further concludes that a substantial majority of

the Sample Log Document descriptions in the 2018 Logs are inadequate and, in

numerous instances, inaccurate and misleading. The Court’s specific findings and

conclusions as to the Sample Log Documents are set forth in Appendix A to this Order

and Opinion.

87. Both WW and Plaintiffs take exception to the Master’s rulings as to certain

Challenged Claw-back Documents: WW as to the Master’s ruling that sixty-six

Challenged Claw-back Documents are not privileged, and Plaintiffs as to the Master’s

finding that seventy-three of the Challenged Claw-back Documents may properly be

considered privileged. As discussed above, however, the Court has concluded that

WW has waived any claim of privilege as to the Challenged Claw-back Documents.

Therefore, the Court concludes that the parties’ Exceptions are moot to the extent

they relate to the Master’s findings and conclusions concerning the Challenged Claw-

back Documents.44 See In re Hamilton, 220 N.C. App. 350, 353, 725 S.E.2d 393, 396

(2012) (noting an issue is moot whenever “the relief sought has been granted or that

44 While the Court need not rule on the parties’ Exceptions to the Challenged Claw-back
Documents, the Court has considered the parties’ arguments in support of those Exceptions
in evaluating the propriety of sanctions. As set forth more fully in Appendix B to this Order
and Opinion, the Court has concluded that 122 of the 280 Challenged Claw-back Documents
are neither privileged in whole or in part.
the questions originally in controversy between the parties are no longer at issue”

(quoting In re Peoples, 296 N.C. 109, 147, 250 S.E.2d 890, 912 (1978))).

88. The Court turns now to the merits of WW’s privilege claims as to the Sample

Log Documents. In the main, each Sample Log Document falls within one of three

categories: (i) documents or communications involving business advice or intertwined

legal and business advice; (ii) transmittal e-mails forwarding documents or

communications either without comment or containing only “FYI” or words to similar

effect; and (iii) draft documents. The Court addresses each category in turn.

2. Privilege in the Corporate Context

89. “Although it is generally accepted that corporations may assert the attorney-

client privilege, applying the privilege in the corporate context ‘presents special

problems.’ ” Technetics Grp. Daytona, Inc., 2018 NCBC LEXIS 116, at *7 (quoting

Commodity Futures Trading Comm’n v. Weintraub, 471 U.S. 343, 348 (1985)). One

such problem arises when an attorney serves a corporation in more than one capacity.

Here, many of the Sample Log Documents include communications involving WW’s

in-house counsel, Ms. Vannoy. Likewise, several Sample Log Documents include

communications involving Mr. Vannoy, WW’s outside counsel and Board member.

90. North Carolina law is clear that a “company and its counsel may not avail

themselves of the protection afforded by the attorney-client privilege if the attorney

was not acting as a legal advisor when the communication was made.” Evans, 142

N.C. App. at 32, 541 S.E.2d at 791. As to in-house counsel specifically, this Court has

noted as follows:
North Carolina courts apply the protection of the attorney-client privilege to
in-house counsel in the same way that it is applied to other attorneys. A
company and its in-house counsel may, however, only benefit from the
protection of the attorney-client privilege if the attorney is functioning as a
legal advisor when the communication occurs. A communication will not be
deemed privileged merely because an in-house attorney was copied on the
communication or forwarded a copy of a document. When the in-house
counsel’s legal advice is merely incidental to business advice, the privilege
does not apply.

Morris, 2011 NCBC LEXIS 34, at *15 (first citing Isom v. Bank of Am., N.A., 177 N.C.

