On December 2, 2019, in Capron v. Attorney General of Massachusetts, 944 F.3d 9 (2019) (“Capron”), the First Circuit Court of Appeals held that federal laws regulating the J-1 Visa Exchange Visitor Program for au pairs (“Au Pair Program”) do not preempt Massachusetts wage and hour laws applicable to domestic worker arrangements: Massachusetts Domestic Workers Bill of Rights Act (“DWBRA”), G.L. c. 149, §§ 190–191, and the Massachusetts’ Fair Wage Law, G.L. c. 151, § 1. This means that host families in the Commonwealth are obligated to pay au pairs at least the state minimum wage ($12.75/hour effective January 1, 2020) and overtime, higher compensation than the federal $7.25 hourly rate currently required under the Au Pair Program. It also means that host families–as employers of domestic workers–must become familiar with the DWBRA’s requirements because failure to comply with Massachusetts wage and hour laws can expose host families to substantial damages, including treble damages, attorneys’ fees and costs. See Andrea Peraner-Sweet, How to Hire a Domestic Worker and Stay Out of Trouble, 62 Boston Bar J. (Summer 2018).
The Au Pair Program And Its Compensation
As described in Capron, the Au Pair Program is a cultural exchange program regulated by the United States Department of State (“DOS”) through which foreign individuals can obtain J-1 Visas and be matched with United States host families to provide up to 45 hours a week of child care services while pursuing a post-secondary education. 22 C.F.R. § 62.31. The DOS administers the Au Pair Program through private placement agencies it designates to conduct DOS-approved exchange programs (“Sponsors). The Sponsors select and match participants with host families. 22. C.F.R. § 62.10.
The Au Pair Program regulations require Sponsors to ensure that au pairs are compensated “at a weekly rate based upon 45 hours of child care services per week and paid in conformance with the requirements of the [FLSA] as interpreted and implemented by the [Department of Labor (DOL)].” 22 C.F.R. § 62.31(j)(1). The DOL has determined that Au Pair Program participants are “employees” within the meaning of FLSA and, thus, entitled to federal minimum wage. 29 U.S.C. § 206(a). The FLSA, however, exempts live-in domestic workers from overtime payment. 29 U.S.C. § 213(b)(21). DOL regulations also permit deductions for the costs of room and board: either a fixed credit amount that is tied to a percentage of the federal minimum wage, or the actual, itemized costs, provided the itemized deductions are supported by adequate records. 29 C.F.R. § 552.100(c)–(d). Importantly, as the First Circuit notes, the FLSA contains a savings clause that “[n]o provision of this chapter or of any order thereunder shall excuse noncompliance with any Federal or State law or municipal ordinance establishing a minimum wage higher than the minimum wage established under this chapter.” 944 F.3d at 18 (quoting 29 U.S.C. § 218(a)).
Massachusetts Au Pair Compensation
The DWBRA defines au pairs as “employees” and “domestic workers” and their host families as “employers.” G.L. c. 149, § 190(a). Under the DWBRA and Fair Wage Law, au pairs are entitled to the state minimum wage and overtime pay at 1.5 times the hourly rate for “working time” over 40 hours per week. G.L. c. 151, § 1; 940 C.M.R. 32.03(3). An au pair’s “working time” includes all hours that the au pair is required to be on duty including meal, rest and sleep periods unless during those periods the au pair is free to leave the host family’s premises, use the time for their sole benefit and is relieved of all duties during these time periods. Id., 32.02. Host families are required to keep records of an au pair’s hours worked. Id., 32.04(2). The DWBRA also permits deductions for lodging and food, if agreed to in advance and in writing by the domestic worker, which are at a fixed credit amount of $35 per week for a single-occupancy room and $1.25 for breakfast, $2.25 for lunch, and $2.25 for dinner. Id., 32.03(5)(b)-(c).
Additionally, au pairs are entitled to at least 24 consecutive hours of rest when working 40 hours per week, workers’ compensation, sick time, and notice of why and when the host family may enter their living space.
