Appendix — Union Pacific Railroad v. Energy Transportation Systems, Inc.

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IN THE

Supreme Court of the United States

OCTOBER TERM, 1987

UNION PACIFIC RAILROAD COMPANY,

UNION PACIFIC CORPORATION,

MISSOURI PACIFIC RAILROAD COMPANY,

KANSAS CITY SOUTHERN INDUSTRIES, INC.,

KANSAS CITY SOUTHERN RAILWAY COMPANY,

BURLINGTON NORTHERN, INC.,

BURLINGTON NORTHERN RAILROAD COMPANY, AND

CHICAGO AND NORTH WESTERN

TRANSPORTATION COMPANY,

. Petitioners,

ENERGY TRANSPORTATION SYSTEMS, INC., AND

ETSI PIPELINE PROJECT, A JOINT VENTURE, et al.,

Respondents.

APPENDIX TO

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

B.J. BRADSHAW

RICHARD N. CARRELL

LAYNE E. KRUSE

HENRY P. SAILER

GREGG H. Levy *

MITCHELL F. DOLIN

FULBRIGHT & JAWORSKI

1301 McKinney Street

Houston, TX 77010

(713) 651-5151

COVINGTON & BURLING

1201 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

(202) 662-6000

JOHN G. BISSELL

STRONG, PIPKIN, NELSON &

BISSELL

595 Orleans Street

Beaumont, TX 77701

(409) 835-4581

Attorneys for Petitioners Union Pacific Railroad Company,

Union Pacific Corporation and

Missouri Pacific Railroad Company

7 [Counsel for other petitioners are identified on the inside cover]

October 1987

* Counsel of Record

WILSON - EPEes PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

9g?

O. J. WEBER, JR.

MEHAFFY, WEBER, KEITH &

GONSOULIN

P.O. Box 16

Beaumont, TX 77704

(409) 835-5011

JOHN H. SHENEFIELD *

PETER E. HALLE

MORGAN, LEWIS & BOCKIUS

1800 M Street, N.W.

Washington, D.C. 20036

(202) 872-5000

Attorneys for Petitioners

Kansas City Southern Industries, Inc. and

Kansas City Southern Railway Company

LOUIS B. PAINE, JR.

BUTLER & BINION

1600 Allied Bank Plaza

Houston, TX 77002

(713) 237-3111

JOHN R. LABOVITZ

MARK F. HORNING *

STEPTOE & JOHNSON

1330 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 429-3000

Attorneys for Petitioners

Burlington Northern, Inc. and

Burlington Northern Railroad Company

WALTER J. CRAWFORD, JR.

WELLS, PEYTON, BEARD,

GREENBERG, HUNT &

CRAWFORD

624 Petroleum Building

550 Fannin Street

Beaumont, TX 77704

(409) 838-2644

GARY SENNER *

STEVEN H. FRANKEL

SONNENSCHEIN CARLIN NATH &

ROSENTHAL

233 S. Wacker Drive

8000 Sears Tower

Chicago, IL 60606

(312) 876-8059

Attorneys for Petitioner

Chicago and North Western Transportation Company

* Counsel of Record

TABLE OF CONTENTS

% Page

Appendix A—Opinion of the Court of Appeals (822

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Appendix B—Memorandum Opinion and Order of the

District Court (February 13, 1987)_. 34a

Appendix C—Recommended Memorandum Opinion and

Order of Special Master (December 31,

SID idein Riscck nbd Dia atic cabins apie dae 59a

Appendix D—Order of the Court of Appeals Denying

Petition for Rehearing (August 12,

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Appendix E—Order of the District Court Setting

Aside Previous Order of February 13,

ROE SEE Gy EEE) cowinnecnnemcsancn 86a

Appendix F—Findings of Fact, Conclusions of Law,

and Order of District Court (October 2,

EE ah kh Nata umknennesee seeks 87a

Appendix G—Order of_ the District Court Staying

Previous Order of October 2, 1987 (Oc-

NS NS ore Gaetan nace ae 104a

Appendix H—Order of the District Court Denying

Defendants’ Motion for Partial Sum-

mary Judgment (February 13, 1987)__ 106a

Appendix I —Handler & DeSevo, The Noerr Doctrine

and its Sham Exception, 6 Cardozo L.

Wl, 2 SEE Savelencmaduknaeens eee 107a

Appendix J —Constitutional Provisions and Statute

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APPENDIX A

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 87-2177

IN RE: BURLINGTON NORTHERN, INC., BURLINGTON

NORTHERN RAILROAD Co., UNION PACIFIC CORP.,

UNION PACIFIC RAILROAD Co., MISSOURI PACIFIC RAIL-

ROAD CO., KANSAS CITY SOUTHERN INDUSTRIES, INC.,

KANSAS CITY SOUTHERN RAILWAY Co. & CHICAGO &

NORTH WESTERN TRANSPORTATION Co.,

Petitioners.

Petition For A Writ of Mandamus to The

United States District Court for the

Eastern District of Texas

(July 14, 1987)

Before BROWN, REAVLEY and JOLLY, Circuit

Judges.

REAVLEY, Circuit Judge:

The plaintiffs in this antitrust suit claim that the de-

fendant railroads conspired to prevent construction of

a coal slurry pipeline. Contending, among other things,

that the railroads accomplished their anticompetitive goal

through filing and defending certain lawsuits, the plain-

7 ————

2a

tiffs seek discovery of documents relating to those law-

suits. The railroads resist discovery on the grounds of

attorney/client privilege and work product immunity.

The district court rejected this claim of privilege, holding

that because the documents were prepared in furtherance

of an illegal conspiracy they fall within the crime/fraud

exception to the privilege. The railroads claim the pro-

tection of Noerr-Pennington for their litigation activities

and seek a writ of mandamus. We conclude that the dis-

trict court erred in allowing discovery without consider-

ing whether the litigation activities themselves were sig-

nificantly motivated by a genuine desire for judicial re-

lief. We reject, however, the railroads’ contention that

the district court is precluded from finding sham by the

railroads’ partial success in one of the lawsuits and their

defensive posture in the other lawsuits.

I

Background

The underlying antitrust claim here arises from

Energy Transportation Systems, Inc., and ETSI Pipeline

Project’s (collectively ETSI) unsuccessful attempt to

build a coal slurry pipeline from Wyoming to Arkansas.’

ETSI claims the defendant railroads, afraid of losing

business to the pipeline, unlawfully conspired to prevent,

or at least delay and make more expensive, the pipeline’s

construction by denying permission for it to cross their

rights-of-way and by engaging in sham administrative

and judicial challenges to ETSI attempts to secure cross-

ing rights, water rights, and administrative permits.

After more than ten years of trying to obtain all of the

necessary rights, permits, and financing, ETSI aban-

doned the project in 1984. It now alleges that the proj-

1 According to the parties, coal slurry is a mixture of ground

coal and water. The slurry is pumped through the pipeline and

then dried to be used as fuel. The proposed pipeline was later

expanded to include delivery to utilities in Texas.

3a

ect’s failure was caused by the railroads’ illegal con-

spiracy and seeks a judgment against the railroads of

$4.2 billion in damages after trebling. This mandamus

petition arises from ETSI’s desire to obtain documents

prepared in connection with the railroads’ allegedly sham

litigation activities. Specifically at issue here are docu-

_ ments from two groups of lawsuits.

A. The Andrews Litigation

The first group consists of consolidated lawsuits that

the parties refer to as the Andrews litigation. The An-

drews lawsuits were brought to invalidate a water con-

tract between ETSI and the United States Department

of the Interior that would allow ETSI to purchase water

from the federal Oahe Reservoir in South Dakota for use

in its pipeline. The plaintiffs in the lawsuits included

three states—Missouri, Iowa, and Nebraska—several en-

vironmental and farmers’ groups, and one of the defend-

ant railroads—Kansas City Southern. Another rail-

road—Union Pacifie—provided legal assistance through

its attorneys to the state of Nebraska. The Andrews

plaintiffs asserted numerous grounds for invalidating

the contract; they have thus far been successful in their

position that the Secretary of the Interior did not have

statutory authority to execute the contract without the

participation of the Army Corps of Engineers. See Mis-

souri v. Andrews, 586 F.Supp. 1268 (D. Neb. 1984),

aff'd, 787 F.2d 270 (8th Cir. 1986), cert. granted, 107

S.Ct. 1846 (1987).

B. The Window Litigation

The second group of lawsuits from which ETSI seeks

documents consists of a series of suits ETSI brought to

establish rights to cross the raiiroads’ rights of way.

In the very early stages of the pipeline project, ETSI at-

tempted to negotiate the purchase of these crossing

rights. When these efforts proved unavailing, allegedly

4a

because of an unlawful agreement between the railroads

to jointly withhold crossing rights, ETSI began locating

places along the railroads’ property where the railroads

owned only an easement rather than a fee title. It then

purchased easements from the underlying landowner and

brought suit to establish that these easements were suf-

ficient to allow it to cross under the railroads’ tracks

without the railroads’ consent. The parties refer to these

easements as windows and to ETSI’s lawsuits as the

window litigation. Apparently, ETSI was essentially suc-

cessful in every one of these window suits, all of which

involved virtually identical issues.

The railroads have refused to turn over many of the

documents ETSI seeks on the ground of attorney/client

privilege or attorney work product immunity. ETSI filed

a motion to compel production of these withheld docu-

ments on the ground they were prepared in connection

with a violation of the antitrust laws. The railroads

argued in response that to obtain discovery ETSI had to

show that their litigation activities were sham activities

and thus not protected by the Noerr-Pennington doc-

trine.* A special master agreed with the railroads and

concluded that ETSI had not made the requisite showing.

The district court, however, disagreed and granted

ETSI’s motion. The railroads filed this petition for a

writ of mandamus.

I]

Justification For Mandamus Relief

Before reaching the merits, we must address ETSI’s

contention that a writ of mandamus is not an appro-

priate mechanism to review this discovery ruling. ETSI

* This doctrine, described in detail below, derives from the deci-

sions in Eastern Railroad Presidents Conference v. Noerr Motor

Freight, Inc., 365 U.S. 127, 81 S.Ct. 5283, 5 L.Ed.2d 464 (1961),

and United Mine Workers v. Pennington, 381 U.S. 657, 85 S.Ct.

1585, 14 L.Ed.2d 626 (1965).

5a

correctly points out that “mandamus has historically

been a drastic remedy generally reserved for really

‘extraordinary’ cases.” In re Equal Employment Oppor-

tunity Commission, 709 F.2d 392, 394 (5th Cir. 1983)

(citing Kerr v. United States District Court, 426 U.S.

394, 402, 96 S.Ct. 2119, 2123, 48 L.Ed.2d 725 (1976).

It argues that because the district court’s ruling was

neither a “usurpation of judicial power” nor a “clear

abuse of discretion,” see Bankers Life & Casualty Co.

v. Holland, 346 U.S. 379, 383, 74 S.Ct. 145, 148, 98

L.Ed. 106 (1953), we should dismiss the petition with-

out reaching the merits.

In recent years, several courts have concluded that

mandamus is an appropriate method of review of orders

compelling discovery against a claim of privilege. See

United States Department of Energy v. Brimmer, 776

F.2d 1554, 1559 (Temp. Emer. Ct. App. 1985), cert.

denied, 106 S.Ct. 1261 (1986); Sporck v. Peil, 759 F.2d

312, 314-15 (3d Cir.), cert. denied, 106 S.Ct. 232

(1985); Bogosian v. Gulf Oil Corp., 738 F.2d 587, 591-

92 (3d Cir. 1984); Diversified Industries, Inc. v. Mere-

dith, 572 F.2d 596, 599 (8th Cir. 1977); Heathman v.

United States District Court, 503 F.2d 1032, 1033 (9th

Cir. 1974); Pfizer Inc. v. Lord, 456 F.2d 545, 547-48

(8th Cir. 1972); Harper & Row Publishers v. Decker,

423 F.2d 487, 492 (7th Cir. 1970), aff'd by an equally

divided court, 400 U.S. 348, 91 S.Ct. 479, 27 L.Ed.2d 433

(1971); see also 16 C. Wright, A. Miller, E. Cooper &

E. Gressman, Federal Practice and Procedure § 3935, at

247-48 (1977). These cases have recognized the impor-

tance of the asserted privilege and the absence of an

adequate alternative method of obtaining review. They

also have relied on the seriousness and novelty ef the

privilege issue in the particular case. Respected com-

mentators have similarly noted that the difficulty of ob-

taining effective review of discovery orders, the serious

injury that sometimes results from such orders, and the

6a

often recurring nature of discovery issues support use

of mandamus in exceptional cases. 15 C. Wright, A.

Miller & E. Cooper, Federal Practice and Procedure

§ 3914, at 576-77 (1976); 9 J. Moore, B. Ward & J,

Lucas, Moore’s Federal Practice § 110.28, at 313 (2d ed.

1987).

We believe this case presents the exceptional circum-

stances making mandamus review appropriate. The dis-

trict court’s order directs production of several thousand

documents for which attorney/client privilege and work

product immunity have been asserted. These documents

go to the heart of the controversy between the parties,

and disposition of this petition, not only implicates the

important policies protecting privileged documents but

will likely have a determinative impact on the course of

the case. Erroneous disclosure of these documents could

be irreparable. It is also significant that, unlike the

typical discovery order, the district court’s order was not

a mere discretionary one but rather turns on legal ques-

tions appropriate for appellate review. The issues here

also have importance beyond the immediate lawsuit. The

interrelationship of the attorney /client privilege’s crime/

fraud exception and the Noerr-Pennington doctrine with

its sham limitation is a question which we do not find

addressed in the decisions but which is likely to recur

in future cases. Given the nature of the analysis re-

quired in an antitrust case in which a Noerr-Pennington

defense is asserted and a question of sham is raised,

communication between the attorney directing the peti-

tioning activity and his client will be highly relevant.

Under the district court’s ruling, such communications

could be discovered upon a showing that the petitioning

was part of a larger conspiracy even though the petition

itself might be protected from antitrust scrutiny. Such

an important and potentially far-reaching decision, which

we hold below to be erroneous, is an appropriate one for

our immediate review.

7a

Ill

Litigation That Serves A Larger Conspiracy

Turning to the merits, we first address the primary

ground on which the district court concluded that dis-

covery of the documents was proper. Although recog-

nizing that Noerr-Pennington might ultimately immunize

the railroads’ petitioning activities from antitrust liabil-

ity, the district court determined that documents relating

to such activity are nonetheless not immune from dis-

covery when they relate to a larger conspiracy that is

actionable. The court found that ETSI’s evidence estab-

lished a prima facie case that such a larger conspiracy

in fact existed—a conspiracy to defeat the pipeline by

a strategy of delaying and interfering with its construc-

tion—and that the railroads had consulted and used their

attorneys to further this conspiracy. In particular, the

court found that the railroads’ administrative and judi-

cial challenges to ETSI permits and contracts and their

defense of the window lawsuits were in furtherance of

this conspiracy. Based on these findings alone, the court

concluded that it could order discovery of the documents

relating to the litigation. The court was thus able to

order discovery without ever reaching the question

whether the Andrews litigation and the defense of the

window lawsuits were sham. In making this ruling, the

district court relied on cases from other circuits holding

that Noerr-Pennington is not a bar to discovery. See,

e.g., Associated Container Transportation (Australia)

Ltd. v. United States, 705 F.2d 53 (2d Cir. 1983) ; North

Carolina Electric Membership Corp. v. Carolina Power

& Light Co., 666 F.2d 50 (4th Cir. 1981). In those cases,

however, no claim of attorney/client privilege was as-

serted and the sole question was whether Noerr-Penning-

ton alone barred discovery. The issue here is whether

the attorney/client privilege bars discovery in the face

of a claim that the communications relate to a crime or

fraud. Noerr-Pennington is relevant only to the extent

it determines whether a crime or fraud has been shown.

8a

The broad-brush approach of the district court gives

too little attention to the policies behind both the Noerr-

Pennington doctrine and the privileges at stake here.*

The basis for Noerr-Pennington immunity has been well

documented. In Noerr, the Supreme Court was presented

with a claim that an association of railroads had violated

the antitrust laws by engaging in a massive publicity

campaign designed to influence legislative and executive

action against the trucking industry. The Court deter-

mined that the railroads’ activity did not fall within the

ambit of the antitrust laws. It stressed the importance

in a representative democracy of the right of persons to

“freely inform the government of their wishes.” 365

U.S. at 137, 81 S.Ct. at 529. The Court also felt that

construing the antitrust laws to reach the railroads’

activity would raise “important constitutional questions”

regarding the right to petition government and that it

could not “lightly impute to Congress an intent to in-

vade these freedoms.” Jd. at 138, 81 S.Ct. at 530.

Pennington reaffirmed Noerr, holding that “[jjoint ef-

forts to influence public officials do not violate the anti-

trust laws even though intended to eliminate competition.

Such conduct is not illegal, either standing alone or as

%The remainder of this opinion demonstrates that the parties

dispute several points in this petition. A few things, however, are

not in dispute. For the purposes of its ruling, the district court

assumed that the railroads had an otherwise valid claim of privi-

lege or immunity and that the documents would not be discover-

able absent the crime ‘fraud exception. Thus we are not presented

with any question about the initial existence of privilege or im-

munity. The parties also do not challenge the district court’s con-

clusion that a civil violation of the antitrust laws is a “crime” or

“fraud” for purposes of abrogating the attorney /client privilege.

See Pfizer Inc. v. Lord, 456 F.2d 545 (8th Cir. 1972). Finally,

there is no dispute over the district court’s ruling that ETSI’s

burden in seeking discovery is to make out a prima facie case that

the documents were prepared in furtherance of a crime or fraud.

In re International Systems & Controls Corporation Securities

Litigation, 693 F.2d 1235, 1242 (5th Cir. 1982).

9a

part of a broader scheme itself violative of the Sherman

Act.” 381 U.S. at 670, 85 S.Ct. at 1593.