App. 406, 411, 628 S.E.2d 458, 462 (2006); and then citing United States v. Cohn, 303

F. Supp. 2d 672, 683 (D. Md. 2003)).

91. “Business advice, such as financial advice or discussion concerning business

negotiations, is not privileged.” N.C. Elec. Membership Corp. v. Carolina Power &

Light Co., 110 F.R.D. 511, 517 (M.D.N.C. 1986); cf. Isom, 177 N.C. App. at 413, 628

S.E.2d at 463 (“[A]ny otherwise business emails, copied to an attorney, are not

protected by the work product doctrine solely due to the fact they were sent during a

time when the business is anticipating litigation.”). When communications contain

intertwined business and legal advice, courts consider whether the “primary purpose”

of the communication was to seek or provide legal advice. See, e.g., N.C. Elec.

Membership Corp., 110 F.R.D. at 514. Thus, “[c]orporate documents prepared for

simultaneous review by legal and nonlegal personnel are often held to be not

privileged because they are not shown to be communications made for the primary

purpose of seeking legal advice.” Id.

92. Another challenge in applying privilege in the corporate context arises in

assessing (i) whether an attorney’s communications with a particular employee or
agent of the corporation are privileged, and (ii) whether communications between

non-attorney personnel reflect information that is privileged. See Technetics Grp.

Daytona, Inc., 2018 NCBC LEXIS 116, at *7 (“Given the variety of corporate roles

and responsibilities, it is often a challenging task to decide who speaks for a

corporation and whether that person’s communications with corporate counsel are

subject to the privilege.”). Such questions are relevant here, as many of the Review

Documents—and specifically most of the Sample Log Documents—were authored by

or addressed to WW’s officers and directors, as well as other WW employees and

contractors, including Blackburn (outside accountant), Mathis (former in-house

accountant), Amy Gregory (“Gregory”) (former market development coordinator and

current paralegal), and Todd Woods (“Woods”) (former director of marketing and

market development).

93. While “North Carolina appellate courts have not yet decided what test

should apply as to the corporate attorney-client privilege[,]” the “mere fact that an

employee is the company’s ‘agent’ in some respects does not necessarily require that

a communication involving that employee be found privileged.” Brown v. Am.

Partners Fed. Credit Union, 183 N.C. App. 529, 536, 645 S.E.2d 117, 122–23 (2007);

see Technetics Grp. Daytona, Inc., 2018 NCBC LEXIS 116, at *7 (describing North

Carolina law as “particularly unsettled” and noting that few cases address “whether

and to what extent the privilege covers communications between counsel and lower-

level employees” or independent contractors).
94. Courts have recognized that “a communication by a non-attorney may in

some instances reflect legal advice of an attorney.” Veolia Water Sols. & Techs.

Support v. Siemens Indus., Inc., 63 F. Supp. 3d 558, 567 (E.D.N.C. 2014). For

example, documents “subject to the privilege may be transmitted between non-

attorneys (especially individuals involved in corporate decision-making) so that the

corporation may be properly informed of legal advice and act appropriately.” Id.

(quoting Santrade, Ltd. v. Gen. Elec. Co., 150 F.R.D. 539, 545 (E.D.N.C. 1993)). “In

addition, documents subject to the privilege may be transmitted between non-

attorneys to relay information requested by attorneys.” Id. (quotation marks

omitted); see Gucci Am., Inc. v. Guess?, Inc., 271 F.R.D. 58, 72 (S.D.N.Y. 2010)

(“[C]ommunications among non-attorneys in a corporation may be privileged if made

at the direction of counsel, to gather information to aid counsel in providing legal

services.” (quoting In re Rivastigmine Patent Litig. (MDL No. 1661), 237 F.R.D. 69,

80 (S.D.N.Y. 2006))).

95. Applying these principles to the Review Documents—and specifically the

Sample Log Documents at issue in the parties’ Exceptions—the Court concludes that

a number of the Sample Log Documents include non-privileged business

communications or records and were thus improperly withheld by WW, as set forth

more fully in Appendix A to this Order and Opinion.

3. Transmittal E-mails

96. A number of the Sample Log Documents are transmittal e-mails forwarding

documents or communications either without comment or containing only “FYI” or
words to similar effect. No less than twenty-three of the Sample Log Documents

include non-substantive transmittal e-mails to or from Ms. Vannoy.45

97. This Court has noted that “[a] communication will not be deemed privileged

merely because an in-house attorney was . . . forwarded a copy of a document.”