In 2016, in response to enactment of the DWBRA, Cultural Care, Inc., a Sponsor au pair placement agency and two former Massachusetts hosts (“Plaintiffs”), sought declaratory and injunctive relief from the United States District Court claiming that the federal laws governing the Au Pair Program impliedly preempted Massachusetts wage and hour laws with respect to au pairs. The District Court found no preemption and dismissed the action, and Plaintiffs appealed.
The Plaintiffs claimed that the Au Pair Program preempted Massachusetts wage and hour laws under “field preemption” and/or “obstacle preemption.” Under “field preemption,” Plaintiffs argued that the detailed regulatory scheme governing the Au Pair Program together with the federal interest in regulating immigration and managing foreign relations evidenced the federal government’s intent to “occupy the field” of regulation of au pairs, thereby preempting state laws and regulations that might otherwise apply to au pairs. 944 F. 3d at 22. Under “obstacle preemption,” Plaintiffs argued that compliance with Massachusetts wage and hour laws would create an obstacle to achieving the underlying purposes and objectives of the Au Pair Program by frustrating the federal intent to “set a uniform, nationwide ceiling” on compensation obligations and recordkeeping and administrative burdens. Id. at 26-27.
The First Circuit rejected Plaintiffs’ arguments, concluding that Plaintiffs failed to sustain their burden of proving either field or obstacle preemption. The Court determined that Plaintiffs’ reliance on the DOS’s comprehensive and detailed regulations was insufficient to demonstrate a federal intent to oust a whole field of state employment measures, a “quintessentially local area of regulation.” Id. at 22. Rather, the Court opined: “It is hardly evident that a federal foreign affairs interest in creating a ‘friendly’ and ‘cooperative’ spirit with other nations is advanced by a program of cultural exchange that, by design, would authorize foreign nationals to be paid less than Americans performing the same work.” Id. at 26.
The Court also rejected Plaintiffs’ obstacle preemption claim that enforcement of Massachusetts’ employment laws would frustrate a federal objective of establishing a nationally uniform compensation scheme for au pair participants. Noting that “the text of the au pair exchange regulations…does not supply the requisite affirmative evidence that the state law measures would pose an obstacle to the accomplishment of the purposes and objectives of the Au Pair Program,” the First Circuit concluded, “[i]n fact, the text of the regulations reflects the DOS’s intention to ensure that the regulations would accommodate the DOL’s [Department of Labor] determination that au pair participants are employees who are entitled to be protected by an independent wage and hour law that is not itself preemptive….[and] that the DOS contemplated that state employment laws would protect exchange visitor program participants from their employers.” Id. at 32-33 (underline in original).
What do host families need to know now?
It is not yet clear whether Capron will apply retroactively or whether Massachusetts host families will be liable for back wages for au pairs who were not compensated in accordance with state wage and hour laws. The Attorney General’s office has indicated that, “at this time,” its focus is on ensuring that au pair agencies bring their programs into compliance with Massachusetts laws and it does not intend to enforce the DWBRA or other wage and hour laws against host families. The Attorney General’s office does note, however, that it has no control over private litigation. As of the time of this writing, at least three putative class action suits and one other action, all by private individuals, have been filed in Middlesex Superior Court against several Sponsor au pair agencies. No action has yet to be filed against any host families.
Andrea Peraner-Sweet is a partner at Fitch Law Partners LLP. Her practice focuses on general business litigation with an emphasis on employment litigation as well as probate litigation. Andrea is a current member of the Boston Bar Journal.
Lauren D. Song is a Senior Attorney at Greater Boston Legal Services where her practice focuses on affordable housing preservation and development through public-private partnerships. Lauren is a current member of the Boston Bar Journal.