The Court in Noerr acknowledged, in a statement that

is the genesis of the current “sham” doctrine, that some

petitions, “ostensibly directed toward influencing govern-

mental action, [may be]-a mere sham to cover what is

actually nothing more than an attempt to interfere di-

rectly with the business relationships of a competitor and

the application of the Sherman Act would be justified.”

Id. at 144, 81 S.Ct. at 533. The railroads were protected,

however, because they “were making a genuine effort to

influence legislation.” Jd. The principle thus emerging

from these decisions is that genuine efforts to influence

governmental decisionmaking are to be encouraged, not

penalized through application of the antitrust laws. Pro-

tection exists even though the petitioner’s avowed pur-

pose is to eliminate a competitor and even though the

petitioner may be engaged in a larger unprotected

scheme designed to do just that. Drspite the potential

anti-competitive effects of petitioning so motivated and

occurring in such a context, the Supreme Court has made

the policy choice to “assure ‘uninhibited access to govern-

ment policy makers.’” Coastal States Marketing, Inc.

v. Hunt, 694 F.2d 1358, 1363 (5th Cir. 1983) (quoting

George R. Whitten Jr., Inc. v. Paddock Pool Builders,

Inc., 424 F.2d 25, 32 (1st Cir.), cert. denied, 400 U.S.

850, 91 S.Ct. 54, 27 L.Ed.2d 88 (1967) ).

A similar policy choice underlies the attorney/client

privilege and work product immunity. The attorney/

client privilege rests on the need to “encourage full and

frank communication between attorneys and their clients

and thereby promote broader public interests in the ob-

servance of law and administration of justice.” Upjohn

Co. v. United States, 449 U.S. 388, 389, 101 S.Ct. 677,

682, 66 L.Ed.2d 584 (1981). The privilege’s ‘benefits

are all indir ct and speculative; its obstruction is plain

10a

and concrete.” 8 J. Wigmore, Evidence § 2291 (Mc-

Naughton rev. 1961). Yet the privilege survives, based

on the recognition that “sound legal advice or advocacy

serves public ends and that such advice or advocacy de-

pends upon the lawyer’s -being fully informed by the

client.” Upjohn, 449 U.S. -at 889,101 S.Ct. at 682. The

privilege, of course, is subject to several exceptions,

notably the crime/fraud exception asserted here. The

crime/fraud exception recognizes that because the “client

has no legitimate interest in seeking legal advice in

planning future criminal activities,’ Jn re International

Systems & Controls Corporation Securities Litigation,

693 F.2d 1235, 1242 (5th Cir. 1982), society has no in-

terest in facilitating such communications. Thus the ex-

ception demonstrates the policy: persons should be free

to consult their attorney for legitimate purposes.

Work product immunity similarly derives from the de-

sire to facilitate effective advocacy. Despite a broad

policy in favor of liberal discovery, immunity exists for

a lawyer’s work product to protect the lawyer’s ability

to “‘work for the advancement of justice while faithfully

protecting the rightful interests of his clients.” Hickman

v. Taylor, 329 U.S. 495, 510, 67 S.Ct. 385, 393, 91 L.Ed.

451 (1947). Just as with disclosure of communications

between attorney and client, discovery of the attorney’s

“written statements, private memoranda and personal

recollections,” id., would inhibit the attorney’s effort to

fully explore and develop the position he has been asked

to advocate. Indeed, recognition of this degree of simi-

larity between the attorney/client privilege and work

product immunity has led this court and ot] ers to hold

that both are subject to the same crime/fraud exception.

International Systems, 693 F.2d at 1242: In re Antitrust

Grand Jury, 805 F.2d 155, 164 (6th Cir. 1986); In re

Sealed Case, 676 F.2d 793, 812 (D.C. Cir. 1982); In re

John Doe Corp., 675 F.2d 482, 492 (2d Cir. 1982);

lla

In re Grand Jury Proceedings, 604 F.2d 798, 803 (3d

Cir. 1979) .*

The district court erred in ordering discovery without

considering whether the specific litigation activities were

illegitimate. The attorney/client privilege and work

product immunity protect communications and papers

generated when a client engages his attorney for legiti-

mate purposes. To the extent the railroads sought out

their attorneys to bring lawful suits and consulted with

them in connection with such suits, they were within the

scope of this protection. That the railroads might also

have consulted and received the help of their attorneys

in connection with other activities that are not lawful

does not change this conclusion. The focus must be nar-

rowed to the specific purpose of the particular communi-

cation or document. To the extent the document deals

with a protected activity, it is immur» from discovery.

To hold otherwise would unduly infringe on the protec-

tion Noerr-Pennington extends to petitioning activities

genuinely intended to influence governmental action, even

though part of a larger scheme of anticompetitive con-

duct. The Supreme Court has recognized that such ac-

tivities are desirable, and the attorney/client privilege

and work product immunity further the policy behind

this recognition by facilitating petitioning activity that,

as in this case, requires the assistance of attorneys. To

permit discovery of the documents withheld in this case

on the basis of a larger conspiracy by the railroads

would undermine the effectiveness of the very type of

petitioning the Supreme Court’s decisions have protected.

Therefore to the extent ETSI seeks material directly con-

nected with the railroads’ litigation activities, the dis-

4 Work product material, unlike attorney/client communications,

is subject to discovery under the provisions of Fed. R. Civ. P.

26(b) (3). Although ETSI has sought discovery under Rule 26 in

the district court, this issue is not before us on this petition for

mandamus.

12a ‘

trict court cannot order discovery without first deter-

mining that the litigation activity was itself in violation

of the antitrust laws. In the context of this case, that

determination will require resolution of the question

whether the litigation was a sham.° We now turn to

that question.

IV

District Court’s Failure to Find Sham

ETSI argues that the district court, aside from its

reasoning discussed in the preceding section of this opin-

ion, made a factual determination that the railroads’

litigation activities were sham. It attempts to show that

this determination was correct and urges this court to

deny the writ of mandamus on this basis. The railroads

deny that the district court made any factual determina-

tion of sham.

We agree with the railroads that the district court

failed to make an adequate finding that the railroads’

litigation activities were sham. It is true, as ETSI con-

tends, that the district court’s memorandum opinion

states that the railroads “were not engaged in a bona

fide effort to secure governmental action.” As we dis-

cuss below, this is essentially the conclusion that must be

5 Our direction here that the court must focus on the specific

relationship of the communication to a protected activity is con-

sistent with our earlier holding that piercing a claim of privilege

through the crime/fraud exception requires a showing that the

material “reasonably relate[s] to the fraudulent activity.” JInter-

national Systems, 693 F.2d at 1248. As the court from which we

adopted this test stated, “[t]he exact formulation of a ‘test’ for

relatedness is less important than an understanding of what the

test must accomplish: easy differentiation between material for

which the law should not furnish the protections of a privilege and

material for which a privilege should be respected.” In re Sealed

Case, 676 F.2d 793, 815 n.91 (D.C. Cir. 1982). In this case, we

have determined that the policies behind Noerr-Pennington require

protection for material that is directly in furtherance of lawful

litigation activity.

13a

reached to decide that petitioning activities are not pro-

tected by Noerr-Pennington. Reading the opinion as a

whole, however, it is apparent that the district court did

not make the detailed factual inquiry -necessary to sup-

port this conclusion. Instead, the district court relied on

its conclusion that ETSI had made a prima facie show-

ing that the railroads had engaged in an overall con-

spiracy to defeat the pipeline and that the petitioning

was connected with this conspiracy. The court concluded

that “[t]his connection . . . taints the entire petitioning

process with sham.”

We have already rejected the district court’s attempt

to rely on the alleged overall conspiracy to directly

abrogate the railroads’ privilege. For similar reasons,

we now reject reliance on the overall scheme in connec-

tion with finding sham. As we discussed earlier, the

Supreme Court held in Pennington that genuine petition-

ing activities are “not illegal, either standing alone or

as part of a broader scheme itself violative of the Sher-

man Act.” 381 U.S. at 670, 85 S.Ct. at 1593. Based on

this language, this court has held that antitrust liability

cannot be predicated on otherwise protected litigation

activity merely because the activity was part of a broader

conspiracy. Feminist Women’s Health Center, Inc. v.

Mohammad, 586 F.2d 530, 543 (5th Cir. 1978), cert.

denied, 444 U.S. 924, 100 S.Ct. 262, 62 L.Ed.2d 180

(1979); see also Hospital Building Co. v. Trustees of

Rex Hospital, 691 F.2d 678, 688 (4th Cir. 1982), cert.

denied, 464 U.S. 890, 104 S.Ct. 281, 78 L.Ed.2d 224

(1983); Alexander v. National Farmers Organization,

687 F.2d 1173, 1195 (8th Cir. 1982). The holding in

Pennington requires attention to the narrow petitioning

activity at issue. The fact finder must determine, as to

the particular petition, whether the petitioner was en-

gaged in a genuine effort to influence governmental

decisionmaking. If so, then antitrust liability cannot be

based on that activity and the attorney/client privilege

l4a

and work product immunity for documents directly

related to the activity remain intact.

In relying on the overall scheme theory to find sham,

the district court relied primarily on the Ninth Circuit’s

decision in Clipper Exxpress v. Rocky Mountain Motor

Tariff Bureau, Inc., 690 F.2d 1240 (9th Cir. 1982),

cert. denied, 459 U.S. 1227, 108 S.Ct. 1234, 75 L.Ed.2d

468 (1983). That decision, however, does not support

the district court’s ruling. The court there reversed a

grant of summary judgment to the defendants in an anti-

trust case in which the alleged anticompetitive conduct

consisted of petitioning and other unlawful activity. The

Ninth Circuit held that summary judgment was improper

even if Noerr-Pennington protected the petitioning be-

- cause if “Clipper can prove that the defendants engaged

in activities which violated the-antitrust laws, those vio-

lations do not become immune simply because the defend-

ants used legal means—protests before the ICC—as a

means to enforce the violations.” Jd. at 1264. The court’s

holding was that Noerr-Pennington “provides immunity

only for the narrow petitioning activity,” id. at 1265, and

that this immunity does not provide “overall immunity”

to other violations, id. at 1263. The court did not hold,

and could not hold consistently with Pennington, that the

overall scheme makes the otherwise protected petitioning

a sham.

V

Sham Petitioning

In their petition for mandamus, the railroads ask that

we direct the district court to adopt the special master’s

tentative ruling that the railroads’ litigation activities

were not sham as a matter of law. The railroads assert

that the Andrews lawsuits cannot be found to be a sham

because the railroads were successful. As to the window

lawsuits, they assert no sham can be found because of the

railroads’ defensive posture. We disagree.

15a

A. Suecessful Lawsuits as Sham

The argument that successful petitioning can never be

a sham and thus subject to antitrust scrutiny is an ap-

pealing one. As this court has recognized, it is “difficult

to conclude that the filing of a complaint constitutes a

sham where the party seeking relief actually prevails.”

-Mid-Texas Communications Systems, Inc. v. AT&T, 615

F.2d 1872, 13883 (5th Cir.), cert. denied, 449 U.S. 912,

101 S.Ct. 286, 66 L.Ed.2d 140 (1980); see also Coca-

Cola Co. v. Overland, Inc., 692 F.2d 1250, 1257 & n.17

(9th Cir. 1982). As we discuss below, this is because

success on the merits is forceful evidence that the peti-

tioner did in fact wish to influence the governmental de-

cision and obtain the relief prayed for.

We cannot, however, lay down a categorical rule that

successful petitioning can never be a sham.® In Coastal

6The commentators take varying positions on the question

whether a successful suit can be considered a sham. Areeda and

Hovenkamp state generally that “successful judicial action is not

a ‘sham,’” but add the caveat that this is “merely a strong pre-

sumption, rather than a categorical rule.” P. Areeda & H. Hoven-

kamp, Antitrust Law 11, 13 (Supp. 1986). They also refer ap-

provingly to our decision in Coastal States Marketing, Inc. v. Hunt,

694 F.2d 1358 (5th Cir. 1983), the decision upon which we now

rely to hold that some successful petitioning may be found to be

sham. Areeda, at 16 (“Perhaps we cannot hope to be more precise

than to say with the Fifth Circuit’s Coastal States decision that a

litigant ‘should enjoy petitioning immunity from the antitrust laws

so long as a genuine desire for judicial relief is a significant

motivating factor underlying the suit.’ ”’).

Kinter and Bauer note that success is strong evidence of a

legitimate petition, but state that even successful claims may be

considered to be sham. Kinter & Bauer, Antitrust Exemptions for

Private Requests for Governmental Action: A Critical Analysis of

the Noerr-Pennington Doctrine, 17 U.C. Davis L. Rev. 549, 576

(1984).

Handler and DeSevo assert that success on the merits absolutely

precludes a finding of sham. Handler & DeSevo, The Noerr Doc-

l6a

States Marketing, Inc v. Hunt, 694 F.2d 1358 (5th Cir.

1983), we considered the circumstances under which liti-

gation activities can be held to be a sham. We held that

a “litigant should enjoy immunity from the antitrust

laws so long as a genuine desire for judicial relief is a

significant motivating factor underlying the suit.” Jd. at

1372. Our statement of this test flowed from Noerr’s

teaching that sham petitioning is that which, although

“ostensibly directed toward influencing governmental ac-

tion, is a mere sham to cover what is actually nothing

more than an attempt to interfere directly with the busi-

ness relationships of a competitor.” 365 U.S. at 144, 81

S.Ct. at 533. Coastal States recognized that the key to

extending Noerr-Pennington protection is whether the

antitrust defendant genuinely was attempting to influ-

ence governmental decisionmaking. If the defendant’s

intent was not to influence the government and obtain

relief, but rather to harm a competitor through the mere

invocation and maintenance of the process, he is not en-

titled to protection because he is not exercising the right

of petition that formed the basis for the decision in Noerr.

See Clipper Exxpress, 690 F.2d at 1255; see also Litton

Systems, inc. v. AT&T, 700 F.2d 785, 810 (2d Cir. 1983),

cert. denied, 464 U.S. 10738, 104 S.Ct. 984, 79 L.Ed 2d

220 (1984); Grip-Pak, Inc. v. Illinois Tool Works, Inc.,

694 F.2d 466, 472 (7th Cir. 1982), cert. denied, 461 U.S.

958, 103 S.Ct. 2430, 77 L.Ed.2d 1317 (1983); City of

Gainesviile v. Florida Power & Light Co., 488 F.Supp.

1258, 1265-66 (S.D. Fla. 1980); P. Areeda & H. Hoven-

kamp, Antitrust Law 7 (Supp. 1986) (hereinafter

trine and Its Sham Exception, 6 Cardozo L. Rev. 1, 30-31 (1984).

This view is based on their reading of Noerr and Pennington to

preclude any examination of the petitioner’s intent for any pur-

pose. As we discuss below, we read Noerr’s statement that sham

petitioning is that which is not genuinely intended to influence

governmental decisionmaking to require an examination of the

litigant’s intent to the extent of asking whether the petition was

motivated by a desire for the relief sought. :

17a

Areeda) (“When the antitrust defendant had not truly

sought to influence a governmental decision, his invoca-

tion of governmental machinery is a sham.”).

The Coastal States test for determining when petition-

ing activities are a sham recognizes that the “usual liti-

gant will base its decision to sue on a number of fac-

tors.” Coastal States, 694 F.2d at 1871. It focuses at-

tention on the factors motivating the initiation and pros-

ecution of the suit. Thus, it is not dispositive that the

ultimate relief will be beneficial to the petitioner and will

serve his purposes. It must be shown that the desire for

relief was a significant factor underlying the actual

bringing and prosecution of the suit. This requires an

examination of the litigant’s intent. Cf. Greenwood Util-

ities Commission v. Mississippi Power Co., 751 F.2d 1484,

1498 n.9 (5th Cir. 1985) (“[D]Jetermining whether the

petitioning conduct was a sham often involves questions

of motive or subjective intent.”). It is important to note,

however, that this inquiry is limited to the immediate pur-

pose for the litigation. Noerr and Pennington hold that

anticompetitive intent does not make petitioning a sham.

Noerr, 365 U.S. at 138-40, 81 S.Ct. at 530-31; Penning-

ton, 381 U.S. at 669-70, 85 S.Ct. at 1593. Thus, the en-

tire effort may be part of an antitrust conspiracy, with-

out which there would have been no litigation. The issue

of intent that controls is whether the litigant wished to

obtain his anticompetitive end through obtaining court-

ordered relief or simply through the filing and mainte-

nance of the lawsuits.

Our interpretation of the sham doctrine in Coastal

States makes clear that success on the merits does not

necessarily preclude an antitrust plaintiff from proving

that the defendant’s earlier litigation activities were

sham. The determinative inquiry is not whether the suit

was won or lost, but whether it was significantly moti-

vated by a genuine desire for judicial relief. Of course,

the success of the claim presented is persuasive evidence

18a

that the litigant in fact wanted the relief. It is highly

unlikely that a party with a meritorious claim will not

be significantly motivated by a desire to obtain relief on

that claim. Thus, an antitrust plaintiff attempting to

base liability on successful petitioning must overcome a

strong inference that Noerr-Pennington applies and in

many cases may be unable to do so. But reliance on the

success of the earlier claim cannot substitute for proper

consideration of any evidence the plaintiff might provide

of the petitioner’s motivation.

To be sure, “[d]etermining what efforts are not bona

fide petitions to the government... is a difficult task.”

Greenwood Utilities, 751 F.2d at 1498. Drawing the line

at successful petitions—or at petitions that had a rea-

sonable basis—would simplify this task somewhat. But

we cannot say that important cases will not exist in

which the evidence establishes that, despite having a

meritorious claim, a party was motivated not by a desire

to obtain relief but to harass and interfere with the ac-

tivities of a competitor through the process itself. Ac-

cord Grip-Pak, 694 F.2d at 472. In this case, for exam-

ple, ETSI claims the railroads were not interested in ob-

taining relief from the court in Andrews because the rail-

roads realized their goal of defeating the pipeline de-

pended primarily on delaying the project to the point it

became so expensive to be infeasible as a competitive en-

terprise. It presents evidence that railroads made the

decision to participate in the litigation without considera-

tion of the possible merit of the suit. Of course, that the

railroads realized that the delaying value of their law-

suit would aid their goal does not necessarily mean they

did not in fact want relief from the court. But if ETSI

can sustain its burden to show that the railroads were

not significantly motivated by a “genuine desire for judi-

cial relief,” Coastal States, 694 F.2d at 1372, the rail-

roads should not be able to invoke Noerr-Pennington as

19a

a shield to discovery of documents relating to that litiga-

tion.’

