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Fenceroy v. Gelita USA, Inc.

Supreme Court of Iowa

February 23, 2018


         Appeal from the Iowa District Court for Woodbury County, Jeffrey A. Neary, Judge.

         Interlocutory review of a district court order denying a protective order and permitting discovery into defense counsel's prelawsuit investigation.

          Aaron A. Clark of McGrath North PC LLO, Omaha, Nebraska, for appellants.

          Stanley E. Munger of Munger, Reinschmidt & Denne, LLP, Sioux City, for appellee.

          CADY, Chief Justice.

         This review presents a significant issue regarding the boundaries of attorney-client privilege and work-product protection. We must decide whether plaintiff's counsel may depose defense counsel and obtain counsel's prelawsuit work product. After leaving his job, plaintiff filed an administrative complaint charging his former employer with race discrimination. In response to the charge, the employer hired an attorney to defend the company and investigate the merits of the charge. The employer filed an administrative position statement wherein it relied upon the attorney's investigation to support its Faragher-Ellerth affirmative defense. In the subsequent civil action, the employer retained the same attorney and again raised the affirmative defense. The employer claimed attorney-client privilege and work-product protection over the investigation and moved for a protective order to prevent plaintiff from deposing defense counsel and obtaining her investigation notes. Yet, in its motion for summary judgment, the employer again relied upon the investigation to support its defense. The district court denied the protective order, and we granted the employer's interlocutory appeal.

         We conclude the district court did not abuse its discretion by denying the defendants' protective order. When an employer raises a Faragher-Ellerth affirmative defense and relies upon an internal investigation to support that defense, the employer waives attorney-client privilege and nonopinion work-product protection over testimony and documents relating to the investigation. On remand, the employer is permitted to amend its answer and brief to limit the affirmative defense to only the period of plaintiff's employment. If the employer declines to so amend, it may not claim attorney-client privilege or work-product protection over the 2013 investigation, and plaintiff may depose defense counsel as well as obtain counsel's investigation notes.

         I. Factual Background and Proceedings.

         Oliver Fenceroy, an African-American man, was employed by Gelita USA, Inc. (Gelita), a maker of gelatin products. He began working at Gelita's Sergeant Bluff plant in 1975. In this lawsuit, he alleges he experienced consistent racial harassment from coemployees and supervisors throughout his employment. His complaint identified a number of workplace incidents involving racially disparaging comments by employees.

         Gelita implemented an antiharassment policy that barred disparate treatment in the workplace on the basis of race. Fenceroy acknowledged receiving a written memorandum that discussed the antiharassment policy in August of 2010. Additionally, Fenceroy attended company trainings in 2011, 2012, and 2013 that discussed workplace harassment. He also received copies of Gelita's Code of Conduct, which contained the company's antiharassment policy, in 2011 and 2012. Further, Gelita conducted a survey in 2012 that requested anonymous feedback about potential problems or changes to the company. Fenceroy received the survey but did not report any harassment.

         Gelita's antiharassment policy contained detailed reporting procedures. The policy instructed employees to report any harassment to their supervisors or to the human resources department. If an employee is harassed by his or her direct supervisor, the policy permitted an employee to bypass that individual and report the harassment to the supervisor's superior.

         It is undisputed that Fenceroy only made one complaint to Gelita about racial harassment. In September of 2011, Fenceroy complained to Gelita's Vice President of Business Support, Jeff Tolsma, about a rope tied on the company's production floor. Fenceroy believed it represented a noose. Tolsma notified the plant's production manager, Jeremie Kneip, of the complaint. The two individuals located the rope and determined it was not a noose, but rather a loop used to facilitate pulling a scale downward. Nevertheless, they untied the knot so there was no longer a loop in the rope.

         Fenceroy stopped working for Gelita in March 2013. He filed a complaint with the Iowa Civil Rights Commission (ICRC) a short time later. The complaint charged Gelita with race discrimination. Upon receipt of Fenceroy's ICRC charge, Gelita retained attorney Ruth Horvatich and tasked her with developing a strategy to defend the company during administrative proceedings.

         Pursuant to this representation, Horvatich interviewed several Gelita employees to ascertain the merits of Fenceroy's complaint. Tolsma was present for and participated in each interview. A union representative, John Hoswald, was also present during the employee interviews. At the end of each interview, Horvatich drafted a witness statement that summarized the employee's account and instructed the employee to sign the document.