Modern technology allows individuals to conduct an ever-increasing number of activities through websites and internet-connected smartphone apps. The proprietors of those platforms frequently make their use subject to terms and conditions, some of which—such as arbitration clauses, forum selection clauses, waivers, licenses, and indemnification provisions—carry potentially significant legal consequences. Most users will not have read the terms and, in some instances, may not have even seen the terms or any reference to them. Do these terms amount to an enforceable contract? In at least some circumstances, the answer may be “no.” Answering the question in particular cases involves fact-intensive analysis and potential evidentiary challenges. Businesses offering such platforms, and their counsel, should be aware of these complexities and take precautions to maximize the likelihood that courts will enforce their terms.
The First Circuit and the Massachusetts Appeals Court have addressed this issue in cases involving the terms and conditions of a ride-sharing app and an email account. See Cullinane v. Uber Techs., Inc., 893 F.3d. 53 (1st Cir. 2018); Ajemian v. Yahoo!, Inc., 83 Mass. App. Ct. 565 (2013). In each case, the court concluded that users were not bound by the terms and conditions. Cullinane, 893 F.3d at 64; Ajemian, 83 Mass. App. Ct. at 575-76. Both courts employed a two-part test to assess whether the terms at issue amounted to an enforceable contract, asking: (1) whether the terms were “reasonably communicated” to the user, and (2) whether the terms were accepted by the user. Ajemian, 83 Mass. App. Ct. at 574-75; Cullinane, 893 F.3d at 62 (citing Ajemian). This two-part test is consistent with the approach taken by other courts around the country. E.g., Meyer v. Uber Techs., Inc., 868 F.3d 66, 76 (2d Cir. 2017) (applying California law and articulating the test on a motion to compel arbitration as whether “the notice of the arbitration provision [contained in the terms] was reasonably conspicuous and manifestation of assent unambiguous as a matter of law.”).
A Spectrum of User Interfaces
Analysis of whether the requirements of “reasonable communication” and “acceptance” are satisfied begins with the interface presented to the user. While the possible variations are endless, interface designs tend to fall within three general categories, often referred to as “clickwrap,” “browsewrap,” and “sign-in-wrap” (sometimes called “hybridwrap”). In “clickwrap” interfaces, the user is required to take a distinct, affirmative action to indicate assent to the terms, such as checking a box or clicking a button stating “I agree.” Courts considering this category of interface generally have little trouble finding the necessary notice and assent. E.g., Wickberg v. Lyft, Inc., 356 F. Supp. 3d 179, 184 (D. Mass. 2018).
On the other end of the spectrum is “browsewrap,” where a user receives notice of the terms only by means of a link at the bottom of the webpage (often undifferentiated from other links) or buried in the menus or settings of an app. A typical browsewrap interface does not offer any notice outside of the terms themselves that the user is purportedly agreeing to be bound. Nor does it offer the user any reason to follow the link and read the terms. Courts generally find that browsewrap interfaces do not create enforceable agreements. See Ajemian, 83 Mass. App. Ct. at 576 (“[W]e have found no case where [a forum selection clause] has been enforced in a browsewrap agreement”).
The question becomes more complicated and fact-intensive in the case of “sign-in-wrap” interfaces, where the user is informed that signing in, creating an account, or taking some other specified action (but not an action distinct from the user’s intended use of the website or app) will signify assent to the terms, which are often available by following a link within or adjacent to the text of the notice. In such cases, the enforceability of the terms depends on how clearly the interface design notifies the user that he or she will be bound by taking the specified action. Compare Cullinane, 893 F.3d at 64 (finding that the design of Uber’s account creation interface did not provide adequate notice to user) with Meyer, 868 F.3d at 79 (assessing a different version of Uber’s account creation interface and finding that the design did provide adequate notice).
The Importance of Good Design
Several common design features of “sign-in-wrap” interfaces have received judicial attention in determining issues of enforceability. While courts do not demand perfection, incorporating multiple design features that promote notice of the terms and make clear the user’s manifestation of assent will increase the likelihood that the terms will be enforced.