The preceding discussion should not be taken as a sug-

gestion that the reasonableness of a suit is irrelevant for

all purposes. We have concluded that objective reason-

ableness—as manifested by the court’s grant of relief on

the claim—should not protect a person who was not

genuinely exercising his right to petition. However, as

our discussion below of standing indicates, we believe

that a complete lack of reasonableness necessarily must

deprive a person of protection. A party who invokes the

governmental decisionmaking process must have a reason-

able basis for believing his claim might prevail. In other

words, the requirement in Noerr and Coastal States that

petitioning be motivated by a genuine desire for relief

means that the desire for relief must be both honest and

T Judge Jolly disagrees at this point and argues that Bill John-

son’s Restaurants, Inc. v. NLRB, 461 U.S. 731, 103 S.Ct. 2161, 76

L.Ed.2d 277 (1983), dictates that Noerr-Pennington protection be

extended to any case that has a reasonable legal and factual basis.

The question in that case was whether the NLRB could enjoin a

state court proceeding that had a reasonable basis on the ground

that it was motivated by a desire to retaliate against striking

employees. The Court held that it could not. The Court did not,

however, state a constitutional rule that all lawsuits with a reason-

able basis are immune from the application of otherwise valid

regulation. Rather, it construed congressional intent behind the

NLRA in light of the constitutional right to petition and earlier

Supreme Court cases that have held that the NLRA does not

preempt states from providing a civil remedy for tortious conduct

occurring during a labor dispute. Jd. at 740-44, 103 S.Ct. at 2168-

70. Given the constitutional implications and the lack of preemp-

tion, the Court concluded that the NLRA does not empower the

Board to enjoin lawsuits solely on the basis of retaliatory motive.

The Court did not define sham for purposes of the antitrust laws,

nor did it consider the situation in which the litigant, in addition

to having a motive generally proscribed by the regulation at issue,

also has no significant desire to obtain the relief prayed for. We

therefore find no inconsistency between Bill Johnson’s and our

reading of Fifth Circuit controlling precedent in the antitrust area.

20a

reasonable. This requirement serves the purpose of with-

holding protection from those persons who are not entitled

to it, while at the same time recognizing the “wise policy

[of] hold[{ing] business actors to a standard of reason-

able care in using governmental machinery.” Areeda, at

11; see also id. at 7 (“To be sure, [a petitioner] would

always be pleased to obtain a governmental decision

against his rival. But where he had no reasonable expec-

tation of obtaining the favorable ruling, his effort to do so

was a sham.”); Litton Systems, Inc. v. AT&T, 700 F.2d

785, 811-12 (2d Cir. 1983), cert. denied, 464 U.S. 1073,

104 S.Ct. 984, 79 L.Ed.2d 220 (1984).°

8 Professors Areeda and Hovenkamp also state that they would

not withhold protection from a person who “had a reasonable claim

in the other forum but did not subjectively know it.” Areeda, at

10. They point to “[d]joubt about the wisdom of punishing such a

person” and “the difficulty of properly proving subjective intent in

the first place.” Jd. This statement seems to adopt a purely objec-

tive approach to determining sham. We disagree. As our discussion

of successful petitioning demonstrates, the Supreme Court’s de-

cisions, as interpreted by this court and others, necessarily entail

an examination of the petitioner’s subjective motivations. More-

over, aside from the binding force of this precedent, we are not

persuaded by the reasoning against subjecting some persons with

objectively reasonable claims to antitrust scrutiny. Rather than

punishing a person for simply not knowing the reasonableness of

his claim, our ruling withholds Noerr-Pennington protection from

persons who do not care about the reasonableness of their claim

and who bring claims for the improper purpose of harming a com-

petitor through the mere invocation of governmental decisionmak-

ing processes. We do not believe the difficulty of inquiring into

intent justifies a different rule; if a plaintiff can adduce sufficient

evidence to overcome the strong inference that persons with

meritorious claims wish to obtain relief upon them we believe he

should prevail. We cannot endorse a rule that would require a

court to blindly extend protection in the face of evidence that the

party was in fact not exercising the protected right to petition.

We also note that Areeda and Hovenkamp themselves would not

preclude applying the antitrust laws to all petitions that had a

reasonable basis. As noted earlier, supra note 9, they leave open

the possibility of holding some successful petitions to be sham.

a |

Zla

B. Lack of Standing as Sham

The requirement of reasonableness raises a second,

albeit related, reason why we decline to adopt the rail-

roads’ argument that the result in the Andrews lawsuits

precludes finding a sham. The one railroad who joined

the Andrews litigation as a party—Kansas City South-

ern (KCS)—was initially dismissed for lack of stand-

ing. The court later vacated that ruling as to some of

KCS’s claims when KCS filed an amended complaint and

additional affidavits as to its interest in the case. How-

ever, because the court had already ruled on the merits

and granted an injunction in favor of the plaintiffs who

had standing, it declined to finally resolve KCS’s stand-

ing. On appeal, the Eighth Circuit also found it unnec-

essary to resolve KCS’s standing, as it agreed with the

district court’s ruling that the state plaintiffs had stand-

ing and affirmed the injunction on that basis. Missouri v.

Andrews, 787 F.2d 270, 274 (8th Cir. 1986), cert.

granted, 107 S.Ct. 1846 (1987).

We do not believe Noerr-Pennington extends to a liti-

gant who has not properly invoked a court’s power to act

in a case, even though the petitioner may otherwise

genuinely desire relief on a meritorious claim. Unlike the

legislative arena, substantial limits exist on the ability of

persons to pursue claims in the courts. In particular, a

person whose interest in a controversy is not sufficient to

confer standing has no right to petition the court as a

party and obtain relief. Thus, a person cannot reason-

ably claim that his participation in a lawsuit in which

he has no standing is a genuine attempt to influence gov-

ernmental decisionmaking. Of course, a person has a right

to assert his claim of standing along with his claim on

the merits and seek to influence the court to recognize

his interest in the controversy. Thus, to the extent the

litigant has a reasonable basis for believing that his claim

of standing might be accepted by the court, and thus that

he will have the right to participate in the litigation proc-

22a

ess and obtain relief, he will be protected by Noerr-

Pennington even though he ultimately loses.° But a by-

stander to a controversy who either knows he has no

standing or who has no reasonable basis for asserting

standing but who nonetheless files or joins in a lawsuit

cannot claim the protection Noerr-Pennington extends to

genuine attempts to influence judicial decisionmaking.

See Landmarks Holding Corp. v. Bermant, 664 F.2d 891,

896 (2d Cir. 1981) (defendants appealed from zoning

commission decisions “knowing that they lacked stand-

ing to do so”); cf. MCI Communications Corp. v. AT&T,

708 F.2d 1081, 1156 (7th Cir. 1988) (“There can be no

genuine attempt to petition the government when the

petitioners know in advance that the governmental body

lacks the authority to take the action desired.’”), cert.

denied, 464 U.S. 891, 104 S.Ct. 2384, 78 L.Ed.2d 226

(1983) .*°

® ETSI devotes considerable argument in its brief to their claim

that the railroads had no “legitimate interest in the outcome” of

the Andrews litigation. To the extent this argument goes to the

point we have just made in the text that parties without a reason-

able basis for asserting standing are not protected by Noerr-

Pennington, we agree. We disagree, however, if ETSI’s claim goes

beyond that to suggest that the railroads are not protected because

they may have had no interest in the substantive law upon which

the Andrews’ court granted its relief. If the railroads’ interest is

such that they had a reasonable claim of standing, then their in-

terest was sufficient to allow them the protected right to seek to

influence the court’s decision and obtain relief. That their motiva-

tion may have been to harm E7 |; rather than to promote proper

exercise of authority between the Department of Interior and the

Army Corps of Engineers is irrelevant. See Noerr, 365 U.S. at

139-40, 81 S.Ct. at 531 (“[I]nsofar as the railroads’ campaign was

directed toward obtaining governmental action, its legality was not

at all affected by any anticompetitive purpose it may have had.”’).

10 The Andrews district court did sustain the railroads’ claim of

standing as to some claims (none of which formed the basis for

the ruling in that case), but we do not believe this to be disposi-

tive. If the railroads did not actually and reasonably expect to

prevail on the claims for which they had standing, or if that ex-

23a

The participation of the only other railroad actively

involved in the Andrews litigation—Union Pacific—

raises similar difficulties. Unlike KCS, Union Pacific

never attempted to join the litigation as a party. In-

stead, it provided legal assistance through its attorneys

to the state of Nebraska, a named plaintiff in one of the

suits. Union Pacific paid the fees of its attorneys for this

assistance, which apparently involved extensive research

assistance and document drafting. The parties dispute

the precise role Union Pacific played in Nebraska’s deci-

sion to seek its assistance and to file suit. The parties

also dispute the degree to which others in the litigation

were aware of Union Pacific’s involvement, but it ap-

pears to be largely agreed that most parties, as well as

the district court itself, were unaware that Nebraska

was being assisted.

Union Pacific’s activity presents difficult questions re-

garding the scope of Noerr-Pennington’s protection and

the constitutional right to petition. The railroads have

argued that Noerr itself answers these questions in favor

of protecting Union Pacific’s activities. In Noerr, the

railroad industry hired a public relations firm to con-

duct their publicity campaign against the trucking in-

dustry. Much of the campaign was carried out through

a “third-party technique, that is, the publicity matter

circulated in the campaign was made to appear as spon-

taneously expressed views of independent persons and

civic groups, when, in fact, it was largely prepared and

produced by [the public relations firm] and paid for by

the railroads.” 365 U.S. at 180, 81 S.Ct. at 525. The

Supreme Court rejected the lower court’s view that this

aspect of the railroads’ activity justified application of

the antitrust laws.

pectation was not a significant motivating factor underlying their

decision to bring the suit, the existence of those claims should not

protect them.

24a

The railroads here argue that the holding in Noerr

dictates that Union Pacific’s assistance to Nebraska,

which they assert was more benign than the misleading

conduct in Noerr, be protected. We disagree. As the

Court’s subsequent decision in California Motor Tran-

sport Co. v. Trucking Unlimited, 404 U.S. 508, 92 S.Ct.

609, 30 L.Ed.2d 642 (1972), makes clear, significant dif-

ferences exist between attempts to influence legislative

decisionmaking and attempts to influence the judiciary.

Noerr emphasized the highly political nature of the rail-

roads’ petitioning aetivities and Congress’s traditional

caution “in legislating with respect to problems relating

to the conduct of political activities.” Noerr, 365 U.S.

at 141, 81 S.Ct. at 531. In contrast, as we noted above,

the right to petition the courts and the methods that

properly may be used in such petitioning have been care-

fully circumscribed. Cf. 1 P. Areeda & D. Turner, Anti-

trust Law 48 (1978) (“[T]he legislative and judicial

reluctance to regulate political activities has never af-

fected litigation.”). We do not believe that Noer’s ex-

tension of protection to the railroads’ publicity campaign

controls the disposition of the issue of protection for

Union Pacific’s activities.

Indeed, we believe it would be an unwarranted exten-

sion of Noerr-Pennington’s protection to hold that a

party without an interest in a case sufficient to allow it

to directly petition the courts may nonetheless indirectly

seek its anticompetitive goals through encouraging and

assisting the lawsuits of others."' Noerr was _ based

largely on the principle that government relies to a large

degree on the “ability of persons to make their wishes

known to government.” 365 U.S. at 137, 81 S.Ct. at 529.

11Qur discussion here assumes, without deciding, that Union

Pacific had no reasonable claim of standing to participate in

Andrews. Should the district court determine that Union Pacific

had such a claim, the mere fact that Union Pacific did not actually

formally join the litigation does not deprive it of protection.

25a

It further recognized that prohibiting those with a com-

petitive interest in governmental action from petitioning

the government as to that action would “deprive the gov-

ernment of a valuable source of information and, at the

same time, deprive the people of their right to petition

in the very instances in which that right may be of the

most importance to them.” Jd. at 139, 81 S.Ct. at 531.

In this case, however, our holding subjects to antitrust

scrutiny only those persons whose interests are such that

Congress or the courts have independently determined

not to be the proper parties to assert the claim in court.

To the extent a party has an interest in a case sufficient -

to support a reasonable claim of standing, his efforts

to directly or indirectly participate in the litigation are

protected. We do not believe that the policies behind

Noerr-Pennington dictate any greater protection than

this.

We recognize the constitutional underpinnings of the

Noerr-Pennington doctrine and that Union Pacific’s ac-

tivities to some degree implicate constitutional protec- -

tions. See NAACP v. Button, 371 U.S. 415, 88 S.Ct.

328, 9 L.Ed.2d 405 (1963) (protecting the NAACP’s

right to advise persons of their legal rights and solicit

their involvement in racial discrimination suits); Jn re

Primus, 436 U.S. 412, 98 S.Ct. 1893, 56 L.Ed.2d 417

(1978) (protecting the ACLU’s right to give legal ad-

vice and solicit involvements in lawsuits). The First

Amendment, however, does not extend blanket protection

to all activities involving association together to pursue

goals through litigation. In Ohralik v. Ohio State Bar

Association, 436 U.S. 447, 98 S.Ct. 1912, 56 L.Ed.2d 444

(1978), for example, the Court held that a state may

prohibit lawyer solicitation in circumstances that are

conducive to fraud, undue influence, and other forms of

vexatious conduct. The Court has also “recognized the

strong governmental interest in certain forms of eco-

nomic regulation, even though such regulation may have

26a

an incidental effect on rights of speech and association.”

NAACP v. Claiborne Hardware Co., 458 U.S. 886, 912,

102 S.Ct. 3409, 3425, 73 L.Ed.2d 1215 (1982).

We believe that the interests supporting application of

the antitrust laws to prohibit and penalize anticompeti-

tive conduct are sufficiently strong to dispel any constitu-

tional difficulties in withholding Noerr-Pennington pro-

tection from persons who, without the right to petition

the courts directly, seek to further their anticompetitive

goals through funding, encouraging, and assisting the

lawsuits of others.'? We do not believe the First Amend-

ment protects a competitor’s right to accomplish eco-

nomic predation through such means. Unlike the regula-

tions struck down in Button and Primus, which broadly

prohibited all solicitation activities of the NAACP and

ACLU without a showing of any substantive evil flowing

from such activity, withholding Noerr-Pennington pro-

tection here simply opens the door for ETSI to show that

Union Pacific’s activity was harmful anticompetitive con-

* duct. The governmental interest in allowing this show-

ing to be made, coupled with the weak claim to protec-

tion for such activity, amply justifies our holding here.

12 Qur conclusion here results in the possible piercing of Union

Pacific’s claim of privilege for documents prepared in connection

with the Andrews litigation. We do not address the extent to which

these documents, or documents prepared in connection with KCS’s

participation in the litigation, might still be immune from dis-

covery because of a privilege held by the state of Nebraska or

other parties involved in that litigation. Indeed, after the district

court’s ruling granting ETSI’s motion to compel discovery, Ne-

braska and others involved in the Andrews litigation sought a

protective order from the district court against disclosure of docu-

ments as to which they hold a privilege. The district court did not

rule on that motion because of the pendency of the present peti-

tion. These parties have filed amicus briefs in this court urging

that we recognize their claims of privilege, especially in light of

the pendency of the Andrews case before the Supreme Court. We

are confident the district court in any further rulings on ETSI’s

discovery motions will act to safeguard any viable privilege these

parties hold.

27a

C. Defending Lawsuits as Sham

The railroads also argue that their participation in

the window lawsuits cannot be a sham as a matter of

law because they were defendants in those lawsuits. This

point need not detain us long. We certainly agree with

the Seventh Circuit’s observation that one “cannot start

a suit... and then sue the defendant for refusing to

default.” Brunswick Corp. v. Riegel Textile Corp., 752

F.2d 261, 272 (7th Cir. 1984), cert. denied, 472 U.S.

1018, 105 S.Ct. 3480, 87 L.Ed.2d 615 (1985). But the

allegations made and evidence presented by ETSI go

beyond that. ETSI claims the railroads knew that they

had no viable defense in those suits but that they none-

theless filed defensive pleadings and sought discovery for

the purpose of further delaying the pipeline project and

obtaining information that could be used in other forums

to hinder the project. ETSI points out that it was suc-

cessful in obtaining the relief it sought in each of the

window lawsuits it filed and that the railroads continued

to litigate each case long after their arguments had been

repeatedly rejected by the courts.

We believe that ETSI’s claims, if found by the district

court to be supported by prima facie evidence, are suf-

ficient to deprive the railroads’ defense of the window

litigation of Noerr-Pennington protection. We perceive

no reason to apply any different standard to defending

lawsuits than to initiating them. Therefore, to the ex-

tent the railroads’ activities in the window lawsuits were

not significantly motivated by an honest and reasonable

desire to influence the court’s decision and affect the out-

come of the case they are not entitled to protections from

antitrust scrutiny.

13 The railroads also claim that the district court cannot conclude

the window lawsuits defense was a sham because the special master

made factual findings to the contrary that were not clearly errone-

ous. See Fed. R. Civ. P. 53(e). We do not agree that the district

court was obligated to give any deference to the special master’s

28a

VI

Waiver of Privilege

The final issue we must address is ETSI’s contention

that an independent ground exists for leaving un-

disturbed the district court’s ruling. ETSI claims that

the railroads waived their asserted privileges by relying

on a defense that puts their attorney/client communica-

tions and work product at issue. It argues that an anti-

trust defendant who relies on Noerr-Pennington bears the

burden of proving the genuineness of his petitioning ac-

tivities, and, having thus injected his good faith into the

case, waives any privilege to documents bearing on that

issue. We disagree.

