While there is no federal common-law peer-review privilege, there is a peer-review privilege under the federal Patient Safety and Quality Improvement Act and two subsections of the Nursing Home Reform Act of 1987. The nursing-home peer-review privilege receives relatively little review, so the Kentucky Supreme Court’s recent interpretation deserves attention. The court interpreted the privilege broadly, holding that the privilege protects peer-review reports even if generated by a third-party consultant. Henderson County Health Care Corp. v. Wilson, 612 S.W.3d 811 (Ky. 2020).  You may read the opinion here.

Outside Consultant

Redbanks Skilled Nursing Center in Henderson, Kentucky maintains a Quality Assurance Performance Improvement committee. The QAPI, in turn, contracts with Owensboro-based Wells Health Systems which, as an independent consultant, evaluates Redbanks’ quality of care and provides guidance on improving its provision of care. Wells’ nurse consultants examine the medical charts of Redbanks residents, observe Redbanks’ staff, review statistical data, and provide consultant reports to the QAPI.

After a Redbanks resident passed away, the administrator of her estate sued Redbanks for failing to provide proper care.  During discovery, the administrator sought production of the Wells consultant reports, but Redbanks claimed that a federal statutory peer-review privilege protected them from disclosure.  The trial court rejected the privilege, and Redbanks took the matter to the Kentucky Supreme Court.

Quality Assurance Privilege

The Nursing Home Reform Act of 1987 contains two sections that address discovery of peer-review related materials: 42 USC § 1396r(b)(1)(B) and 42 USC § 1395i-3(b)(1)(B).  These identical statutes require nursing-home facilities like Redbanks to maintain a “quality assessment and assurance committee” to identify issues within the facility and implement appropriate corrective actions where necessary.  As to the discovery of the committee’s work, the statutes say this—

A State or Secretary may not require disclosure of the records of such committee except insofar as such disclosure is related to the compliance of such committee with the requirements [this section].

The pertinent question concerns the scope of the phrase “records of such committee.”  Does it pertain to records compiled by third-party consultants—like Wells—or is it limited to the quality-assurance committee’s internal records.  Court have taken two approaches—a narrow approach and a broad approach, or the so-called Missouri Rule and New York Rule.

Missouri Rule—Narrow Interpretation

The Missouri Rule comes from State ex rel. Boone Retirement Ctr., Inc. v. Hamilton, 946 S.W.2d 740 (Mo. 1997). The Missouri Supreme Court, applying the statute’s plain language, held that “records of such committee” means just that, and “no honest reading” of that language can extend privilege protection to reports submitted to the committee. A Tennessee federal court found the Boone court’s reasoning “persuasive” and adopted it without evaluating the New York Rule. Brown v. Sun Healthcare Group, Inc., 2008 WL 1751675 (E.D. Tenn. Apr. 14, 2008) (available here).

New York Rule–Broad Interpretation

The New York Rule originates in In re Subpoena Duces Tecum to Jane Doe, Esq., 757 N.E.2d 618 (N.Y. 2003).  The court rejected Boone’s narrow interpretation and read “records of such committee” broadly to encompass “any reports generated by or at the behest of a quality assurance committee for quality assurance purposes.” Id. at 621. A Georgia federal court found the New York interpretation to be “the more reasoned view.” U.S. v. Lilburn Geriatric Ctr., Inc., 2003 WL 27381235 (N.D. Ga. Sept. 23, 2003) (available here).

Kentucky’s Interpretation

So, which way would the Commonwealth go? The court, appropriately, engaged in a balancing of discovery and privilege-related interests.  On the one hand, a plaintiff like the administrator here is entitled to all relevant evidence to prove his claim and courts should interpret discovery-blocking privileges narrowly to fulfill that goal.

On the other hand, the court said, public policy–here embodied in a federal statute–should encourage healthcare facilities like Redbanks to engage in self-critical analyses to improve its provision of health care. The peer-review privilege does just that—it encourages providers to speak and evaluate candidly without fear that a plaintiff will one day use their words and evaluations against them.

Weighing these interests, the Kentucky court followed the broader rule and held that the federal peer-review statute for skilled nursing facilities was not limited to a quality-assurance committee’s own records, but rather covered reports generated by third parties for the committee. In doing so, the court stressed that courts should perform future analyses on a case-by-case basis and offered these guidelines.

Guidelines

First, a nursing-home facility cannot use its quality-assurance committee to create a privilege by funneling unprivileged records through it. The privilege will also not cover documents given to the committee—but generated outside of it—that do not relate to the committee’s work.

Second, the privilege covers documents created by a quality-assurance committee or “at the behest of” the committee. In other words, if an outside consultant generates a document or report for the express purpose of aiding the committee in its quality-assurance work, then the privilege protects it from compelled disclosure.