Clearly important are the size and color of the language informing the user that proceeding will signify agreement to the terms and the link to the terms. Making these elements as large as other elements on the screen (preferably larger) and in a color that contrasts with the background so as to promote their readability will bolster the argument that the terms were reasonably communicated to the user. A perception that the notice or link is hidden in tiny or otherwise difficult-to-read font may cause a court to find that the user did not have adequate notice. Compare Meyer, 868 F.3d at 78-79 (enforcing terms where text notifying user that creating account would signify assent to the terms, although small, was clearly visible, in contrasting color on an uncluttered screen) with Cullinane, 893 F.3d at 62-64 (holding terms unenforceable in part because the notification appeared in a dark gray, small, non-bold font on a black background and because the screen contained many other elements in equal or larger font size).
The design of the interface should also make obvious to the user that the full content of the terms are available to read by following a link. See Cullinane, 893 F.3d at 63 (questioning “whether a reasonable user would have been aware that the gray rectangular box was actually a hyperlink”). Although blue underlined text may be the quintessential indicator of a hyperlink, other appearances may also be adequate, so long as they are sufficiently differentiated from the surrounding text. E.g., Wickberg v. Lyft, Inc., 356 F. Supp. 3d 179, 181 (D. Mass. 2018) (pink, non-underlined link); Selden v. Airbnb, Inc., No. 16-cv-00933 (D.D.C. Nov. 1, 2016) (red, non-underlined links).
The placement of the notice and link are also important. If the notice and link appear above the button a user clicks to proceed, a user reading from top to bottom would encounter these elements, and have an opportunity to investigate the linked terms, before encountering the button to proceed. Courts have also enforced terms where the notice and link are placed below, but in reasonable proximity to, the relevant button. Compare Meyer, 868 F.3d at 78 (finding that placement of the notification text and link directly below the relevant button, immediately visible without any scrolling, contributed to enforceability of terms) with Specht v. Netscape Communs. Corp., 306 F.3d 17, 23 (2d Cir. 2002) (not enforcing terms where reference to the terms would have been visible “only if [the user] had scrolled down to the next screen”); see also McKee v. Audible, Inc., No. CV 17-1941-GW(Ex), 2017 U.S. Dist. LEXIS 174278, at *27-28 (C.D. Cal. July 17, 2017) (placement of notice and link to terms at the bottom of the screen “approximately 30-40% of the screen’s length below” the button to proceed, separated by a horizontal line, contributed to inadequate notice).
Placing the notice and link below the relevant button creates another potential obstacle to enforcement of the terms: if the screen prompts the user to enter information such as a username, password, or email address, users on a smartphone or tablet may see a software keyboard appear on the screen when they begin to enter the requested information. Because this software keyboard generally appears at the bottom of the screen, it may obscure the notice and link. At least one court has found that this contributed to lack of the necessary notice, see McKee, 2017 U.S. Dist. LEXIS 174278, at *27-28, although it is reasonable to argue that what matters is what the user sees before he or she engages the keyboard.
Courts also give attention to the particular words used to inform the user that proceeding will signify assent to the terms. If the user is not required to take any action to assent to the terms other than the actions inherent in the ordinary use of the website or app (such as signing in or creating an account), the consequences of that action should be clear to the user. One way to accomplish this is to match the language of the notice to the action the user takes. For example, if the user is required to click a button labelled “Create Account,” the notice should inform the user that “by clicking ‘Create Account’ you indicate acceptance of our terms and conditions.” Where the words used for the notice do not parallel the description of the action, a court may question whether it is sufficiently clear to a user that he or she is assenting to the terms by taking that action. See, e.g., TopstepTrader, LLC v. OneUp Trader, LLC, No. 17 C 4412, (N.D. Ill. Apr. 18, 2018) (declining to enforce terms where user clicked a button labelled “Sign Up,” accompanied by a statement reading “I agree to the terms and conditions,” because the website “gave the user no explicit warning that by clicking the ‘Sign Up’ button, the user agreed to the [t]erms”); see also McKee, 2017 U.S. Dist. LEXIS 174278, at *22-23 (identifying lack of parallel wording as a factor weighing against enforcement of the terms); but see Meyer, 868 F.3d at 80 (“Although the warning text used the term ‘creat[e]’ instead of ‘register,’ as the button was marked, the physical proximity of the notice to the register button and the placement of the language in the registration flow make clear to the user that the linked terms pertain to the action the user is about to take.”).