We cannot accept the proposition that a defendant in

an antitrust suit who relies on the protection afforded

by Noerr-Pennington necessarily gives up the right to

keep his communications with his attorney confidential.

Such a rule certainly cannot be justified on the basis of

waiver. This is not a case in which a party has asserted

a claim or defense that explicitly relies on the existence

or absence of the very communications for which he

claims a privilege. See, e.g., United States v. Woodall,

438 F.2d 1317, 1324-26 (5th Cir. 1970), cert. denied,

403 U.S. 938, 91 S.Ct. 2262, 29 L.Ed.2d 712 (1971).

A defendant who relies on Noerr-Pennington merely

denies the existence of an antitrust violation. Cf. Areeda,

at 4 (The “doctrine is in part an ‘exception’ or ‘immu-

nity’ from normal antitrust principles .. . but it prin-

cipally reflects the absence of any antitrust violation to

start with.”). Accordingly, a plaintiff attempting to

make an antitrust case based on conduct that involves

findings in the case. At the time he submitted his report, the

special master indicated his desire to receive comments and objec-

tions from the parties before preparing his final opinion. The

parties submitted their objections but the master resigned his

position before he could act on them. It appears, therefore, that

the special master’s report was only a preliminary one.

29a

lobbying or litigation bears the burden to show that such

activity is not protected petitioning but a sham. Coastal

States, 694 F.2d at 1872 n.46; Mohammad, 586 F.2d 543.

We do not see how it can be said that the railroads

waived their privilege when it is ETSI who filed this

lawsuit and who seeks to rely on attorney/client com-

munications and work product to prove its claim.

Nor do we perceive any other basis for abrogating the

railroads’ privilege. Noerr-Pennington is based on the

principles that individuals have a right to petition gov-

ernment and that government has a need for the infor-

mation provided by such petitioning. As we noted earlier

in this opinion, the protection afforded by the attorney/

client privilege furthers these principles. Under the rule

ETSI suggests, whenever a competitor files a lawsuit

alleging that some earlier petitioning was a sham and

the defendant denies the allegation, the defendant would

—lose his privilege. This result would be inconsistent with

both Noerr-Pennington and the attorney/client privilege.

Attorney/client documents may be quite helpful in mak-

ing out a claim of sham, but this is not a sufficient basis

for abrogating the privilege.

Vil

Conclusion

To recapitulate, we hold:

%

Even if prior litigation was part of an overall

conspiracy which itself violated antitrust law,

Noerr-Pennington requires a prima facie finding

that the particular litigation was a sham to war-

rant discovery of documents initially protected

by the attorney/client privilege or work product

immunity.

The litigation was a sham, and the documents

subject to discovery, if the litigation was under-

taken without a genuine desire for judicial relief

30a

as a significant motivating factor, or if there

was no reasonable expectation of judicial relief,

or if there was no reasonable basis for party

standing.

3. It is possible for litigation which ultimately suc-

ceeds to have been sham.

4. Defensive litigation can be sham.

The antitrust suit defendant who raises the

Noerr-Pennington claim to protect its conduct in

prior litigation does not thereby waive the attor-

ney/client privilege or work product immunity.

We conclude that the district court acted improperly

in granting ETSI’s motion to compel discovery without

making a proper factual determination that the individ-

ual petitioning activities in which the railroads were en-

gaged were sham. Should ETSI renew its motion to dis-

cover the documents for which the railroads have as-

serted privilege, and if the district court should then

conclude that ETSI has made a prima facie showing that

the litigation—affirmative or defensive—is or was a

sham, then at that moment the attorney/client and work

product privileges will evaporate so that all material in

the litigation will be subject to discovery bearing on fur-

ther proof or establishment that the litigation is sham.

While the material is not available initially to establish

a prima facie case, once that point is reached, there is

nothing in Noerr-Pennington, much less in attorney/

client or work product, to shield such dramatic evidence

from the finder of fact. Any different rule would permit

one or all of the testimonial privileges to shield forever

dramatic, perhaps even conclusive, proof of exactly what

sets asiae those privileges under the law.

Upon receipt of this opinion the district judge will,

undoubtedly without order from us, promptly vacate his

order.

Writ Conditionally GRANTED.

3la

E. GRADY JOLLY, Concurring in result:

I am pleased to concur in the result reached by the

majority in Judge Reavley’s very thoughtful opinion.

I respectfully dissent to the extent that the majority

holds that a lawsuit, reasonably based on fact and law,

if improperly motivated, may constitute a sham under

the Noerr-Pennington doctrine. When we speak of the

right to file a lawsuit, we are speaking of rights guaran-

teed by the Constitution. As is made clear by California

Motor Transport Co. v. Trucking Unlimited, 404 U.S.

508, 92 S.Ct. 609 (1972), the Supreme Court’s holding

that antitrust laws cannot punish the legitimate use of

the courts is grounded upon the first amendment right

to petition the government for redress of grievances.

Id. at 510, 92 S.Ct. at 611. As a general rule, once the

right is found to be protected, i.e., a reasonable legal and

factual basis for the lawsuit, improper motivation for

asserting the right will not defeat constitutional protec-

tion, as is illustrated by the Supreme Court’s holding

that motivation to violate antitrust laws does not vitiate

the first amendment right to use the courts for that pur-

pose; only when the assertion is a “sham” is constitu-

tional protection lost. A successful lawsuit is not, and

cannot be, constitutionally speaking, a sham upon the

courts; neither can any lawsuit unless it baseless.

For confirmation of this principle, we need only turn

to the Supreme Court’s most recent pronouncement on

the constitutional right to access to the courts. In Bill

Johnson’s Restaurants, Inc. v. NLRB, 461 U.S. 731, 103

S.Ct. 2161 (1983), an employer used the state courts to

sue his lawfully picketing employees for injunctive relief

and monetary damages. The National Labor Relations

Board issued a cease and desist order against the em-

ployer on grounds that the sole purpose of using the

courts was to retaliate against the employees for exer-

cising their protected statutory rights,

—_— ue a —— ee

32a

Noting that baseless-litigation is not immunized by

the first amendment right to petition, the Court stated

that such considerations “led us in the antitrust context

to adopt the ‘mere sham’ exception in California Motor

Transport Co. v. Trucking Unlimited, 404 U.S. 508, 92

S.Ct. 609 (1972). We should follow a similar course -un-

der the NLRA.” The Court then proceeded to make ab-

solutely clear that the finding of a sham, in order to

defeat constitutional protection to use the courts, is two-

pronged: first, the lawsuit must be baseless, and, second,

it must be prosecuted with the intent of retaliating

against the employee. This specific two-pronged holding,

requiring both improper motivation and a baseless law-

suit, was reiterated throughout the opinion (“improperly

motivated suit lacking a reasonable basis, . . . baseless

lawsuit with intent of retaliating,” 461 U.S. at 744, 103

S.Ct. at 2170; “[rJetaliatory motive and lack of reason-

able basis are both essential prerequisites,” id. at 748,

103 S.Ct. at 2173; “unmeritorious lawsuit for retaliatory

purpose,” id. at 749, 103 §.Ct. at 2173).

Addressing specifically whether a meritorious lawsuit

can be a sham, the Court stated: “[I]f the employer’s

case in the state court ultimately proves meritorious and

he has a judgment against the employees, the employer

should also prevail before the Board, for the filing of

a meritorious lawsuit, even for retaliatory motive, is not

an unfair labor practice.” /d. at 747, 103 S.Ct. at 2172.

After a determination has been made that a lawsuit

is baseless, the subjective intent of the parties will be-

come relevant in determining whether the initial filing

and prosecution of the lawsuit enjoys constitutional pro-

tection. In Bill Johnson’s Restaurants, Inc., for example,

Justice White observed that if the judgment went

against the employer in that case, “[t]he employer’s suit

having proved unmeritorious, the Board would be war-

ranted in taking that fact into account in determining

cient

33a

whether the suit had been filed in retaliation for the

exercise of the employees’ § 7 rights.” Jd.

Therefore, because I believe that the issue of whether

a lawsuit may constitute a sham is controlled by Bill

Johnson’s Restaurants, Inc., | respectfully dissent from

the majority’s holding that a lawsuit, grounded upon a

reasonable basis in fact and law, may constitute a sham.

34a

APPENDIX B

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF TEXAS

BEAUMONT DIVISION

Cause No. B-84-979-CA

ETSI PIPELINE PROJECT, A JOINT VENTURE, and

ENERGY TRANSPORTATION SYSTEMS, INC.

VS.

BURLINGTON NORTHERN, INC., et al.

MEMORANDUM OPINION & ORDER

Plaintiff’s Second Motion to Compel Production of Doc-

uments (identified as the “Crime-Fraud” Motion) seeks

to compel production of certain allegedly privileged docu-

ments."

The Motion is Granted.

I. INTRODUCTION

The Court has carefully studied the recommendations

of the Special Master’ relating to Plaintiff’s Crime

1 The documents number in the thousands. No argument has

been made that the documents are not within the attorney-client

privilege or the work product privilege (aside from the crime-fraud

exception). The buik of the documents in question relate to the

window litigation, the later administrative proceedings, and the

Andrews lawsuits.

2 Special Master John F. Sutton, Jr., A.W. Walker, Jr. Centennial

Chair in Law; Professor and Former Dean, The University of

Texas School of Law.

nen

85a

Fraud Motion. Additionally, the Court has carefully re-

viewed the briefs supplied to the Master and the Re-

sponses of the parties to the Master’s recommendations.

The Court notes that although it did not disagree with

the Special Master in regards to the legal analysis, the

Court finds that the facts surrounding this controversy

force a different focus in light of the applicable case law.

Specifically, the Court finds that the conduct of the De-

fendants throughout the course of the attempted devel-

opment of the ETSI project constituted prima facie anti-

competitive conduct. This activity amounted to an over-

all scheme involving a concerted effort by the defendant

railroads to prevent ETSI from competing in the coal

shipping business. The question, therefore, becomes

whether the attorney/client privilege, reinforced by the

exception to the Sherman Act found in Eastern Railroad

Presidents Conference et al. v. Noerr Motor Freight, Inc.,

et al. (Noerr) and United Mine Workers of America ».

Pennington, et al. (Pennington), should protect discov-

ery of work product and attorney/client communications

or whether the crime or fraud exception to the privileges

should allow Plaintiff to discover material which was part

of the furtherance of that crime or fraud.®

Il, SUMMARY OF FACTS AND ISSUES

ETSI, relying on the crime-fraud exception to the priv-

ileges, contends that the Defendants used their attorneys

to further activities that violated the antitrust laws:

therefore, the materials should be discoverable Defend-

ants counter that the alleged activities were “petitioning”

activities and that the Noerr-Pennington doctrine shields

$365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961).

* 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965).

5 The Court, throughout this Order, borrows heavily from the

language in the Special Master’s Recommended Memorandum Opin-

ion and Order.

EE eEO-w

36a

Defendants from liability; consequently, making the

crime-fraud exception inapplicable. ETSI replies that the

“sham” exception to the Noerr-Pennington doctrine ap-

plies and, additionally, that in any event evidence of use

of attorneys in Defendants’ governmental petitioning is

admissible because the petitioning was part of an overall,

broad conspiracy to violate the antitrust laws. ETSI also

asserts that the Court must allow discovery based on an

alternative doctrine. By placing the question of a good

faith defense at issue by the assertion of the Noerr

Pennington defense, Defendants waive the attorney/client

privilege regarding whether their government petitioning

was made in good faith.°

_ Defendants agree* that ETSI’s burden, under the

crime-fraud exception, is only to make a prima facie

showing that Defendants consulted with their attorneys

for the purpose of furthering a violation of the antitrust

laws. “Prima facie” in this regard means sufficient evi-

dence to raise an issue of fact.

I.A. Background *

ETSI wanted to build a coal slurry pipeline of some

1800 miles to carry coal from Wyoming to Arkansas. A

project of this magnitude faced numerous obstacles in-

6 Plaintiff’s assertion that the Defendants waived the attorney/

client privilege when they asserted the Noerr-Pennington defense

presents a novel issue of first impression in antitrust litigation in

this Circuit. Because this Court holds that the motion to compel

is granted on other grounds, the Court declines to apply the “at

issue” doctrine to the instant case.

7See Defendants’ Response to Plaintiffs’ Supplemental Brief,

at 5.

8In stating the general facts underlying this motion, the court

has borrowed from a statement by Defendants, with some amplifica-

tion. See Defendant’s Response to Plaintiffs’ Supplemental Brief,

at 5-7.

—

37a

cluding marketing, financing, and right of way. For ex-

ample, it needed to cross the property of a number of

railroads as well as the land of ranchers and other in-

terests. In the early days of its project, ETSI ap-

proached all of the affected railroads on a coordinated

basis to request numerous crossing permits and sought

an immediate response to its crossing requests. All but

one of the railroads denied the requests.

The project also required a great supply of water to

be secured from deep wells in Wyoming and the Oahe

Reservoir in South Dakota. In the beginning, Arkansas

Power & Light, now a party, was envisioned as the proj-

ect’s customer, but others, including Houston Lighting

and Power, were added.°®

As a result of the railroads’ refusal to allow ETSI the

requested crossing rights, ETSI was forced to turn. to

another plan which it hoped would provide an alternative

to the crossing rights. ETSI purchased easements from

landowners which would allow it to construct pipelines

at various points underneath existing railroad easements.

These easements were called windows. ETSI initiated a

litigation program which included over 60 suits filed

against the railroads in the courts of several states. The

litigation program resulted in state court findings that

ETSI’s window easements gave it the right to build its

pipeline under the railroads’ easements. By ETSI’s ad-

mission, this litigation program was carefully planned

to establish a network of precedents that could be used

not only against the individual railroad defendant but

against all other western railroads as well. This litiga-

tion program was the direct result of the Defendants in-

tentional and coordinated efforts to prevent the pipeline

project from succeeding. But for the railroads’ bad faith

actions, the litigation would not have occurred.

® Houston Lighting and Power has filed a motion to intervene in

this litigation.

38a

Simultaneously, ETSI was pursuing a major campaign

to obtain legislation from state and federal governments

giving coal slurry pipelines eminent domain power to con-

demn private property that it proposed to cross, including

property of railroads, ranchers and other interests. The

affected railroads coordinated their defenses of the many

lawsuits brought by ETSI, and they worked together in

lobbying at the state and federal levels. As noted above,

this activity which was part of a major, full scale, cam-

paign was designed to block the coal slurry pipeline. This

coordinated effort, which was initiated by the railroads

at the early stages of the ETSI project, included efforts

to deny ETSI rights of way easements, water rights,

rights of condemnation; all of which were calculated to

block the ETSI project. The railroads worked together

and coordinated each phase of the campaign and devel-

oped strategy on how to most effectively prevent the pipe-

line from being constructed.

Later, after ETSI had secured crossing rights from the

railroads as a result of the litigation program, certain

railroads participated in some administrative proceedings

in which ETSI sought environmental and other authori-

zations to construct its pipeline. Two of the railroads also

were involved—one as a party but the second only indi-

rectly through assistance given to the State of Nebraska

—in the Andrews lawsuits in which the authorization

granted ETSI by the Department of Interior for use of

certain waters was found to be improper.

ETSI later abandoned its coal slurry project, allegedly

as a result of the antitrust actions of the railroads.

ETSI instituted this litigation on September 9, 1984

against the defendant railroads.”

1” The Defendant railroads against whom this motion was filed

are Burlington Northern Railroad, Union Pacific, Chicago & North

Western, Kansas City Southern Railway, and Missouri Pacific Rail-

road Company. Added as a party subsequent to this motion is the

Atchison, Topeka and Santa Fe Railroad.

39a

I.B. Issues

The questions this Court must consider is (a) whether

the attorney/client and work product privileges apply to

the documents in question and (b) whether the crime or

fraud privilege excepts those documents from the protec-

tion of the attorney/client and work product privileges.

The Court also must consider whether the Noerr-Penning-

ton defense can operate as a shield to prevent discovery

and, consequently, whether an exception to petitioning

immunity such as the sham exception or the overall

scheme exception removes the Noerr shield.

The applicability of the work product and attorney/

client privileges is not at issue. The parties do not dis-

pute that the privileges apply to the documents in ques-

tion. Therefore, the relevant inquiry this Court must ex-

plore is whether the crime fraud exception requires this

Court to allow discovery and whether that exception is

limited by the Noerr-Pennington antitrust defense.

ETSI argues that it has presented prima facie evidence

that the conduct of Defendants throughout the window

litigation program, the Andrews cases and the permit-

ting process was in furtherance of an overall scheme of

crime or fraud to violate antitrust laws and prevent ETSI

from succeeding in the development of the coal slurry

pipeline program.

In response, Defendants argue that the Noerr-Penning-

ton doctrine provides immunity because the activities re-

lated to the window suits, the Andrews litigation and the

permitting process constituted -governmental petitioning

and, consequently, the documents remain privileged. ETSI

counters the Noerr-Pennington defense with the conten-

tion that the petitioning activities of Defendants, both in

court and before administrative bodies, in fact consti-

tuted a “sham” within the meaning of the sham excep-

tion to that defense. Defendants contest the “sham peti-

tioning” position of ETSI on the basis that ETSI cannot

40a

make a prima facie" showing of sham. Defendants aver

that a sham exception could not be shown even if part of

the motive had been to stop or delay the ETSI project,

because at least a part of the motivation was to obtain a

result from a tribunal or governmental unit. “As long as

a ‘genuine desire for judicial relief’ is a motivating fac-

tor for a litigation position, such action is immune from

antitrust challenge.” ™

The Court, in a departure from the Special Master’s

Recommendations, holds that the inquiry should focus on

the core question of whether the crime or fraud exception

applies. Plaintiff’s motion does not seek to test the

strength or viability of Defendants’ Noerr-Pennington

defense; nor does it provide an opportunity for Defend-

ants to set the groundwork for a motion for summary

judgment on their defense. Although the viability of the

Noerr defense and the sham exception to that_defense

are important to Plaintiff’s substantiating prima facie

proof of a crime or fraud, the Court holds that based on

a finding of a broad, overall scheme, the crime fraud ex-

ception provides an independent ground to warrant dis-

covery of the protected material. Additionally, the Court

finds that if the Noerr doctrine does apply to shield a

11 ETSI has the burden of showing prima facie evidence of a

sham; see Coastal States Marketing, Inc. v. Hunt 694 F.2d 1358,

1373 (5th Cir. 1983).