         Horvatich's investigation revealed some Gelita employees had made racially disparaging comments in the workplace. Gelita subsequently terminated one employee, Bob Kersbergen, and disciplined others, including Kent Cosgrove, Tom Haire, and Lewis Bergenske. Horvatich did not participate in any of the disciplinary decisions.

         On May 30, 2013, Gelita filed a position statement with the ICRC in response to Fenceroy's discrimination charge. The statement, drafted by Horvatich, addressed the merits of Fenceroy's racial harassment claim. It argued Gelita could not be held vicariously liable for supervisor harassment because it could assert the Faragher-Ellerth affirmative defense. Specifically, in discussing the affirmative defense, Gelita argued,

[T]he Company distributed a valid discrimination and harassment policy, which contained flexible reporting procedures and listed individuals that acts of harassment could be reported to, who were in a position to take corrective action. The discrimination and harassment policy also contains detailed procedures relating to the investigation and resolution of complaints. After learning of Complainant's complaint relating to the rope, the Company took immediate action. The same day of the complaint, the Company performed an investigation and resolved the complaint by untying the knot that was in the rope, which has remained untied since that time. The Company notified the Complainant of this resolution. Additionally, after the Complainant filed the charge at issue with the Iowa Civil Rights Commission, the Company investigated the allegations of harassment, which resulted in the termination of Mr. Kersbergen and the discipline of Mr. Haire, Mr. Bergenske, and Mr. Cosgrove. During his employment, Complainant only made one report of harassment and unreasonable failed to report any other allegations to management, despite the Company's clear reporting procedures. Thus, it is clear that the Company exercised reasonable care to prevent harassment, promptly corrected any harassing behavior, and the Complainant unreasonably failed to take advantage of the Company's clear reporting procedures. As a result, the Complainant's allegation of racial harassment fails.

(Emphasis added.) Thus, the statement Gelita filed with the ICRC signaled it would rely on its investigation into the complaint to help support the first prong of its affirmative defense that it exercised reasonable care to prevent and correct harassing behavior.

         At the culmination of the administrative proceedings, the ICRC issued Fenceroy a right to sue. On May 30, 2014, Fenceroy filed a civil action in district court against Gelita and four named employees: Bob Kersbergen, Tom Haire, Jeff Tolsma, and Jeremie Kneip. Fenceroy alleged the defendants engaged in racial harassment in violation of the Iowa Civil Rights Act and he was constructively discharged. He also alleged Kersbergen and Haire engaged in tortious infliction of severe emotional distress.

         Gelita again retained Horvatich to defend the company, as well as Haire and Tolsma, in the civil action. The defendants filed an answer that raised a number of affirmative defenses. One defense alleged Fenceroy "unreasonably failed to take advantage of any preventative or corrective opportunities provided by Defendant Gelita"; and Gelita "exercised reasonable care to prevent and promptly correct any harassing behavior."

         During discovery, defendants produced the witness statements drafted by Horvatich and signed by the employees during her 2013 investigation. Fenceroy deposed some of the employees Horvatich interviewed during the investigation. He also deposed Tolsma and inquired into the nature and scope of the 2013 investigation, as well as the subsequent disciplinary decisions.

         On March 23, 2016, counsel for Fenceroy issued a notice to depose Horvatich. He also requested Horvatich provide "notes from the investigation that resulted in Gelita's Position Statement, " as well as any "notes from interviews" with Gelita employees.

         Defendants moved for a protective order. They asserted Fenceroy's discovery request sought privileged information. They claimed the 2013 investigation was solely for the purpose of preparing a defense to plaintiff's ICRC charge, and all communications between Gelita and Horvatich, as well as any notes taken by Horvatich, were done in anticipation of litigation. They further argued the investigation was not "at issue" in their affirmative defense because it occurred after Fenceroy left the company and their actions could not have remedied any terms or conditions of his employment.

         In resisting the protective order, Fenceroy asserted the defendants' impliedly waived any privileges. He claimed the proceedings before the ICRC revealed Gelita intended to rely on its postcomplaint investigation by Horvatich to help prove its affirmative defense. More specifically, he argued the investigation conducted after he left his employment was relevant to the lawsuit because it could be used in two ways. First, the investigation could be used to show its reasonableness in preventing harassing workplace behavior. Second, it could help establish that Fenceroy should have taken advantage of its response by making his complaint before he left his employment.

         Prior to the hearing on the motion for a protective order, defendants filed a motion for summary judgment. This motion claimed defendants were entitled to judgment as a matter of law based on their Faragher-Ellerth defense. Within its discussion of this defense, specifically within a subsection titled "Gelita Exercised Reasonable Care to Prevent and Correct Promptly Any Harassing Behavior, " defendants asserted that "[e]ven though Plaintiff was no longer with Gelita at the time of his Complaint, in response to his charge, the Company investigated his allegations, discharged one employee, and disciplined three others."