Finally, the timing and context in which the terms are presented can also contribute to the enforceability of the terms. Several courts have observed that, where the terms are presented in conjunction with a purchase or the creation of an account involving a transactional relationship, an average user is more likely to understand that the transaction or relationship will be subject to the terms. See Meyer, 868 F.3d at 80 (“The transactional context of the parties’ dealings reinforces our conclusion.”); Selden v. Airbnb, Inc., No. 16-cv-00933 (D.D.C. Nov. 1, 2016) (“The act of contracting for consumer services online is now commonplace in the American economy. Any reasonably-active adult consumer will almost certainly appreciate that by signing up for a particular service, he or she is accepting the terms and conditions of the provider.”).
Litigating the question of whether a user is bound by the terms of a website or app can present challenges beyond analyzing the interface type and design choices. Because the party seeking to enforce the terms bears the burden to prove adequate notice and manifestation of assent, that party (often the proprietor of the website or app) will need to present evidence of what the user actually saw and did. Where that party is seeking to enforce an arbitration or forum selection clause, it will likely want to satisfy this burden early in the case, before conducting discovery.
The proponent of the terms thus should maintain records of when the user accessed the website or app and what it looked like at those times. Because websites and apps are occasionally redesigned, and terms are occasionally updated, simply presenting screenshots of the current version of the website or app is unlikely to satisfy the burden of establishing what the user saw and did. Instead, the proponent of the terms must be prepared to establish when the user took the relevant action on the website or app, what the operative version of the website or app looked like at that time, and which version of its terms were presented to the user. Providing such evidence may be particularly challenging depending on the amount of time that has passed and the ability of the proponent to access or recreate historic versions of the website or app.
Presenting evidence of how the interface appeared to a particular user may be further complicated if the appearance varied based on the device used to access it. A website, for example, may appear differently when viewed on a laptop or desktop computer screen than when viewed on a smartphone. The differing screen size may affect what is immediately visible to the user without scrolling and the relative conspicuousness of the notice and terms vis-à-vis other elements. In the case of smartphone users, there might also be meaningful variation in the appearance of the interface depending on the size of the phone used. See, e.g., Cullinane, 893 F.3d at 56 n.3 (noting the 3.5 inch screen size of the iPhone used to access the app in question and reproducing the screenshots in the opinion to correspond to that size). Inability to identify the device used could prevent early enforcement of an arbitration clause or forum selection clause and require further discovery. Conversely, the party challenging the terms might argue insufficient notice by offering competing evidence as to what he or she saw when using the website or app. For example, even if the proponent can establish that the user accessed the website on a desktop computer, the user may have done so in a browser window that occupied less than the full screen, changing the appearance of the interface and potentially the adequacy of the notice. A user will not, however, avoid enforcement of the terms simply by asserting that he or she does not recall seeing notice of the terms or did not read the terms.
Given the potential consequences of enforcement of terms, such as application of an arbitration clause foreclosing a class action, challenges to enforcement will likely continue to arise. Prudent counsel will do well to guard against such challenges through recommending careful design choices and electronic records retention.
John A. Shope is a partner in the Boston office of Foley Hoag, where he specializes in class action defense, consumer law, and commercial arbitration. He also serves as an arbitrator for the AAA and CPR.
Kevin J. Conroy is a litigation associate Boston office of Foley Hoag. Kevin focuses on complex business disputes and shareholder disputes.
by Jonathan I. Handler, Jillian B. Hirsch, and Emily Zandy
Recently, the Massachusetts Supreme Judicial Court ( “SJC”) and the United States District Court for the District of Massachusetts both issued important decisions addressing implied waiver of the attorney-client privilege and work product doctrine under Massachusetts law. The decisions turned on application of the “at issue” doctrine: the implied waiver of privilege that occurs when a party puts otherwise privileged information “at issue” in litigation. Massachusetts courts have previously held that privilege waiver occurs when the privilege holder affirmatively interjects the substance of otherwise privileged information into a claim, counterclaim or defenses and an opposing party needs access to that information to respond properly.