12 Defendants’ Response to Plaintiffs’ Supplemental Brief, at 13,

citing Coastal States Marketing, Inc. v. Hunt, 694 F.2d 1358, 1372

(5th Cir. 1983). Defendants state that ETSI has not met its

burden because the evidence shows that a desire for governmental

relief is at least one of Defendants’ motives, even though additional

motives may have been to delay or to make a governmental agency

reconsider its work, citing Meyer, A Standard for Tailoring Noerr-

Pennington Immunity More Closely to the First Amendment Man-

date, 95 Yale L.J. 832, 837 (1986): “[I]t is impossible to char-

acterize petitioning that is intended to produce these harmful re-

sults as ‘sham’ activity when petitioners are also genuinely seeking

a governmental response.”

4la

limited portion of the overall conspiracy, the Plaintiffs

have met its burden in showing an exception to Noerr

through the sham exception and the overall scheme

exception.

The central issue to be determined, therefore, is

whether the crime or fraud exception removes the shield

of the privileges.’* The Court also considers whether the

Noerr doctrine applies to prevent discovery and whether

Plaintiff has presented sufficient proof to show an excep-

tion to this doctrine of petitioning immunity.

HI. EVIDENTIARY BURDENS

Defendants, as claimants of the privilege, have the

initial burden to show that each document in question

falls within the attorney/client privilege or the work

product privilege.'* ETSI, seeking to apply the crime-

fraud exception, has the burden of showing prima facie

that the services of Defendants’ lawyers were used by

defendant railroads in furtherance of a crime or

fraud *—namely an antitrust violation. Defendants then

have the burden to show that the petitioning activities

were not part of the overall scheme.

In regards to the applicability of Noerr-Pennington,

Defendants, having raised the Noerr-Pennington defense,

must show that the activities complained of consisted of

13 The Special Master focused on the issue of Noerr-Pennington

as a shield to the crime-fraud exception, exploring the substantive

analysis of the Noerr doctrine. “(T)wo major issues of law are:

first, the nature and scope of the Noerr-Pennington doctrine; and,

second, the nature and scope of the “sham” exception to that doc-

trine.”” Special Master’s Recommended Memorandum Opinion and

Order at 4.

14 As the Court noted above, this issue is uncontroverted at this

point. The Court notes, however, that ETSI is not precluded from

asserting that the privilege does not apply to specific documents.

15 See n.22, infra. See also discussion at §IV., “Crime or Fraud”

Exception, infra.

eee

42a

normal petitioning of governmental units.'® ETSI raises

the ‘‘sham” and other exceptions to the Noerr-Pennington

defense, and to sustain its contention must make a prima

facie showing as to each defendant that a desire for re-

lief was not a part of the defendant’s motivation in

petitioning.”

IV. THE “CRIME-FRAUD” EXCEPTION

The crime-fraud exception '* to the attorney-client pri-

vilege, simply stated, is that “communications between

an attorney and his/her client in furtherance of the com-

mission of a crime or fraud will not be protected from

disclosure under the law.”’* McCormick states that

“the privilege does not extend to communications between

attorney and client where the client’s purpose is the fur-

therance of a future intended crime or fraud.” *’ The

crime or fraud exception applies to both the attorney

client privilege as well as the work product privilege.*'

16 See § V., Noerr-Pennington Doctrine, infra.

17 See § VI., The “Sham” Exception, infra.

18 The ethical precepts regarding privileged communications are

not controlling in determining the scope of the crime-fraud excep-

tion to the evidentiary privilege, and thus we need not look to

either the Texas Code of Professional Responsibility or the A.B.A

Model Rules of Professional Conduct; see United States v. Ballard,

779 F.2d 287, 293 (5th Cir. 1986), cert. denied 106 S.Ct. 1518

(1986).

19 Coleman v. American Broadcasting Companies, Inc., 106 F.R.D.

201, 206 (D. D.C. 1985), citing Clark v. United States, 289 U.S.

1, 15, 53 S.Ct. 465, 469-70, 77 L.Ed. 993 (1933). See also In rx

Grand Jury Proceedings, 604 F.2d 798 (3rd Cir. 1979).

20 McCormick, Evidence 229 (3d ed. 1984).

21 See In re Grand Jury Proceedings, 604 F.2d 798 (3rd Cir.

1985); Lamelson v. Bendix Corp., 104 F.R.D. 13 (D. Deleware,

1984); See also In re Sealed Case, 676 F.2d 793, 812 (D.C. Cir.

1982) (“Unless the blameless attorney is before the court with an

independent claim of privilege, the client’s use of an attorney's

43a

Before the privilege is defeated, “courts have held that a

prima facie, or probable cause, showing that the commu-

nications were made in the furtherance of a crime or

9

fraud must be made,” ~ and “mere allegations of wrong-

doing or simply naming attorneys as Defendants in liti-

gation is not enough to vitiate the attorney-client priv-

ilege.” ** An antitrust violation is sufficient to invoke

the crime-fraud exception.**

The important intent is that of the client, not that of

the lawyer, for the ‘admissibility of the evidence does

not turn on the lawyer’s complicity in the wrongful

transaction.” ** The parties disagree as to the specificity

efforts in furtherance of crime or fraud negates the privilege.”).

Cf. In re Special September 1979 Grand Jury (II), 640 F.2d 49

(7th Cir. 1980). See generally Annot., 64 ALR Fed. 470, Fraud

Exception to Work Product Privilege in Federal Courts (1983).

Where the crime-fraud exception is applicable, one need not show

“substantial need” to secure production of the attorney’s work

product; Jn re Sealed Case, 676 F.2d 793, 812 (D.C. Cir. 1982).

22 Coleman v. American Broadcasting Companies, Inc., supra,

n.16 at 207. Accord: United States v. Ballard, supra n.18; In re

Grand Jury Subpoenas Duces Tecum, 773 F.2d 204 (8th Cir. 1985) ;

United States v. Harrelson, 754 F.2d 1153 (5th Cir. 1985), cert.

denied 106 S.Ct. 277 (1985) ; Pritchard-Keang Nam Corp. v. Jawor-

ski, 751 F.2d 27, 28 (8th Cir. 1984); United States v. Horvath,

731 F.2d-557 (8th Cir. 1984) ; United States v. King, 536 F. Supp.

253, 261 (C.D. Cal. 1982).

Expansive definitions of “crime or fraud” have been used by

some courts dealing with business related areas such as patent,

antitrust or securities litigation. Coleman v. American Broadcast-

ing Companies, Inc., 106 F.R.D. 201, at 208.

23 Td. at 209.

24 Pfizer, Inc. v. Lord, 456 F.2d 545 (8th Cir. 1972); United

States v. AT&T, 86 F.R.D. 603 (D. D.C. 1979); see Westinghouse

Electric Corp., 76 F.R.D. 47, 59 (W.D. Pa. 1977).

25 United States v. Ballard, supra n.18, at 292. Accord: United

States v. Horvath, 731 F.2d 557 (8th Cir. 1984); In re Grand

Jury Subpoena Duces Tecum Dated 9/15/83, 731 F.2d 1032 (2nd

Cir. 1984) ; Ohio-Sealy Mattress Mfg. Co. v. Kaplan, 90 F.R.D. 21

(N.D. Ill. 1980).

44a

with which the intent of the client must be shown.

Logically, a prima facie showing has been made if the

evidence would support a finding that the client intended

conduct which the client knew or reasonably should have

known constituted a crime* and knowingly used the

services of the attorneys in connection with that conduct.

It is not necessary to show that the client directed the

attorneys to take specific illegal or improper actions—

indeed, it is the client’s role to determine the purposes of

the representation and the lawyer’s role to determine the

means by which such purposes are to be achieved.27 On

the other hand, one must show more than the mere fact

the client engaged in criminal or fraudulent conduct and

consulted an attorney before doing so. The problem is an

evidentiary problem rather than a mechanical problem

susceptible to reduction to a formula. The true test is

whether the logical inferences from the available evidence

would justify a finding of fact that client’s purpose was

to use the services of its lawyers in engaging in what the

client knew or reasonably should have known to be crimi-

nal or fraudulent conduct.

Defendants argue that even if Plaintiff can present

prima facie evidence of a crime or fraud, their assertion

of the Noerr-Pennington defense should shield discovery

because if the defense is successful, no crime or fraud

will have been committed in regards to the specific acts

of petitioning.** The Court disagrees with this argument.

The crime-fraud exception relies on the requirement that

26 Rev. Unif.R.Evid. 502(d)(1) (1974) requires that the client

knew or reasonably should have known the act to be a crime or

fraud.

27 Rule 1.2 and Comment 1 to Rule 1.2, A.B.A. Model Rules of

Professional Conduct.

28 The Court finds, however, that even under the Noerr doctrine.

Plaintiffs have shown that the overall scheme constitutes prima

facie evidence that the governmental petitioning was a sham. (See

discussion below at § VI.).

45a

the party seeking discovery must show that the opponent

was engaged in some form of crime or fraud and that

the documents sought were used in the furtherance of that

conspiracy. To allow the Defendants to use the Noerr

doctrine to shield a portion of the activities which were

a part of the overall conspiracy would be to frustrate the

purpose of the crime-fraud exception.

The Defendants, as well as the Special Master, point to

persuasive language in the Pennington opinion which

states that “‘(s)uch conduct is not illegal, either standing

alone or as part of a broader scheme to violate the Sher-

man Act.” *® Defendants assert that based on this lan-

guage, Defendants’ conduct throughout the course of the

conspiracy which was related to litigation or other gov-

ernment petitioning is specially protected by virtue of

the Noerr doctrine. The Court does not agree with this

view of the Pennington language. Although Pennington’s

discussion regarding the overall conspiracy scheme could

result in a favorable outcome on whether the Defendants

are liable for any acts committed during the petition-

ing,*° the language does not limit the Court’s ability to

find that Defendants’ activity during the petitioning

phase was part of an overall scheme of antitrust viola-

tions and is therefore discoverable under the crime-fraud

exception. The Supreme Court, in Pennington, specific-

ally noted that evidence relating to the petitioning activ-

ity could be admitted by the trial court judge under his

power to show that the purpose and character of the

29 Pennington, 381 U.S. at 670. See also Feminist Women’s

Health Center v. Mohammad, 586 F.2d 530 at 543 (5th Cir.)

cert. denied, 444 U.S. 924 (1979). ‘Whether the action (of the

Defendant) can be linked to the alleged conspiracy ... is irrele-

vant, for petitioning activity according to Pennington “is not il-

legal, either standing alone or as part of a broader scheme.. .’”

30 This question is not now before the Court, nor does the Court

take this opportunity to decide on this issue at the present time.

46a

particular transactions under scrutiny.*! The Fifth Cir-

cuit, in Feminist Women’s Heath Center v. Mohammad,

elaborated on the question of admissibility of evidence

which could not be used to show that participation in an

overall conspiracy is linked to government petitioning:

“Admissability, we think, should be governed by a test

that weighs the probativeness of and the Plaintiff’s need

for the evidence against the danger that the admission of

the evidence will prejudice the defendant’s first amend-

ment rights.” *”

The Antitrust Section of the ABA recently noted that

“(e)ourts have generally held that the existence of the

Noerr-Pennington defense is not a bar to discovery of

information relating to attempts_to influence govern-

mental action.” ** The Fourth Circuit, in N.C. Elec.

Membership v. Carolina Power and Light,* stated that

Noerr-Pennington does not apply to discovery. The Second

Circuit, in Assoc. Container Transp/(Australia) Ltd. v.

U.S.,* found that discovery should be allowed even though

the party resisting discovery had claimed immunity

under Noerr.

The Court holds that a similar analysis should be em-

ployed in the instant case. The issue this Court must

decide, as noted earlier, is not whether the discovery

materials will be admissible, but whether the Court

should allow discovery of materials which were within

31 Pennington, 671 U.S. at 670-671.

32 586 F.2d at 543. In the Feminist case, the Circuit Court found

that the evidence was cumulative and otherwise weak regarding

the state of mind of another party, therefore the evidentiary value

to the Plaintiffs in that litigation was outweighed by the Defend-

ant’s first amendment rights.

33 ABA Antitrust Section, Antitrust Law Developments 2nd ed.

1984 at 619.

34 666 F.2d 50 at 52-53 (4th Cir. 1981).

35 705 F.2d 53 (2nd Cir. 1983).

47a

the scope of the overall scheme of conspiracy. Whether

the Defendants will succeed in preventing the admission

of the evidence in regards to liability for petitioning

conduct is not central to the issue, as the Pennington and

Feminist Women’s Center courts noted. The issue of

whether the evidence can be shown to prove a violation

of antitrust laws does not mean that the evidence is

inviolate and protected. The application of the Noerr

doctrine to the crime-fraud analysis does not limit the

Court’s ability to find that for the purposes of discovery,

and discovery alone, that the prima facie evidence of an

overall conspiracy justifies the discovery of materials

related to petitioning activities.**

In the 7th Circuit’s opinion in Loctite Corp. v. Fel-Pro

Inc.,*" the Court discussed whether it should limit the at-

torney/client and work product privileges to allow dis-

covery. The-court noted: “. .. the privileges are not

absolute. Where the benefit to the resolution of the suit

outweighs the potential injury to the party from whom

discovery is sought .. . discovery is required.” ** The

Court holds that the policy of the crime-fraud rule is to

allow discovery of documents were used in the further-

ance of the crime or fraud, notwithstanding whether a

portion of that crime or fraud is later found to be pro-

tected by doctrine or fact.*® “Decisions regarding the

36 The Fifth Circuit, in U.S. v. Dyer, 722 F.2d 174 at 179 (5th

Cir. 1983) noted that In passing that the issue of admissibility of

evidence is different from the assertion of privilege, and the court’s

ruling that material was not subject to the attorney-client privilege

does not prevent the trial court from later ruling that it is not

admissible.

87 667 F.2d 577 at 582 (7th Cir. 1981).

38 The Court holds that if it should err in this ruling, it is prefer-

able to err on the side of full disclosure, allowing for all the facts

to be available to insure a fair and complete resolution of this

dispute.

39 The work product doctrine, for instance, is not based on the

same policy principles underlying the petitioning immunity. Work

48a

attorney/client privilege should not be based on a rigid

analysis. Rather the focus is on whether the detriment

to justice from foreclosing inquiry into pertinent facts

is outweighed by the benefits to justice from a franker

disclosure in the lawyer’s office.” *°

The Court additionally notes that equity forces the

Court to allow discovery. Defendants, who forced Plain-

tiffs into bringing the window lawsuits by anti-competi-

tive acts, should not be allowed to subsequently hide

behind the Noerr doctrine to prevent discovery of mate-

rial related to the lawsuits.*

IV. A. Evidence of Crime or Fraud

Based on the evidentiary standard discussed above,

ETSI has made a prima facie showing that Defendant

product protection is designed to assure that an opposing attorney

will remain free from intrusion by his opposing counse!. Hand-

guards v. Johnson and Johnson, 413 F. Supp. 926, 929 (N.D. Cal.

1976). The risk of imposition by opposing counsel] is non-existent

in this case because the work product sought relates to work prod-

uct in prior litigation which has been completed, therefore there is

no danger that it will be used by opposing counsel to ‘piggy-back’

on the work of the attorney seeking to protect the materials.

40 Pritchard-Keang Nam Corp. v. Jaworski, 751 F.2d 277 at 284

(Eighth Cir. 1984), citing C. McCormick, McCormick on Evidence

§ 87, at 205 (E. Cleary 3rd ed. 1984). The Court did not allow

discovery, finding that the »enefit from allowing discovery was not

outweighed by the effect on attorney-client relations. This Court

finds that in the instant case, the benefits of allowing full discovery

outweigh any effects on attorney-client relations.

41 See also Handguards Inc. v. Johnson and Johnson, 69 F.R.D.

451 at 454 (N.D. Cal. 1975). Judge Orrick stated that he “believes

that the less expansive view of the scope of the privilege expressed

in the Zenith line of cases is more in keeping with the policy of

full disclosure under the liberal discovery rules of the Federal Rules

of Civil Procedure.”

42 The “use of attorney” test of In re International Systems &

Controls Corp., 693 F.2d 1235 (5th Cir. 1982), if it differs from

the standard just stated herein, has been met by ETSI’s prima

facie evidence.

49a

railroads used the services of their lawyers in engaging

in what they knew or reasonably should have known to

be anticompetitive conduct in violation of antitrust laws.

In fact, the evidence shows prima facie extensive use by

all railroads of the lawyers’ services in unified opposition

to ETSI’s project. The evidence demonstrates that the

attorneys frequently were consulted, were asked for

opinions, participated in meetings, and were generally

involved in or participated in efforts to delay or oppose

ETSI’s coal slurry project. While the evidence is more

directly related to Burlington Northern, Chicago & North

Western, KCS, and Union Pacific, the circumstantial

evidence, including patterns of distribution of copies of

documents and other patterns, shows prima facie that all

Defendant railroads knowingly used their attorneys suffi-

ciently to invoke the crime-fraud exception to the pri-

vilege. Plaintiff has produced prima facie evidence that

each of the five railroads combined to engage in anticom-

petitive activities or to participate with others to restrain

competition by ETSI, including such activities as collec-

tively denying crossing rights,‘* defending window liti-

gation, opposing grants by administrative agencies of

governmental permits, and using delaying tactics in ac-

tivities allied with opposition to the governmental grants,

all of which constitute a crime part of the overall crimi-

nal and/or fraudulent conspiracy. These activities, unless

protected by the Neerr-Pennington defense, constitute

antitrust violations.** For example, there is a prima facie

43 See, e.g., Attachment 39, Plaintiffs’ Memorandum in Support.

44 See, for example, attachments 3, 4, 7, 8, 9, 13, 15, 16, 19, 20,

21, 22, 23, 25, 27, 28, 30, 31, 32, 34, 35, 37, 39, 40, 41, 51, 55, 56, |

60, 63, 64, 66, 67,°68, 69, 73, 77, 81, 83, 88, 97, 111, 116, 122, 123,

124, 125, 127, 128, 133, 134, 148, 155, 161, 162, 163, 169, 170, 172,

180, 182, 193, and 195, Plaintiffs’ Memorandum.