Morris, 2011 NCBC LEXIS 34, at *15 (citing Isom, 177 N.C. App. at 411, 628 S.E.2d

at 462). Moreover, numerous courts have concluded that non-substantive transmittal

communications to or from counsel are generally not protected. See, e.g., In re

Premera Blue Cross Customer Data Sec. Breach Litig., 296 F. Supp. 3d 1230, 1250 (D.

Or. 2017); FTC v. Innovative Designs, Inc., No. 16-1669, 2017 U.S. Dist. LEXIS

162222, at *16 (W.D. Pa. Sept. 28, 2017); Sec. Inv’r Prot. Corp. v. Bernard L. Madoff

Inv. Sec. LLC, 319 F.R.D. 100, 104 (S.D.N.Y. 2017) (“[M]any of the documents are

merely transmittal letters or emails that enclose or attach other documents. These

‘cover’ communications neither furnish nor request legal advice and do not reveal any

privileged communications. These documents consequently cannot be withheld from

discovery merely because they were sent to or from counsel.”); Arfa v. Zionist Org. of

Am., No. CV 13-2942 ABC (SS), 2014 U.S. Dist. LEXIS 26970, at *19 (C.D. Cal. Mar.

3, 2014); In re Bisphenol-A (BPA), Polycarbonate Plastic Prods. Liab. Litig., No. 08-

1967-MD-W-ODS, 2011 U.S. Dist. LEXIS 34202, at *40 (W.D. Mo. Mar. 25, 2011) (“An

attorney’s statement that an unprivileged document is being provided ‘FYI’ is not

45 The following Sample Log Documents include non-substantive transmittal e-mails: 30, 32,
59, 61, 62, 63, 80, 83, 84, 87, 91, 104, 109, 110, 111, 113, 122, 127, 130, 133, 135, 136, and
142. As an example, Sample Log Document No. 135 consists of three e-mails. The first two
in time are non-privileged third-party communications. The third, most recent, e-mail is one
in which Deem forwarded the prior two e-mails to Ms. Vannoy, adding only “FYI.” WW
improperly redacted Deem’s “FYI” e-mail to Ms. Vannoy.
legal advice.”); Sokol v. Wyeth, Inc., No. 07-CV-8442 (SHS) (KNF), 2008 U.S. Dist.

LEXIS 60976, at *27–28 (S.D.N.Y. Aug. 4, 2008) (noting that claiming privilege as to

an e-mail containing only “FYI” is “frivolous, because no basis exists for asserting the

attorney-client privilege for this type of communication”); Fru-Con Constr. Corp. v.

Sacramento Mun. Util. Dist., No. S-05-0583 LKK GGH, 2006 U.S. Dist. LEXIS 59066,

at *6 (E.D. Cal. Aug. 7, 2006) (“[T]he dissemination of information to the lawyer must

indicate that the lawyer is being addressed so that advice can be formulated or action

taken, not simply for FYI reasons - or worse yet, simply because the lawyer must be

added in order to make a non-privileged document assertedly privileged.”); Burroughs

Wellcome Co. v. Barr Labs., Inc., 143 F.R.D. 611, 615 (E.D.N.C. 1992) (concluding

“[t]ransmittal letters . . . devoid of legal advice or requests for such advice and

disclosing no privileged matters” are not protected); Hercules, Inc. v. Exxon Corp., 434

F. Supp. 136, 145 (D. Del. 1977).

98. WW argues, however, that forwarding e-mails devoid of original substance

are nonetheless privileged because to “allow[] otherwise enables an adversary to

discern what the lawyer and client communicated about.” (WW’s Sample Log

Submission 4.) WW primarily relies upon the Court of Appeals’ decision in Brown v.