But Massachusetts courts have not, until now, explored in detail the considerations of fairness that factor into whether waiver has occurred. The courts’ decisions in Clair v. Clair, No. SJC-11256, 2013 Mass. LEXIS 10 (Mass. Jan. 25, 2013), and Columbia Data Products v. Autonomy Corp. Ltd., C.A. No. 11-12077-NMG, 2012 U.S. Dist. LEXIS 175920 (D. Mass. Dec. 12, 2012), provide practitioners with much-needed guidance on those considerations by making clear that litigants cannot use privileged material as both a sword and a shield. In other words, litigants may not base their legal positions on privileged material while simultaneously denying their opponent access to that information on the ground that it is privileged.
The “At Issue” Waiver Doctrine
Under the “at issue” waiver doctrine, the attorney-client privilege is waived where a litigant affirmatively places the subject of its own privileged material at issue in litigation so that the opposing party must access that privileged material to defend the claim asserted against it. As the First Circuit noted in In re Keeper of Records, the logic behind the doctrine is most apparent in cases involving an “advice of counsel” defense where a client asserts reliance on his or her attorney’s advice as a defense to another’s claim. According to the First Circuit, “when such a defense is raised, the pleader puts the nature of its lawyer’s advice squarely in issue, and, thus communications embodying the subject matter of the advice typically lose protection.”
Outside the “advice of counsel” context, the reach of the “at issue” doctrine is less predictable and, as a result, perhaps more controversial. In interpreting “at issue” waiver, many courts have adopted some permutation of the standard articulated by the U.S. District Court for the Eastern District of Washington in Hearn v. Rhay, in which the Court concluded that implied waiver should be found when three conditions exist:
(1) assertion of the privilege was a result of some affirmative act, such as filing suit, by the asserting party; (2) through this affirmative act, the asserting party put the protected information at issue by making it relevant to the case; and (3) application of the privilege would have denied the opposing party access to information vital to his defense.
However, this approach has been much criticized on the grounds that it conflates the question of waiver with separate issues of relevance.
Previous Massachusetts Cases Addressing The “At Issue” Doctrine
The SJC first addressed the “at issue” waiver doctrine in Darius v. Boston. In Darius, the SJC recognized that “a litigant may implicitly waive the attorney-client privilege, at least partly, by injecting certain claims or defenses into a case.” However, the court emphasized that application of the doctrine was subject to certain limitations. First, the court stated that “[a]n ‘at issue’ waiver, in circumstances where it is recognized, should not be tantamount to a blanket waiver of the entire attorney-client privilege in the case.” By definition, “it is a limited waiver of the privilege with respect to what has been put ‘at issue.’” Second, the court made clear that “there can be no ‘at issue’ waiver unless it is shown that the privileged information sought to be discovered is not available from any other source.”
Relying on Darius, other Massachusetts courts have since addressed the “at issue” doctrine, applying the two-part framework set forth above in deciding whether to find waiver. However, not until Clair and Columbia Data did the courts offer much guidance on how considerations of fairness bear on the judicial application of the “at issue” doctrine.
The Clair Case
Clair involves the dissolution of Clair Auto Group, a chain of automobile dealerships owned by four brothers. In 2007, the brothers sold the majority of the companies’ dealerships, real estate, and other assets to Prime Motor Group (“Prime Motors”). In coordination with that sale, the brothers devised a plan to transfer corporate life insurance policies on their lives from the Clair companies to the brothers individually. Following the sale, and at the death of two of the four brothers, familial relations deteriorated. The two surviving brothers refused to recognize their deceased brothers’ widows as partial owners in the remaining assets, and the widows, in turn, suspected that the brothers were using post-sale assets for personal rather than business-related purposes.