Cf. Park v. El Paso Board of Realtors, 764 F.2d 1053 (5th Cir.

1985), cert. denied 106 S.Ct. 884 (1985); Belts Travel Service, Inc.

v. International Air Transport Ass’n., 620 F.2d 1360 (9th Cir.

1980) ; Gainesville Utilities Dept. v. Florida Power & Lt. 573 F.2d

292 (5th Cir.), cert. denied 439 U.S. 966 (1978).

50a

showing that Burlington Northern, Union Pacific, and

Chicago & North Western conspired to deny crossing per-

mits to ETSI,** wholly aside from the Defendants’ peti-

tioning activities in defending against ETSI’s window

lawsuits. The ETSI project, if completed, would have

been a strong competitor in the transportation of coal.

The prima facie evidence also shows that the Defend-

ant railroads engaged in a coordinated effort which was

calculated to delay and frustrate ETSI’s efforts by any

means, including petitioning the Courts. The Court is

persuaded that ETSI has presented ample evidence to

show that this conspiracy was active throughout the en-

tire period of the window lawsuits, the Andrews litiga-

tion and the permitting requests. ETSI accurately

stresses that a prima facie case of use of their attorneys

by the railroads to further antitrust acivities has been

shown by the “blind copies” used by the railroads among

themselves, by the pattern of similar activities by the

several railroads, and by other exhibits produced by

ETSI. While the main activities in regard to administra-

tive permits allegedly were carried out by Kansas City

Southern (“KCS”) and by Brown & Roady (said by

ETSI to have taken the lead in connection with environ-

mental issues), the other railroads, ETSI alleges, cannot

disassociate themselves from those activities because

there was a conspiracy and because the other railroads

were involved in the overall scheme.

Viewing all of ETSI’s evidence as a whole, the Court

finds that ETSI has met its burden and shown prima

facie evidence of a combination or conspiracy to delay

and obstruct ETSI and lessen its ability to compete and

that the conduct of the Defendants in their defense of

the window suits, the Andrews litigation and the per-

45 See, e.g., attachments 287 and 288, Plaintiffs’ Second Supple-

mental Memorandum, and Attachment 30, ETSI Crime-Fraud

Memo.

a

5la

mitting process were a part of and in furtherance of this

conspiracy.

V. NOERR-PENNINGTON DOCTRINE

The Noerr-Pennington doctrine, derived from Eastern

R. Conf. v. Noerr Motor Freight and United Mine Work-

ers of America v. Pennington, et al provides antitrust

immunity for all petitions seeking governmental action,

even if the petitioning of the government injures com-

petition. The doctrine fostered by Noerr essentially pro-

vides that all activities within the normal scope of peti-

tioning which represent attempts to secure anticompeti-

tive governmental responses are exempt from antitrust

liability.” *®° This immunity principle has been extended

to petitioning of administrative agencies and courts.”

The immunity applies to petitioning not only of federal

but also of state and local officials.*®

The only issue of fact under Noerr-Pennington is

whether the activities in question were a normal form of

petitioning. But what constitutes petitioning? This dis-

tinction must be made. Joint efforts and activities either

to prepare for or to engage in direct or formalized con-

tact with a legislative body, an administrative agency, or

a tribunal, constitutes “petitioning” if the efforts and

activities involve only those who, in fact, do contact,

appear before, or in a proper manner attempt directly

46 Meyer, A Standard for Tailoring Noerr-Pennington Immunity

More Closely to the First Amendment Mandate, 95 Yale L.J. 832,

934 (1986).

47 California Motor Transport Co. v. Trucking Unlimited, 404

U.S. 508, 510, 92 S.Ct. 609, 611, 30 L.Ed.2d 642 (1972). See also

Meyer, supra n.46 at 834.

48 Independent Taxicab Drivers’ Employees v. Greater Houston

Transp. Co., 760 F.2d 607, cert. denied 106 S.Ct. 231 (1985) ;

Interstate Properties v. Pyramid Co. of Utica, 586 F. Supp. 1160

(S.D. N.Y. 1984) ; United States Football League v. National Foot-

ball League, 634 F. Supp. 1155 (S.D.N.Y. 1986).

52a

to influence the agency. In contrast, similar efforts and

activities to encourage other entities and individuals to

attempt to influence the administrative agency or other

governmental unit do not constitute “petitioning” when

such other persons or organizations do not, in fact, con-

tact, appear before, or directly attempt to influence the

agency and, therefore, such actions are not entitled to

immunity.

VI. THE “SHAM” EXCEPTION

The key to the sham exception is whether ‘a genuine

desire for judicial [or other governmental] relief is a

significant motivating factor underlying the suit lor

other petitioning].” *® If no such genuine desire exists,

or, as sometimes stated, if the only intent is to injure

by beginning the petitioning, the petitioning is a sham.°°

49 See Coastal States Marketing, Inc. v. Hunt, 694 F.2d 1358, 1872

(5th Cir. 1983), which dealt only with judicial petitioning. The

sham exception applies when it is shown that the motive was “the

intent to harm one’s competition not by the result of the litigation

but by the institution of litigation.” City of Gainesville v. Florida

Power & Lt. Co., 1488 F. Supp. 1258, 1265-66 (S.D. Fla. 1980).

50 The authorities have not always clearly separated the elements

of the Noerr-Pennington defense from the elements of the sham

exception to that defense, even though the courts have recognized

there is a separate burden of making a prima facie showing for

each. The gist of the ETSI argument, although-not so stated ex-

pressly, is that to make a Noerr-Pennington defense one must show

that the petitioning was made with a “genuine desire” for govern-

mental relief, and that the often recognized “sham exception” is

not an exception at all but merely an inferential rebuttal of the

Noerr-Pennington defense, with no burden of proof being placed

on the party alleging that the petitioning was a sham. On balance,

however, the decisions seem clearly to contemplate that the ‘sham

exception” is actually an exception and not merely an inferential

rebuttal to or an element encompassed within the Noerr-Pennington

defense. Rather it is truly an exception to be alleged and shown in

order to avoid the defense. Accordingly, the burden of making a

prima facie showing of the elements of the sham exception neces-

sarily falls on ETSI, the one asserting the sham exception, while

53a

Whether a prima facie showing of sham has been made

is a question of fact.

VI. A. Sham Litigation

Sham petitioning, insofar as litigation is concerned,

requires an “intent to harm one’s competitors not by the

result of the litigation, but by the institution of the liti-

gation.” *' One court has said that a “sham pleading is

one which is good in form, but false in fact.” ** Thus, a

sham petition in litigation is akin to a knowing assertion

of a frivolous claim or defense ** with the ulterior motive

of harming one’s competitors. In short, petitioning is a

sham if the petitioning is done for the purpose of hurt-

the Defendants relying on the Noerr-Pennington defense do not

have the burden of negativing the “sham exception.” Cf. Coastal

States Marketing, Inc. v. Hunt, supra n.1l1, at 1373 stating that

only after Defendant has met its burden of making the appropriate

“showing would the burden shift back to the Plaintiff to show

sham” (emphasis added); Feminist Women’s Health Center v.

Mohammad, 586 F.2d 530, 543, cert. denied 444 U.S. 924 (1979)

(“The Noerr doctrine presents no bar if the Plaintiff proves that

the petitioning was not a genuine effort to influence public officials

to take governmental action”’).

51 City of Gainesville v. Florida Power & Light Co., 488 F. Supp.

1258, 1265-66 (S.D. Fla. 1980). See also Greenwood Utilities v.

Mississippi Power Co., 751 F.2d 1484, 1498 (5th Cir. 1985) (“vexa-

tious litigation’’).

52 1.T.T. v. United Tel. Co. of Fla., 60 F.R.D. 177, 184 (M.D. Fla.

1973).

53 Compare DR 7-102 (A)(1), Texas Code of Professional Re-

sponsibility (‘“C.P.R.”); cf. Rule 4.4, A.B.A. Model Rules of Pro-

fessional Conduct. A claim or defense in a lawsuit is not neces-

sarily baseless even if it does not prevail upon trial, because it is

permissible to assert a claim or defense not warranted under exist-

ing law if the claim or defense “can be supported by good faith

argument for an extension, modification, or reversal of existing

law.” DR 7-102(A)(2). See also EC 7-4, C.P.R. and EC 7-3,

C.P.R. (“While serving as advocate, a lawyer should resolve in

favor of his client doubts as to the bounds of the law’’).

54a

ing the competitor by the very fact of initiation of the

petitioning without a desire to prevail on the petition.™

Additionally, the sham exception may be substantiated

through proof of baseless or repeated claims. “One claim,

which a court or agency may think is baseless, may go

unnoticed, but a pattern of baseless, repetitive claims

may emerge which leads the factfinder to conclude that

the administrative and judicial processes have been

abused.”

The Court finds, as noted above, that the overall scheme

of conspiracy between the Defendant railroads pervaded

throughout the conduct of the governmental petitioning.

Plaintiff has presented sufficient prima facie proof to

support its allegation that the governmental petitioning

was an integral part of the concerted railroad effort to

prevent ETSI from succeeding in its pipeline project.

This connection, the Court finds, taints the entire peti-

tioning process with sham. The Defendants’ participation

in the litigation and administrative proceedings, even

though partially suecessful,** was part of an all overall

scheme which was in violation of antitrust laws and not

in good faith. Therefore, the Defendants were not en-

gaged in a bona fide effort to secure governmental

action.*’

54 Compare California Motor Transport v. Trucking Unlimited,

404 U.S. 508, 92 S.Ct. 609 (1972).

55 California Motor Transport, supra n.54 at 513, see also,

Greenwood Utilities v. Mississippi Power Co., 751 F.2d at 1498:

“While the precise contours of these exceptions are as yet ill-

defined, there appears to be agreement that . . . vexatious litiga-

tion.... (is a) sham activity... .”

56 The Railroads were successful in the Andrews litigation.

57 See generally, Greenwood Utilities. The Court also points, as

noted above, that the nexus of the window suits was the result of

the bad faith conduct of the Defendants; but for the bad faith

actions of the Defendants, much of the petitioning never would have

occurred.

55a

The Court is not persuaded by Defendants’ assertion

that the litigation was not part of an overall conspiracy.

The exhibits noted above and the pattern of events pre-

ceding the instigation of this lawsuit provide a clear indi-

cation that the railroads very early realized the potential

effect a coal transport competitor would have on the rail

industry. This realization caused the railroads to join

together in an illegal conspiracy and, in bad faith, to stop

ETSI by whatever means, including through govern-

mental actions.

The sham exception, consequently, results in the docu-

ments falling under the crime or fraud exception and,

therefore, the attorney/client privilege does not apply.

VII. OVERALL SCHEME EXCEPTION TO

NOERR-PENNINGTON

Various courts have also recognized other exceptions

to the Noerr-Pennington petitioning immunity which

provide a basis for allowing discovery under the crime

or fraud standard.

The recent decision in Clipper Exxpress v. Rocky

Mountain Motor Tariff Bureau,** outlined an exception

to petitioning immunity based on an ‘overall scheme’

concept:

. (W)e hold that when there is a conspiracy pro-

hibited by the antitrust laws, and the otherwise legal

58674 F.2d 1252 at 1273 (9th Cir.) cert. denied 459 U.S. 1227

(1983). Judge Posner, in Grip-Pak, Inc. v. Illinois Tool Works Inc.,

694 F.2d 466 at 472 (7th Cir. 1982), stated that “the line is crossed

(of petitioning immunity), when his purpose is not to win a favor-

able judgment against a competitor but to harass him and deter

others, but the process itself—regardless of the outcome—of litigat-

ing.” The Court held that a non-malicious lawsuit can violate anti-

trust law.

56a

litigation is nothing but an act in furtherance of

that conspiracy, general antitrust principles apply,

notwithstanding the existence of the Noerr immu-

nity. In so holding, we are acting consistently with

the theoretical underpinnings of the Noerr doctrine.

When .. . the petitioning activity is but a part of

a larger overall scheme to restrain trade, there is no

overall immunity.

The line of cases beginning with Kobe v. Dempsey

Pump Co. provides an alternative avenue for antitrust

liability, the overall scheme exception. The Kobe decision

has been implicitly recognized in this Circuit in Coastal

States Marketing. The Court, in Coastal, described

the doctrine:

This exception from petitioning immunity (overall

scheme) dates at least from Kobe, Inc... . The

theory of these cases is that good faith, even success-

ful, litigation brought in the furtherance of an

“overall scheme” to violate the antitrust laws is not

entitled to immunity. Each of the cases applying

the “overall scheme” theory involved circumstances

unlawful even apart from the litigation.

The Court finds, based on the analysis of the evidence

discussed above, that Defendants were engaged in an

overall scheme to violate antitrust laws, consequently, the

overall scheme of the conspiracy obviates the petitioning

immunity.

59198 F.2d 416 (10th Cir.) cert. denied 344 U.S. 837, 73 S.Ct.

46, 97 L.Ed.2d 651 (1952). Rex Chainbelt, Inc. v. Harco Prods., Inc.,

512 F.2d 993, 1004-07 (9th Cir. 1975), see also Handguards v.

Ethicon, Inc., 601 F.2d 986 at 990 (9th Cir. 1979), Mach-Tronics,

Incorporated v. Zirpoli, 316 F.2d 993 (9th Cir. 1975), Prelin In-

dustries, Inc. v. G & G. Crafts, Inc., 357 F. Supp. 52 (W.D. Ok.

1975).

60 694 F.2d 1358,,1371 (5th Cir. 1983). The Court, in a footnote

distinguished Coastal from Kobe.

57a

VIII. ALTERNATIVE WORK PRODUCT

REQUESTS

ETSI seeks, wholly aside from the crime-fraud conten-

tions, to discover certain documents for which the work

product privilege is claimed. The position of ETSI that

such documents are discoverable rests on two theories:

(1) the work product privilege does not apply to docu-

ments of a factual nature (as distinguished from docu-

ments reflecting a lawyer’s mental impressions) in cases

subsequent to the case in connection with which the docu-

ment was prepared; (2) documents reflecting a lawyer’s

mental impressions are discoverable under the “substan-

tial need” rule when the legal advice is in issue in the

lawsuit. In ordering discovery on other grounds, the

Court finds no reason to pass on this ground.

IX. SCOPE OF ORDER

This Order relates, of course, only to the questions

whether there has been a prima facie showing of a crime

or fraud through conduct in violation of antitrust laws

and whether there is prima facie proof of sham petition-

ing sufficient for discovery of documents claimed to be

privileged. The findings and decisions herein are not

rulings upon admissibility of documents that may be dis-

covered * and in no way impinge upon the determination

of any issues of fact upon trial.

X. IN CAMERA INSPECTION

Defendants are not precluded from arguing that spe-

cific documents are not discoverable in that they are not

*1 The Court is inclined to agree with the Special Master that

ETSI cannot show a substantial need at this stage of this litiga-

tion, for much discovery—including that granted by this Order—

remains to be done.

62 Compare United States v. Dyer, 722 F.2d 174, 178 (5th Cir.

1983) ; In re A.H. Robins Co., 107 F.R.D. 2 (D. Kan. 1985).

58a

related to the crime or fraud which forms the basis of

the exception to the privileges. Defendants, if they have

a good faith basis for asserting such a claim, may pre-

sent specific documents to the Court for in camera inspec-

tion so that the Court may determine whether the docu-

ments are related to the crime or fraud and are, there-

fore, discoverable.

ORDER

The Motion to Compel Production of Documents

(Crime-Fraud) is Granted in regards to the following

documents:

(1) Documents relating to Defendant railroads collec-

tively denying or delaying crossing rights to ETSI in-

cluding documents relating to the window litigation.

(2) Documents relating to participation by KCS,

other railroad Defendants, and Brown & Roady in peti-

tioning federal, state, and local administrative agencies

in regard to permits and authorizations sought by ETSI.

(3) Documents relating to activities on the part of

Burlington Northern, Union Pacific, KCS and other Rail-

road Defendants in opposing the grant by federal, state,

and local administrative agencies of permits and author-

izations sought by ETSI.

(4) Documents relating to the Andrews litigation.

SIGNED and ENTERED on this the 13th day of

February, 1987.

s/ Robert M. Parker

ROBERT M. PARKER

United States District Judge

59a

APPENDIX C

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF TEXAS

BEAUMONT DIVISION

Civil Action No. B-84-979-CA

ETSI PIPELINE PROJECT, A JOINT VENTURE, AND

ENERGY TRANSPORTATION SYSTEMS, INC.,

Plaintiffs,

VS.

BURLINGTON NORTHERN, INC., et al.,

Defendants.

MEMORANDUM OPINION & ORDER

Plaintiffs’ Second Motion to Compel Production of

Document (identified as the “Crime-Fraud” Motion)

seeks to compel production of certain allegedly privileged

documents' on the ground that Plaintiffs (“ETSI”)

have made a prima facie showing, sufficient to invoke the

crime-fraud exception, that defendant railroads consulted

their attorneys in furtherance of violations of Section 1

of the Sherman Act

The Motion is Denied in part and Granted in part.

I. Summary of Facts and Issues

ETSI, relying on the crime-fraud exception to the pri-

vileges, contends that the defendants used their attorneys

1The documents number in the thousands. No argument has

been made that the documents are not within the attorney-client

privilege or the work product privilege (aside from the crime-

fraud exception), and the documents are not being examined in-

dividually or in camera at this time; ETSI is not precluded from

raising such issue later on.

60a

to further activities that violated the antitrust laws.