         The district court denied the protective order, finding the defendants waived attorney-client privilege with respect to the 2013 investigation. It concluded Horvatich's investigation was a key piece of evidence in litigating the affirmative defense and Fenceroy "must be permitted to probe the substance of [the investigation] to determine its sufficiency." The court further held defendants waived work-product protection by placing the 2013 investigation at issue. Defendants filed for, and we granted, interlocutory review.

         On review, defendants continue to maintain their Faragher-Ellerth defense is "based upon Fenceroy's unreasonable failure to take advantage of preventative and corrective opportunities" during his employment. Defendants further allege the investigation cannot be "at issue" with respect to the affirmative defense because the evidence is "not necessary" to prevail in their Faragher-Ellerth defense. Fenceroy argues on review that defendants' position is contrary to their actions before the district court. To illustrate, Fenceroy points to defendants' summary judgment motion, which referenced the investigation as evidence of Gelita's reasonable corrective actions when faced with a harassment complaint.

         II. Standard of Review.

         We review district court rulings on discovery matters for abuse of discretion. Jones v. Univ. of Iowa, 836 N.W.2d 127, 139 (Iowa 2013). Discovery rulings are "committed to the sound discretion of the trial court." State v. Ary, 877 N.W.2d 686, 702 (Iowa 2016). "A district court abuses its discretion 'when the grounds underlying a district court order are clearly untenable or unreasonable.' " Sioux Pharm, Inc. v. Eagle Labs., Inc., 865 N.W.2d 528, 535 (Iowa 2015) (quoting Mediacom Iowa, L.L.C. v. Inc. City of Spencer, 682 N.W.2d 62, 66 (Iowa 2004)).

         III. Analysis.

         A. Implied At-Issue Waiver of Attorney-Client Privilege.

         1. The Faragher-Ellerth affirmative defense.

         Our law has long recognized that employers have a duty to take reasonable measures to investigate and eliminate workplace discrimination. At the same time, growing attention has focused on workplace discrimination committed by supervisors and managers, largely due to their authority over subordinate employees bestowed on them by the employer. See Faragher v. City of Boca Raton, 524 U.S. 775, 802, 118 S.Ct. 2275, 2290 (1998) (reasoning that supervisors who engage in workplace harassment are aided in their agency relationship to the employer). This attention has made employers vicariously liable for discriminatory harassment by supervisors and heightened the importance for employers to affirmatively act to prevent workplace discriminatory conduct and properly respond to employee claims of workplace discrimination when they arise. See id. at 807-08, 118 S.Ct. at 2292-93; Burlington Indus., Inc. v. Ellerth, 524 U.S. 742, 764-65, 118 S.Ct. 2257, 2270 (1998). It has also led to a two-part affirmative defense to claims of vicarious liability for employers who responsibly act to avoid workplace discrimination. Faragher, 524 U.S. at 807, 118 S.Ct. at 2293. This defense allows these employers to escape vicarious liability for claims that do not involve tangible employment action. Id.

         The two-part defense requires employers to show reasonable care was exercised to "prevent and correct promptly any . . . harassing behavior" and to further show the claimant employee "unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer." Id. This remedial action defense was set out in two landmark decisions by the United States Supreme Court in 1998, and is commonly known as the Faragher-Ellerth defense. See id.; Ellerth, 524 U.S. at 765, 118 S.Ct. at 2270. We adopted the defense in Farmland Foods, Inc. v. Dubuque Human Rights Commission, 672 N.W.2d 733, 744 n.2 (Iowa 2003). The policy behind the affirmative defense is simple and direct. By offering a complete defense to vicarious liability, it encourages employers to prevent workplace discrimination and harassment by adopting antidiscrimination policies and complaint procedures or by taking other suitable action.

         In adopting the vicarious liability standard established in Faragher and Ellerth, we recently clarified that vicarious liability does not replace the direct negligence theory of employer liability, but rather supplements the theory with an additional agency-based standard. Haskenhoff v. Homeland Energy Sols., LLC, 897 N.W.2d 553, 574 (Iowa 2017). In this case, plaintiff has alleged harassment by both supervisory and nonsupervisory employees. Consequently, defendants have properly raised the Faragher-Ellerth affirmative defense in regard to the claims of vicarious liability for supervisor harassment.

         2. Waiver of attorney-client ...

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