On April 9, 2010, Claire M. Clair (“Claire”), the executrix of the estate of her husband, James E. Clair, Jr., and Jane M. Clair, the executrix of the estate of her husband, Mark J. Clair (together, the “Plaintiffs”), brought an action in Superior Court against the two surviving brothers, individually, Clair International Inc., and Clair LP (collectively, the “Defendants”), challenging the post-sale disposition of the business assets and seeking a declaratory judgment as to their ownership rights in the companies. The Defendants filed counterclaims alleging, among other things, that Claire’s deceased husband had breached his fiduciary duty to them.
During the course of discovery, Claire sought access to all privileged communications regarding valuation, purchase, and sale of the life insurance policies, including legal advice from corporate counsel. She argued that she was entitled to this information because the Defendants had waived the attorney-client privilege by placing such information “at issue” in their counterclaim. Relying heavily on its decision in Darius , the court agreed.
The court explained, consistent with Darius, that Claire’s ability to raise a defense depended upon her access to otherwise privileged information. Indeed, “at the heart of proving or disproving the counterclaim” were “disclosures that [Claire’s] [husband] may or may not have made to the Clair brothers and to corporate counsel” regarding the life insurance policies and transfer of ownership. The court concluded, therefore, that Defendants had “placed their otherwise privileged communications ‘at issue.’” Having determined that Claire had satisfied the first prong of the two-part test, the court turned to the second prong. The Clair court found that the only sources of this information were corporate counsel and the surviving brothers, “all of whom were within the circle of privilege held by the companies.” The court emphasized that Defendants “cannot have it both ways”; they may not rely on privileged communications as the basis of their counterclaim that Claire’s husband breached his fiduciary duty and simultaneously deny Claire a legitimate means to inquire into their assertions and raise a defense. .
Although the court granted Claire access to certain privileged information, it adhered to the Darius court’s call for a “limited” rather than “blanket” subject matter waiver. The court limited Claire’s discovery only to those privileged communications between the companies and their counsel that related to the life insurance policies at issue.
The Columbia Data Case
In March 2005, Columbia Data, a software company, entered into a license agreement with Connected Corporation (“Connected”). Under the license agreement, Columbia Data granted Connected a license to “integrate, market and distribute” its backup software. The parties agreed on the percentage of royalties to be paid and provided for Columbia Data’s right to retain an independent accounting firm to conduct an annual audit of Connected’s books and records. Iron Mountain later acquired Connected.
As of 2008, Iron Mountain had yet to make any royalty payments under the license agreement, citing poor sales of products incorporating Columbia Data’s software. In 2010, Columbia Data allegedly discovered that Iron Mountain had in fact sold products listed in the license agreement. Columbia Data confronted Iron Mountain, and the parties began negotiating over the payment of royalties.
Concerned that litigation was on the horizon, Columbia Data retained outside counsel, who in turn retained an accounting firm to conduct an audit of Iron Mountain’s books and records. Significantly, Columbia Data did not inform Iron Mountain that the accounting firm had been hired by outside counsel. The accounting firm ultimately concluded that Iron Mountain owed Columbia Data $23 million in royalty fees under the License Agreement. Accordingly, Columbia Data filed a complaint against Iron Mountain, seeking redress for copyright infringement, breach of contract, breach of implied covenant of good faith and fair dealing, and unfair and deceptive trade practices.
In the early stages of litigation, Columbia Data represented that its accounting firm was independent and insisted that the royalty audit was conducted according to the terms of the license agreement. But, six months after filing suit, Columbia Data took the opposite position when its litigation counsel retained the accounting firm as a testifying expert in the case. At that point, Columbia Data argued that because the accounting firm was its expert, its discovery obligations were limited to those required by Fed. R. Civ. P. 26(b)(4), which governs disclosure of expert testimony. In response, Iron Mountain filed a motion to compel.