Defendants counter that the alleged activities were “peti-

tioning” activities and that the Noerr-Pennington doc-

trine prevents such activities by defendants from being

a violation of antitrust laws, thereby making the crime-

fraud exception inapplicable. ETSI replies that the

“sham” exception to the Noerr-Pennington doctrine ap-

plies and, additionally, that in any event evidence of use

of attorneys in defendants’ governmental petitioning is

admissible because the petitioning was part of an over-

all, broad conspiracy to violate the antitrust laws. Cer-

tain other issues, including waiver, are joined by the

parties.

Defendant agrees? that ETSI’s burden under the

crime-fraud exception is only to make a prima facie

showing that defendants consulted with their attorneys

for the purpose of furthering a violation of the antitrust

laws; “prima facie” in this regard means sufficient evi-

dence to raise an issue of fact.

In stating the general facts underlying this motion,

the court has borrowed heavily from but amplified a

statement by defendants.*

ETSI wanted to build a coal slurry pipeline of some

1800 miles to carry coal from Wyoming to Arkansas. A

project of this magnitude faced numerous obstacles in-

cluding marketing, financing, and right of way. For

example, it needed to cross the property of a number of

railroads as well as the land of ranchers and other inter-

ests. In the early days of its project, ETSI approached

all of the affected railroads on a coordinated basis to

request numerous crossing permits (even though its pipe-

line route had not been precisely determined) and sought

2 See Defendants’ Response to Plaintiffs’ Supplemental Brief, at

5.

3 See Defendant’s Response to Plaintiffs’ Supplemental Brief, at

5-7.

6la

an immediate response to its crossing requests. All but

one of the railroads denied the requests. The project also

required a great supply of water, to be secured from deep

wells in Wyoming and the Oahe Reservoir in South

Dakota. In the beginning, Arkansas Power & Light, now

a party, was envisioned as the project’s customer, but

others, including Houston Power & Light, were added.

ETSI later initiated a litigation program, the window

litigation, including over 60 suits filed against the rail-

roads in the courts of several states. By ETSI’s admis-

sion, this litigation program was carefully planned to

establish a network of precedents that could be used not

only against the individual railroad defendant but against

all other western railroads as well. Simultaneously,

TSI was pursuing a major campaign to obtain legisla-

tion from state and federal governments giving coal

slurry pipelines eminent domain power to condemn pri-

vate property that it proposed to cross, including prop-

erty of railroads, ranchers and other interests. The af-

fected railroads coordinated their defenses of the many

lawsuits brought by ETSI, and they worked together in

lobbying at the state and federal levels.

Later, after ETSI had secured crossing rights from

the railroads (although not from all of the other land-

owners), certain railroads participated in some adminis-

trative proceedings in which ETSI sought environmental

and other authorizations to construct its pipeline. Two

of the railroads also were involved—one as a party but

the second only indirectly through assistance given to the

State of Nebraska—in the Andrews lawsuits in which

the authorization granted ETSI by the Department of

Interior for use of certain waters was found to be

improper.

ETSI accurately stresses that 2 prima facie case of

use of their attorneys by the railroads to further anti-

trust activities has been shown by the “blind copies” used

62a

by the railroads among themselves, by the pattern of

similar activities by the several railroads, and by other

exhibits produced by ETSI. While the main activities in

regard to administrative permits allegedly were carried

out by Kansas City Southern (“KCS”) and by Brown &

Roady (said by ETSI to have taken the lead in connec-

tion with environmental issues), the other railroads,

ETSI alleges, cannot disassociate themselves from those

activities because there was a conspiracy and because the

other railroads were factually involved.

In response, defendants argue that the Noerr-Penning-

ton doctrine provides immunity because the activities con-

stituted governmental petitioning. ETSI counters the

Noerr-Pennington defense with the contention that the

petitioning activities of defendants, both in court and

before administrative bodies, in fact constituted a “sham”

within the meaning of the sham exception to that de-

fense. Defendants contest the “sham petitioning” posi-

tion of ETSI on the basis that ETSI cannot make a

prima facie* showing of sham because, defendants state,

the evidence shows that a desire for governmental relief

is at least one of defendants’ motives, even though addi-

tional motives may have been to delay or to make a gov-

ernmental agency reconsider its work.’ Defendants aver

that a sham exception could not be shown even if part of

the motive had been to stop or delay the ETSI project,

because at least a part of the motivation was to obtain

a result from a tribunal or-governmental unit. “As long

as a ‘genuine desire for judicial relief’ is a motivating

*ETSI has the burden of showing prima facie evidence of a

sham; see Coastal States Marketing, Inc. v. Hunt, 694 F.2d 1358,

1373 (5th Cir. 1983).

5See Meyer, A Standard for Tailoring Noerr-Pennington Im-

munity More Closely to the First Amendment Mandate, 95 Yale

L.J. 832, 837 (1986): “[I])t is impossible to characterize petition-

ing that is intended to produce these harmful results as ‘sham’

activity when petitioners are also genuinely seeking a governmental

”

response.

63a

factor for a litigation position, such action is immune

from antitrust challenge.” °

Even if the petitioning activities of the defendants‘ in

connection with the window litigation, the later adminis-

trative proceedings, and the Andrews lawsuits were moti-

vated by a desire to lessen competition, the Noerr-

Pennington doctrine prevents the petitioning from being

a crime (and therefore prevents application of the crime-

fraud exception), unless ETSI makes a prima facie show-

ing that the petitioning was a sham. Accordingly, two

major issues of law are: first, the nature and scope of

the Noerr-Pennington doctrine; and, second, the nature

and scope of the “sham” exception to that doctrine.

The bulk of the documents in question relate to the

window litigation, the later administrative proceedings,

and the Andrews lawsuits. In part, the evidence of ETSI

relates to other issues, such as whether defendants con-

spired not to grant window crossings.

Wholly aside from the crime-fraud exception, ETSI

seeks to discover certain communications for which a

work-product privilege is claimed; see § VII, infra. II.

Evidentiary Burdens

Defendants, as claimants of the privilege, have the

initial burden to show that each document in question

falls within the attorney-client privilege or the work

product privilege.* ETSI, seeking to apply the crime-

* Defendants’ Response to Plaintiffs’ Supplemental Brief, at 13,

citing Coastal States Marketing, Inc. v. Hunt, 694 F.2d 1358, 1372

(5th Cir. 1983).

™The defendant railroads against whom this motion was filed

are Burlington Northern Railroad, Union Pacific, Chicago & North

Western, Kansas City Southern Railway, and Missouri Pacific Rail-

road Company. Added as a party subsequent to this motion is

Santa Fe.

® This issue as to any particular document is uncontroverted at

this time but it is understood that ETSI can raise the issue later;

see n.1, supra.

64a

fraud exception, has the burden of showing prima facie

that the services of defendants’ lawyers were used by

defendant railroads in furtherance of a crime or

fraud °—namely an antitrust violation. Defendants, hav-

ing raised the Noerr-Pennington defense, must show that

the activities complained of consisted of normal petition-

ing of a governmental unit,’ whether it be a legislative

body, an administrative body, or a court. ETSI raises

the “sham” exception to the Noerr-Pennington defense,

and to sustain its contention must make a prima facie

showing as to each defendant that a desire for relief was

not a part of the defendant’s motivation in petitioning."

Ill. Evidence of Anti-Trust Violations

The court finds that ETSI has made a sufficient prima

facie showing that each of the five railroads combined to

engage in anticompetitive activities or to participate

with others to restrain competition by ETSI, including

such activities as collectively denying crossing rights,’

defending window litigation, opposing grants by admin-

istrative agencies of governmenta! permits, and using

delaying tactics in activities allied with opposition to the

go ernmental grants, all of which, unless protected by

the Noerr-Pennington defense, constitute antitrust viola-

tions.'* For example, there is a prima facie showing that

® See n.18, infra. See also discussion at § IV, “Crime or Fraud”

Exception, infra.

19 See § V, Noerr-Pennington Doctrine, infra.

11 See § VI, A, The “Sham” Exception, infra.

12 See, e.g., Attachment 39, Plaintiffs’ Memorandum in Support.

13 See, for example, attachments 3, 4, 7, 8, 9, 18, 15, 16, 19, 20,

21, 22, 23, 25, 27, 28, 30, 31, 32, 34, 35, 37, 39, 40, 41, 51, 55, 56,

60, 63, 64, 66, 67, 68, 69, 73, 77, 81, 83, 88, 97, 111, 116, 122, 123,

124, 125, 127, 128, 133, 134, 148, 155, 161, 162, 163, 169, 170, 172,

180, 182, 198, and 195, Plaintiffs’ Memorandum.

Cf. Park v. El Paso Board of Realtors, 764 F.2d 1053 (5th Cir.

1985), cert. denied 106 S.Ct. 884 (1985) ; Beltz Travel Service, Inc.

v. International Air Transport Ass’n., 620 F.2d 1360 (9th Cir.

65a

Burlington Northern, Union Pacific, and Chicago &

North Western conspired to deny crossing permits to

ETSI,"* wholly aside from the defendants’ petitioning

activities in defending against ETSI’s window lawsuits.

The ETSI project if completed would have been a strong

competitor in the transportation of coal. Viewing all of

ETSI’s evidence as a whole, the evidence is sufficient ci.

cumstantial evidence to constitute a prima facie showing

of a combination or conspiracy to delay and obstruct

ETSI and lessen its ability to compete.

IV. “Crime-Fraud” Exception

The crime-fraud exception * to the attorney-client priv-

ilege, simply stated, is that “communications between

an attorney and his/her client in furtherance of the

commission of a crime or fraud will not be protected

from disclosure under the law.”'® McCormick states

that “the privilege does not extend to communications

between attorney and client where the client’s purpose is

the furtherance of a future intended crime or fraud.” 2”

Before the privilege is defeated, “courts have held that

1980) ; ‘alent Utilities Dept. v. Florida Power & Lt., 573 F.2d

292 (5th Cir.), cert. denied 439 U.S. 966 (1978).

14 See, e.g., attachments 287 and 288, Plaintiffs’ Second Supple-

mental Memorandum, and Attachment 30, ETSI Crime-Fraud

Memo.

1° The ethical precepts regarding privileged communications are

not controlling in determining the scope of the crime-fraud excep-

tion to the evidentiary privilege, and thus we need not look to

either the Texas Code of Professional Responsibility or the A.B.A.

Model Rules of Professional Conduct; see United States v. Ballard,

779 F.2d 287, 293 (5th Cir. 1986), cert. denied 106 S.Ct. 1518

(1986).

18 Coleman v. American Broadcasting Companies, Inc., 106 F.R.D.

201, 206 (D. D.C. 1985), citing Clark v. United States, 289 U.S. 1,

15, 53 S.Ct. 465, 469-70, 77 L.Ed. 993 (1983). See also In re Grand

Jury Proceedings, 604 F.2d 798 (3rd Cir. 1979).

17 McCormick, Evidence 229 (3d ed. 1984).

66a

a prima facie, or probable cause, showing that the com-

munications were made in the futherance of a crime or

fraud must be made,” '* and “mere allegations of wrong-

doing or simply naming attorneys as defendants in liti-

gation is not enough to vitiate the attorney-client priv-

ilege.” 1° The crime-fraud exception applies to the work

product privilege as well as to the attorney-client priv-

ilege.2° An antitrust violation is sufficient to invoke the

crime-fraud exception.”

The important intent is that of the client, not that of

the lawyer, for the “admissibility of the evidence does not

turn on the lawyer’s complicity in the wrongful trans-

18 Coleman v. American Broadcasting Companies, Inc., supra

n.16, at 207. Accord: United States v. Ballard, supra n.15; In re

Grand Jury Subpoenas Duces Tecum, 773 F.2d 204 (8th Cir. 1985) ;

United States v. Harrelson, 754 F.2d 1153 (5th Cir. 1985), cert.

denied 106 S.Ct. 277 (1985) ; Pritchard-Keang Nam Corp. v. Jawor-

ski, 751 F.2d 27, 28 (8th Cir. 1984); United States v. Horvath,

731 F.2d 557 (8th Cir. 1984); United States v. King, 536 F. Supp.

253, 261 (C.D. Cal. 1982).

Expansive definitions of “crime or fraud” have been used by

some courts dealing with business related areas such as patent,

antitrust or securities litigation. Coleman v. American Broadcast-

ing Companies, Inc., 106 F.R.D. 201, at 208. Here, the concern is

limited to violation of antitrust laws.

19 Td. at 209.

20In re Grand Jury Proceedings, 604 F.2d 798, 802-02 (3rd Cir.

1979); Lemelson v. Bendix Corp., 104 F.R.D. 13 (D. Del. 1984).

See also In re Sealed Case, 676 F.2d 793, 812 (D.C. Cir. 1982)

(“Unless the blameless attorney is before the court with an in-

dependent claim of privilege, the client’s use of an attorney’s ef-

forts in furtherance of crime or fraud negates the privilege.”).

Cf. In re Special September 1978 Grand Jury (II), 640 F.2d 49

(7th Cir. 1980). See generally Annot., 64 ALR Fed 470, Fraud

Exception to Work Product Privilege in Federal Courts (1983).

Where the crime-fraud exception is applicable, one need not show

“substantial need” to secure production of the attorney’s work

product; In re Sealed Case, 676 F.2d 793, 812 (D.C. Cir. 1982).

21 Pfizer, Inc. v.-Lord, 456 F.2d 545 (8th Cir. 1972); United

States v. A.T.&T., 86 F.R.D. 603 (D. D.C. 1979) ; see Westinghouse

Electric Corp., 76 F.R.D. 47, 59 (W.D. Pa. 1977).

67a

action.” #?° The parties disagree as to the specificity with

which the intent of the client must be shown. Logically,

a prima facie showing has been made if but only if the

evidence would support a finding that the client intended

conduct which the client knew or reasonably should have

known constituted a crime** and knowingly used the

services of the attorneys in connection with that conduct.

It is not necessary to show that the client directed the

attorneys to take specific illegal or improper actions—

indeed, it is the client’s role to determine the purposes of

the representation and the lawyer’s role to determine the

means by which such purposes are to be achieved. On

the other hand, one must show more than the mere fact

the client engaged in criminal or fraudulent conduct and

7 consulted an attorney before doing so. The problem is an

evidentiary problem rather than a mechanical problem

susceptible to reduction to a formula. The true test is

whether the logical inferences from the available evidence

would justify a finding of fact that client’s purpose was

to use the services of its lawyers in engaging in what

the client knew or reasonably should have known to be

criminal or fraudulent conduct.

Based on that evidentiary standard,” it appears that

ETSI has made a prima facie showing that defendant

22 United States v. Ballard, supra n.18, at 292. Accord: United

States v. Horvath, 731 F.2d 557 (8th Cir. 1984); In re Grand

Jury Subpoena Duces Tecum Dated 9/15/83, 731 F.2d 1032 (2nd

Cir. 1984) ; Ohio-Sealy Mattress Mfg. Co. v. Kaplan, 90 F.R.D. 21

(N.D. Il. 1980).

23 Rev. Unif. R. Evid. 502(d) (1) (1974) requires that the client

knew or reasonably should have known the act to be a crime or

fraud.

24 Rule 1.2 and Comment 1 to Rule 1-2, A.B.A. Model Rules of

Professional Conduct.

*5 The “use of attorney” test of In re International Systems &

Controls Corp., 693 F.2d 1235 (5th Cir. 1982), if it differs from

the standard just stated herein, has been met by ETSI’s prima

facie evidence.

68a

railroads used the services of their lawyers in engaging

in what they knew or reasonably should have known to

be anticompetitive conduct in violation of antitrust laws.

In fact, the evidence shows prima facie extensive use by

all railroads of the lawyers’ services in unified opposition

to ETSI’s project. The evidence indicates that the attor-

neys frequently were consulted, were asked for opinions,

participated in meetings, and were generally involved in

or participated in efforts to delay or oppose ETSI’s coal

slurry project. While the evidence is more directly

related to Burlington Northern, Chicago & North West-

ern, KCS, and Union Pacific, the circumstantial evidence,

including patterns of distribution of copies of documents

and other patterns, shows prima facie that all railroz1s

knowingly used their attorneys sufficiently to invoke the

crime-fraud exception to the privilege.

This finding of a prima facie showing is, however,

subject to the Noerr-Pennington defense pleaded by de-

fendants; to the extent that such defense is applicable,

the defendant railroads did not use their attorneys in

engaging in illegal anticompetitive conduct—for such

conduct is not shown to be illegal, unless, of course, the

sham exception to Noerr-Pennington, as pleaded by

ETSI, is shown prima facie by ETSI.

V. Noerr-Pennington Doctrine

The Noerr-Pennington doctrine, derived from Eastern

R.R. Presidents Conference v. Noerr Motor Freight, Inc.,”°

and United Mine Workers v. Pennington,” provides

antitrust immunity for all petitions seeking governmental

action, even if the petitioning of the government injures

competition. “The doctrine fostered by Noerr essentially

provides that all activities within the normal scope of

petitioning which represent attempts to secure anticom-

26 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961).

27 381 U.S. 657, 85 S.Ct. 1585, 14 L.ed.2d 626 (1965).

69a

petitive governmental responses are exempt from anti-

trust liability.” ** The immune petitioning may seek gov-

ernmental action through legislative processes even

though the sole motivation is to restrain competition,”

because the governmental response is sought. This immu-

nity principle has been extended to petitioning of ad-

ministrative agencies and courts.*® The immunity applies

to petitioning not only of federal but also of state and

local officials.**

The only issue of fact under Noerr-Pennington is

whether the activities in question were a normal form of

petitioning. But what constitutes petitioning? This dis-

tinction must be made: Joint efforts and activities

(whether or not anticompetitive) either to prepare for

or to engage in direct or formalized contact with a legis-

lative body, an administrative agency, or a tribunal, con-

stitutes “petitioning” if the efforts and activities involve

only those who in fact do contact, appear before, or in a

proper manner attempt directly to influence the agency.

In contrast, similar efforts and activities to encourage

28 Meyer, A Standard for Tailoring Noerr-Pennington Immunity

More Closely to the First Amendment Mandate, 95 Yale L.J. 832,

834 (1986). Meyer adds a statement that is an excellent test as to

whether a particular petitioning is a sham: “Pure petitioning

which threatens the competitive process only through the govern-

ment’s response, and not through the petitioning itself, thus causes

no legally cognizable injury, while serving the two interests upon

which Noerr was predicated.” Id. at 834-35.