Am. Partners Fed. Credit Union, 183 N.C. App. 529, 645 S.E.2d 117 (2007), to support

its position. In Brown, the Court of Appeals assessed a claim of privilege as to a

“letter with attachments” from a company’s CEO to the company’s outside attorney

conveying information “material to the [bankruptcy] matter [for] which [the attorney]

had been retained.” Id. at 537–38, 645 S.E.2d at 123–24. After noting that “the
attorney-client privilege exists to protect not only the giving of professional advice to

those who can act on it but also the giving of information to the lawyer to enable

counsel to give sound and informed advice[,]” the court concluded that “it would be

manifestly unreasonable to require the [company] to disclose . . . what information it

felt that its lawyer should have in advising it.” Id. at 538, 645 S.E.2d at 124

(quotation marks omitted).

99. Brown does not, as WW suggests, stand for the general proposition that all

information forwarded by or to a lawyer is automatically protected by the attorney-

client privilege. See Sessions, 248 N.C. App. at 386, 789 S.E.2d at 857 (holding party

failed to show that subject lines of e-mails exchanged with attorneys were privileged);

Isom, 177 N.C. App. at 412, 628 S.E.2d at 462 (noting that e-mail from attorney to

client “requesting a meeting” would not generally be protected); Evans, 142 N.C. App.

at 32, 541 S.E.2d at 791. The letter at issue in Brown contained multiple paragraphs

written by the client and relayed substantive information material to the matter upon

which the outside attorney was retained. Here, by contrast, the transmittal e-mails

to and from WW’s in-house counsel, Ms. Vannoy, are either devoid of original

substance or state only “FYI” or words to similar effect and contain neither a request

for legal advice nor legal advice itself. As such, the Court finds Brown to have little

application to the issue presented here.46

46WW also cites authority from other jurisdictions to support its position that its forwarding
e-mails here should be deemed privileged. See, e.g., Rhoads Indus., Inc. v. Bldg. Materials
Corp. of Am., 254 F.R.D. 238, 241 (E.D. Pa. 2008) (“A situation may arise where a number of
email messages, by themselves not privileged, but eventually sent to an attorney for the
purpose of securing legal advice, become privileged. . . . On the other hand, if the email
messages are part of routine business affairs, and not for the purpose of securing legal advice,
100. Accordingly, the Court concludes that the approach taken by the majority of

courts is sound and that, if faced with this issue, North Carolina’s appellate courts

would likely conclude that transmittal or forwarding e-mails that are devoid of legal

advice or express or implied requests for such advice—and that do not otherwise

reveal privileged information—are not protected by the attorney-client privilege. See

Miller, 357 N.C. at 328–29, 584 S.E.2d at 782; Sessions, 248 N.C. App. at 386, 789

S.E.2d at 857; Isom, 177 N.C. App. at 412, 628 S.E.2d at 462; Evans, 142 N.C. App.

at 32, 541 S.E.2d at 791 (“The mere fact that the evidence relates to communications

between attorney and client alone does not require its exclusion.”).

101. As set forth more fully in Appendix A, the Court concludes that WW

improperly withheld, at least in part, twenty-three Sample Log Documents (Nos. 30,

32, 59, 61, 62, 63, 80, 83, 84, 87, 91, 104, 109, 110, 111, 113, 122, 127, 130, 133, 135,

136, and 142) containing transmittal e-mails sent to or from Ms. Vannoy either

without comment or containing only “FYI” or words to similar effect.

4. Draft Documents

102. Several of the Sample Log Documents are lawyer-created draft documents

and draft documents provided to WW’s counsel that appear to have been intended for

then the underlying emails would be discoverable.”); Muro v. Target Corp., 250 F.R.D. 350,
363 (N.D. Ill. 2007) (“[E]ven though one e-mail is not privileged, a second e-mail which
forwards that prior e-mail to counsel might be privileged in its entirety. In this respect, the
forwarded material i

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/11058400. Public record. Not legal advice.