The court ruled, as a threshold matter, that the materials at issue were not protected by either the work product doctrine or the attorney-client privilege; nonetheless, because the parties had briefed the “at issue” doctrine, the court addressed it. The court concluded that Columbia Data had affirmatively placed the “audit report, the audit process, and [the] [accounting firm’s] status as an independent auditor directly at issue in [the] litigation,” and, therefore, “fairness require[d] the defendants be allowed to explore the full panoply of information available to [the] [accounting firm] for its ‘independent’ audit.’” As the court emphasized, “[Columbia Data] cannot use [the] [accounting firm’s] status and work as an independent auditor as a ‘sword’ against the defendants, while relying on the attorney-client privilege and the work product doctrine as a ‘shield’ to prevent disclosure of related materials.”
The “At Issue” Doctrine Post-Clair and Company Data
In light of Clair and Columbia Data, practitioners now have a much better understanding of what arguments a court will likely find persuasive in considering the application of the “at issue” doctrine. While both courts applied the two-part framework set forth in Darius – namely, that waiver must be appropriately limited in scope and confined to instances where the information sought is not otherwise available – their analysis did not end there. Rather, they focused heavily on considerations of fairness, taking particular note of whether the party invoking the privilege did so as a means to gain an unfair tactical advantage in litigation. As the Columbia Data court aptly stated, litigants may not use protected information as “‘both a sword and a shield.’” Likewise, the Clair court emphasized that a party “cannot have it both ways.” Put another way, the courts will not tolerate, as a matter of fairness, a party relying on privileged material in support of a claim while simultaneously denying the opposing party access to that information because it is protected from disclosure.
Lawyers and clients must carefully weigh the risks of asserting a claim, counterclaim, or defense premised upon privileged material. They should contemplate whether the opposing party will need access to that information to respond. They should think about whether the opposing party can access that information from any other source. They should consider the potential consequences of having to disclose that privileged material to their opponent because, once they have put that material “at issue,” it may be too late to turn back. Finally, although courts to date have construed the scope of “at issue” waivers narrowly, there is always the risk that under certain circumstances, a court will adopt a more expansive construction.
Jonathan I. Handler is a partner in the Commercial Litigation department at Day Pitney LLP.
Emily A. Zandy is an associate in the Commercial Litigation department at Day Pitney LLP.
Jillian B. Hirsch is counsel in the Commercial Litigation and Probate Litigation departments at Day Pitney LLP.
 See e.g. Darius v. City of Boston, 433 Mass. 274, 277 (Mass. 2001) in which the court accepted “as a general principle, that a litigant may implicitly waive the attorney-client privilege, at least partly, by injecting certain claims or defenses into a case.”
2 XYZ Corp. v. United States (In re Keeper of Records), 348 F.3d 16 (1st Cir. 2003).
3 Id. at 23.
4 Hearn v. Rhay, 68 F.R.D. 574, 581 (E.D. Wash. 1975).
5 433 Mass. 274 (2001).
6 Id. at 278.
7 Id. at 283.
9 Id. at 284.
10 See, e.g., McCarthy v. Slade Assocs., Inc., 463 Mass. 181, 190-93 (2012) (finding no waiver where information sought was otherwise available); Global Investors Agent Corp. v. Nat’l Fire Ins. Co., 76 Mass. App. Ct. 812, 816-19 (2010) (finding limited waiver of privilege where plaintiffs put at issue the advice of their counsel and information was unavailable from any other source).
11 Clair v. Clair, No. SJC-11256, 2013 Mass. LEXIS 10, at *32 (Mass. Jan. 25, 2013).
12 Id. at 34.
13 Id. at 33.
14 Id. at 34.
15 Columbia Data Products v. Autonomy Corp. Ltd., C.A. No. 11-12077-NMG, 2012 U.S. Dist. LEXIS 175920, at *53 (D. Mass. Dec. 12, 2012).
16 Id. at 55.
17 Id. at 52.
18 Clair, 2013 Mass. LEXIS 10, at *34.