29 Miracle Mile Associates v. City of Rochester, 617 F.2d 18, 20

(2d Cir. 1980).

30 California Motor Transport Co. v. Trucking Unlimited, 404

U.S. 508, 510, 92 S.Ct. 609, 611, 30 L.Ed.2d 642 (1972). See also

Meyer, supra n.28 at 834.

31 Independent Taxicab Drivers’ Employees v. Greater Houston

Transp. Co., 760 F.2d 607, cert. denied 106 S.Ct. 231 (1985) ; Inter-

state Properties v. Pyramid Co. of Utica, 586 F. Supp. 1160 (S.D.

N.Y. 1984); United States Football League v. National Football

League, 634 F. Supp. 1155 (S.D. N.Y. 1986).

70a

other entities and individuals to attempt to influence the

administrative agency or other governmental unit do not

constitute “petitioning” when such other persons or or-

ganizations do not in fact contact, appear before, or di-

rectly attempt to influence the agency. In the last de-

scribed situation, such activities are not sufficiently

related to the actual petitioning to be within the Noerr-

Pennington defense, and consequently such activities, if

the knowing use of an attorney by a railroad is involved,

constitute anticompetitive activities falling within the

crime-fraud exception to the two privileges in question.

VI. The “Sham” Exception

A. Generally. The key to the sham exception is

whether “a genuine desire for judicial [or other govern-

mental] relief is a significant motivating factor under-

lying the suit [or other petitioning].”** If no such

genuine desire exists, or, as sometimes stated, if the only

intent is to injure by beginning the petitioning, the peti-

tioning is a sham.** Whether a prima facie showing of

sham has been made is a question of fact.

32 See Coastal States Marketing, Inc. v. Hunt, 694 F.2d 1358,

1372 (5th Cir. 1983), which dealt only with judicial petitioning.

The sham exception applies when it is shown that the motive was

“the intent to harm one’s competition not by the result of the

litigation but by the institution of litigation.” City of Gainesville

v. Florida Power & Lt. Co., 1488 F. Supp. 1258, 1265-66 (S.D. Fla.

1980).

33 The authorities have not always clearly separated the elements

of the Noerr-Pennington defense from the elements of the sham

exception to that defense, even though the courts have recognized

there is a separate burden of making a prima facie showing for

each. The gist of the ETSI argument, although not so stated ex-

pressly, is that to make a Noerr-Pennington defense one must show

that the petitioning was made with a “genuine desire” for govern-

mental relief, and that the often recognized “sham exception” is not

an exception at all but merely an inferential rebuttal of the Noerr-

Pennington defense, with no burden of proof being placed on the

party alleging that the petitioning was a sham. On balance, how-

Tla

ETSI here relies on the “sham” exception to Noerr-

Pennington. This is a critical issue in this Motion; ETSI

also seeks, however, to avoid application of the Noerr-

Pennington doctrine on the basis that the defendants’

overall course of conduct is a part of a broad antitrust

conspiracy and that any activities protected by Noerr-

Pennington can be considered (and thus can be shown by

evidenced as part of the overall conspiracy.

The latter contention is disapproved. Under the Noerr-

Pennington doctrine, no genuine petitioning of the gov-

ernment can be considered as part of a broader scheme

to violate the Sherman Act.** That this is the existing

state of the law has been reaffirmed by the Fifth Cir-

cuit.*° Thus, the Noerr-Pennington defense must prevail

ever, the decisions seem clearly to contemplate that the “sham

exception” is actually an exception and not merely an inferential

rebuttal to or an element encompassed within the Noerr-Pennington

defense. Rather it is truly an exception to be alleged and shown

in order to avoid the defense. Accordingly, the burden of making

a prima facie showing of the elements of the sham exception neces-

sarily falls on ETSI, the one asserting the sham exception, while

the defendants relying on the Noerr-Pennington defense do not

have the burden of negativing the “sham exception.” Cf. Coastal

States Marketing, Inc. v. Hunt, supra n.32, at 1373 stating that

only after defendant has met its burden of making the appropriate

“showing would the burden shift back to the plaintiff to show

sham” (emphasis added); Feminist Women’s Health Center v.

Mohammad, 586 F.2d 530, 543 (‘she Noerr doctrine presents no bar

if the plaintiff proves that the petitioning was not a genuine effort

to influence public officials to take governmental action’), cert.

denied 444 U.S. 924 (1979).

34 United Mineworkers of America v. Pennington, 381 U.S. 657,

670, 85 S.Ct. 1585, (genuine efforts to petition the government “is

not illegal, either standing alone or as part of a broader scheme

itself violative of the Sherman Act’); United States Football

League v. National Football League, 634 F. Supp. 1155, 1180

(S.D. N.Y. 1986).

35 Feminist Women’s Health Center, Inc. v. Mohammad, 586 F.2d

530, 543 (5th Cir. 1978), cert. denied 444 U.S. 924 (1979) (a link

72a

unless the “sham” exception brings some of the activities

of defendants, such as petitioning of judicial or admin-

istrative bodies, within the crime-fraud exception.*°

B. Sham Litigation. Sham petitioning, insofar as liti-

gation is concerned, requires an “intent to harm one’s

competitors not by the result of the litigation, but by the

institution of the litigation.” ** One court has said that

a “sham pleading is one which is good in form, but false

in fact.” °* Thus, a sham petition in litigation is akin to

a knowing assertion of a frivolous claim or defense *

with the ulterior motive of harming one’s competitors.

In short, petitioning is a sham if the petitioning is done

for the purpose of hurting the competitor by the very

to a broader illegal scheme is “irrelevant, for petitioning activity

according to Pennington ‘is not illegal, either standing alone or

as part of a broader scheme’’’) ; cf. Coastal States Marketing, Inc.

v. Hunt, 694 F.2d 1358, 1371 (5th Cir. 1983).

36“The only uniformly accepted limitation to [the Noerr]| im-

munity is the ‘sham’ exception, which denies immunity for peti-

tioning efforts that are merely veiled attempts to injure competi-

tors directly or that use means that violate other laws to influence

government.” Meyers, n.28, at 834.

37 City of Gainesville v. Florida Power & Light Co., 488 F. Supp.

1258, 1265-66 (S.D. Fla. 1980). See also Greenwood Utilities v.

Mississippi Power Co., 751 F.2d 1484, 1498 (5th Cir. 1985) (“vexa-

tious litigation’’).

38].T.T. v. United Tel. Co. of Fla., 60 F.R.D. 177, 184 (M.D.

Fla. 1973).

39 Compare DR 7-102(A)(1), Texas Code of Professional Re-

sponsibility (“C.P.R.”); cf. Rule 4.4, A.B.A. Model Rules of Pro-

fessional Conduct. A claim or defense in a lawsuit is not neces--

sarily baseless even if it does not prevail upon trial, because it is

permissible to assert a claim or defense not warranted under exist-

ing law if the claim or defense “cam be supported by good faith

argument for an extension, modification, or reversal of existing

law.” DR 7-102(A)(2). See also EC 7-4, C.P.R. and EC 7-3,

C.P.R. (“While serving as advocate, a lawyer should resolve in

favor of his client doubts as to the bounds of the law”).

73a

fact of initiation of the petitioning without a desire to

prevail on the petition.

Defendants point out that no defense to a lawsuit has

ever been held to be a sham, and no successful petition in

court has ever been held to be a sham. On the factual

issues, defendants contend that in fact defendants were

not unduly delaying the window litigation, as shown by

the evidence that only 28 of the 65 cases filed by ETSI

were litigated by a defendant, and in most of those in-

stances meaningful issues were raised and the cases were

defended and disposed of promptly, thus refusing the

ETSI claim of a pattern of opposition indicating a con-

spiracy.

In the present controversy, the fact that the defendants

defended, rather than instigated, the various “window

lawsuits” makes it unusually difficult for ETSI to show

that such defensive petitioning by defendants was a

sham. While it is conceivable that the defense of a law-

suit could be a “sham” within the meaning of the excep-

tion to the Noerr-Pennington doctrine if the mere filing

of the defensive pleading was intended to hurt and if

there was no thought of securing any relief as a result

of the defensive filing, the court has been unable to

locate a decision so holding. Although the making of a

baseless defense may be, in some situations, circumstan-

tial evidence of a sham, the intent must be to injure the

competitor by the mere making of the defense, with no

intent or desire to secure any relief from the tribunal.

The court finds that ETSI has not made a prima facie

showing that the defense of any window lawsuit by a

defendant was a sham.*' On the contrary, it appears that

4° Compare California Motor Transport v. Trucking Unlimited,

404 U.S. 508, 92 S.Ct. 609 (1972).

‘1 ETSI’s main evidence is a letter written by Robert Bateson,

a lawyer for Santa Fe; see Attachment 43, Plaintiffs’ Memorandum.

The Bateman assessment of the cases proved to be erroneous, for

74a

many of the window suits were not contested, and that

in those that were contested justiciable defenses were

urged by defendants that were never found to be frivo-

lous or abusive and that not infrequently were success-

ful in limiting the relief sought by ETSI. Indeed, the

defendants’ positions in that series of window cases have

been the subject of favorable scholarly commentary.*

The filing of a defensive pleading is not a sham petition-

ing even where no sound defense exists if a purpose is to

participate in, or have a voice in regard to, the decree to

be entered. The number of, and timing of filing of, law-

suits by ETSI was in the control of ETSI rather than

defendants. In sum, the circumstantial evidence does not

rise to the level of a prima facie showing of sham peti-

tioning in defending the window litigation.

Since there is no prima facie showing that the defend-

ants engaged in sham defense of the window lawsuits,

ETSI has not made the requisite showing that documents

and communications relating thereto be*rveen attorneys

and clients are discoverable under the crime-fraud

exception.

C. Sham Petitioning of Administrative Bodies. We

begin with the proposition that anticompetitive petition-

ing conduct directed at administrative agencies, includ-

ing state and local agencies, is immunized under the

Noerr-Pennington doctrine,** unless it constitutes sham

some of the cases in question were settled by consent decrees, the

defendants were able to limit relief sought by ETSI in the cases,

all were resolved within 8 months, and none were appealed. See

Hale deposition Ex. 1, Attachment #1, Defendants’ Response to

Plaintiffs’ Supplemental Brief. A lawyer’s erroneous assessment

of pending cases is very weak evidence of sham litigation.

42 Comment, Coal Slurry Pipelines and Railroad Crossings: Court

Decisions Favor the Pipeline Sponsors, 18 Hous. L. Rev. 1075, 1092

(1981).

43 See United States Football League v. National Football League,

634 F. Supp. 1155, 1179 (S.D. N.Y. 1986).

ee a

75a

petitioning. ETSI’s strongest showing of possible sham

petitioning is in regard to the administrative proceedings

in which KCS, in particular, opposed ETSI’s attempts to

secure necessary permits and similar permissions from

administrative agencies.

ETSI also has shown prima facie that Burlington

Northern, Union Pacific, and KCS, through or while

using their attorneys in connection therewith, engaged in

anticompetitive conduct by non-petitioning activities in

opposing ETSI’s quest for administrative permits. These

activities were aside from, and did not amount to, peti-

tioning activities; thus those activities fall outside the

Noerr-Pennington protection. ETSI has produced suffi-

cient circumstantial evidence of their efforts, directed at

other groups as well as other railroads, to stir up oppo-

sition to the granting of permits needed by ETSI. Neces-

sarily in antitrust cases, evidence on motions to produce

tends to be circumstantial, but circumstantia! evidence

can be sufficient for a prima facie showing. An example

of this kind of conduct is that Burlington Northern en-

couraged others to challenge water use by ETSI from

the Oahe Reservoir in South Dakota, to stir up farmer

opposition, and to protest alleged errors in the federal

environmental analysis.‘ Circumstantially, it is indi-

cated that Union Pacific sought to have Ducks Unlimited

and others protest use of the Missouri River water.”

Without describing the minutia of supporting evidence,

suffice it to say that ETSI has shown prima facie that

Burlington Northern, Union Pacific and Kansas City

Southern engaged in attempts to stir up opposition on

the part of others to the granting of permits sought by

ETSI, and that these concerted activities were anticom-

44 See attachments 289, 290, and 291, Plaintiffs’ Second Supple-

mental Memorandum. See also n.13, supra.

*’ See attachment 292, Plaintiffs’ Second Supplemental Memo-

randum. See also n.13, supra.

76a

petitive activities not sufficiently related to the petition-

ing by KCS of administrative bodies to constitute immu-

nized petitioning for discovery purposes. Accordingly,

the documents and correspondence between those partic-

ular defendants and their attorneys in regard thereto (to

the extent that the lawyers’ services or advice were

sought or used by the railroads) come within the crime-

fraud exception to the two privileges asserted by defend-

ants. While a prima facie showing has not been made

that Chicago & North Western and Missouri Pacific

actively engaged in these particular kinds of anticom-

petitive restraints, the prima facie evidence connecting

all five railroads with a concerted effort to oppose ETSI’s

competitive project is sufficient to justify applying the

crime-fraud exception to all documents in question that

relate to attempts to stir others into opposing ETSI’s

quest for governmental permits.

In addition, ETSI has shown prima facie that the peti-

tioning activities by KCS in connection with administra-

tive hearings regarding permits sought by ETSI consti-

tuted shams ** within the meaning of the sham exception

to the Noerr-Pennington defense.’ Consequently, the

documents and correspondence between KCS and its law-

yers in regard to opposition to such administrative pro-

ceedings during the course of or prior to the termination

of such petitioning activities are subject to discovery as

not being within the protection of the attorney-client or

work product privileges. The evidenee-shows prima facie

that baseless or colorable assertions, contrived to inter-

*® See California Motor Transport v. Trucking Unlimited, supra

n.40.

4723 of ETSI’s 24 major permits were attacked. The broad,

organized scope of the opposition is indicated by Attachments 270

and 272, Plaintiffs’ Reply Memorandum. The repetitiveness of the

attacks is evidence of sham petitioning; see Feminist Women’s

Health Center, Inc. v. Mohammad, 584 F.2d 530, 543 (5th Cir.

1978), cert. denied 444 U.S. 924 (1979).

77a

fere with ETSI’s applications rather than to secure the

results ostensibly sought, were asserted by KCS, and

that, as indicated circumstantially,** the other four rail-

roads approved and cooperated in those efforts. There-

fore, none of the five railroads is entitled to Noerr-

Pennington protection in regard to the activities relating

to KCS’s “petitioning” of administrative bodies concern-

ing ETSI’s quest for requisite permits.

D. The Andrews Litigation. The two Andrews law-

suits were a challenge to the Department of Interior as

to water and KCS was at least partly successful in that

litigation. Defendants urge that the Andrews litiga-

tion could not be sham litigation because KCS, who was

plaintiff in Andrews, prevailed on the merits. By defini-

tion, litigation judicially found to be meritorious is not

and cannot be a sham. Furthermore, and aside from

the fact that KCS was partly successful, the court finds

(although it is a close question) that ETSI has not sub-

mitted evidence sufficient to make a prima facie showing

that the Andrews litigation constituted a sham within

the meaning of the sham exception to the Noerr-Penning-

ton defense. Therefore, the activity of KCS in prosecut-

ing Andrews is held not to be within the sham exception.

48 See, e.g., Attachments 234, 238, 239, 240, 243, 244, 245, and

268, Plaintiffs’ Reply Memorandum, and Attachments 6, 65, and

67, Plaintiffs’ Memorandum. See also n.13, supra.

49 One Andrews suit was brought by Kansas City Southern and

the second Andrews suit was brought by the states of Nebraska,

Iowa and Missouri. In connection with the suit by Nebraska,

Nebraska requested of Union Pacific some assistance such as legal

research on relevant federal law.

50 See Mid-Texas Communications Systems, Inc., v. A.T.&T., 615

F.2d 1372, 12838 (5th Cir. 1980), cert. denied 449 U.S. 967 (1980);

Handler & DeSovo, The Noerr Doctrine and Its Sham Exception,

6 Cardozo L. Rev. 1, 30 (1984) (It “should be self-evident that a

suit cannot, in any sense of the word, be a ‘sham’ when it has been

found meritorious.”). Cf. Coastal States Marketing v. Hunt, 694

F.2d 1358, 1372 (5th Cir. 1983) (“Because there was also a genuine

legal dispute, however, the litigation was protected”).

_—

78a

ETSI’s strongest evidence is that Kansas City Southern

made efforts to have other defendant railroads join as

co-plaintiffs in Andrews, but the efforts were not success-

ful. Such efforts to cause other defendants to join in a

lawsuit that proved to be successful cannot change An-

drews itself into sham litigation. Even if the other rail-

roads had been persuaded to join as co-plaintiffs, the

successful case could not be sham litigation. The unsuc-

cessful efforts by KCS to persuade other railroads to join

as co-plaintiffs in Andrews was not part of KCS’s peti-

tioning of a court, however, and such attempts to per-

suade are, therefore, considered as part of ETSI’s prima

facie showing, for purposes of discovery, that KCS pur-

posefully used its attorneys in antitrust activities.

The legal research and similar activities performed by

Union Pacific for Nebraska presents an unique question

in regard to petitioning activities. Whether or not the

assistance was at the request of Nebraska (which is dis-

puted), it appears to the court that for Union Pacific to

have supplied legal research and assistance to Nebraska

as a part of its seeking to persuade Nebraska to bring

the suit would constitute a petitioning of Nebraska and

would be within the protection of Noerr-Pennington. Ac-

cordingly, it is held that documents relating to the legal

assistance rendered by Union Pacific to Nebraska in

Andrews are protected.

VII. Alternative Work Product Requests

ETSI seeks, wholly aside from the crime-fraud conten-

tions, to discover certain documents for which the work

product privilege is claimed. The position of ETSI that

such documents are discoverable rests on two theories:

(1) the work product privilege does not apply to docu-

ments of a factual nature (as distinguished from docu-

ments reflecting a lawyer’s mental impressions) in cases

subsequent to the case in connection with which the docu-

" 79a

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