Applying these guidelines, the Kentucky Supreme Court found that the privilege protected the Wells’ nurse-consultant reports. Redbanks proved that it contracted with Wells to evaluate the facility’s quality of care and provide guidance on how to improve that care.

The great legal debate continues. You know, whether Chicago’s deep-dish or New York’s thin-crust is the preferred pizza recipe. But a different recipe—with foreign subpoena, interstate deposition act, and conflict-of-laws ingredients— commenced another debate: whether Illinois’ or New York’s privilege law applied to an insurance company’s request for another’s claims file. And in what some (but not me) may describe as home cookin’, the Illinois court chose Illinois law—even though the discovery request came from a New York court deciding a New York-based coverage dispute. Let’s discuss why.  Cascade Builders Corp. v. Rugar, 2021 Il. App. 192410 (Feb. 5, 2021). You may read the opinion here.

Thin Crust

In a New York state court, Utica First Insurance Company battled with Cascade Builders Corporation over coverage of a construction project gone bad. Interstate Fire & Casualty Company, based in Illinois, paid the claim and assigned its right to Cascade which, in turn, sued Utica.

Utica, using the Uniform Interstate Depositions and Discovery Act (UIDDA), had the New York court issue a subpoena to Interstate. Utica dutifully took that subpoena to the Cook County Circuit Court so that court could issue a local subpoena to Interstate. The subpoena, in essence, sought Interstate’s entire claims file regarding its payment to Cascade.

Interstate filed a motion with the Illinois court, ultimately claiming that the privilege covered portions of its claims file—the consultant documents, internal evaluation of investigative materials, and a detailed report from counsel.  The parties agreed that Illinois privilege law protected these documents from compelled discovery.

So, the question became whether New York or Illinois privilege law applied to this claims-file dispute.

The Cheese

And it’s a good question because the New York court has an interest in adjudicating the dispute with all relevant, discoverable evidence before it, and the facts of the underlying dispute arose in NY and affected New York-domiciled parties. But Illinois has an interest in protecting its companies from disclosing information that its laws protect.  Where to turn?

We turn, as the Illinois court did, to Illinois’ UIDDA.  Under this act, a party must file any application to quash a foreign subpoena with the local court that issued the subpoena, and the court must apply its state’s “rules and statutes.”  UIDDA committee comments provide that the “rules and statutes” include the forum state’s evidentiary rules and, importantly, its conflict-of-laws rules. The court held that this provision means that, in deciding Interstate’s privilege claims, it will apply Illinois’ conflict-of-privilege-laws rules to determine whether New York or Illinois’ privilege law governs the dispute.

Illinois typically follows the most significant relationship test of the tortuous Restatement (Second) of Conflicts of Laws § 139 when deciding privilege-law conflicts.  Allianz Ins. Co. v. Guidant Corp., 869 N.E.2d 1042 (Ill. App. Ct. 2007). For more discussion on this test, see my chapter, The Application of Conflict of Laws to Evidentiary Privileges, published in Evidentiary Privileges for Corporate Counsel at 159 (DRI 2008).

Deep Dish

But as in most states, Illinois first requires the party seeking to apply another state’s privilege law to prove that there is actually a conflict. In other words, the party must show that there is a difference in the two privilege laws:

A choice-of-law analysis is not a purely academic exercise, as to meet its initial burden Utica must demonstrate not just a conflict of law but one that will actually make a difference in the outcome.

And, here, Utica failed at this threshold step. Utica relied upon a general proposition, purportedly under New York law, that the contents of an insurer’s claims file is “presumptively discoverable.” The Illinois court, however, disagreed with this legal analysis and, doing its own research, found that Interstate would have the option to assert a privilege objection to a request for a claims file.

So, in this choice-of-privilege-law debate, Illinois’ privilege law prevailed because the New York insurance company failed at the threshold issue—producing New York privilege law to combat Illinois’ privilege protections.

And as for the great pizza debate, well, the winner is obvious to any rational person.

It was the best of privilege times, it was the worst of privilege times. A federal court sustained Tesla’s privilege defense to avoid producing its internal investigation even though there was some evidence that its investigations were “standard practice.” Tesla, Inc. v. Cao, 2020 WL 8515010 (N.D. Cal. Dec. 10, 2020) (available here). But, later, the court rejected Tesla’s attempt to obtain a competitor’s privileged investigation even though the competitor’s executive publicly disclosed the results of that investigation. Tesla, Inc. v. Cao, 2021 WL 540351 (N.D. Cal. Jan. 19, 2021) (available here).

It was the Age of Wisdom, it was the Age of Foolishness

Tesla sued one of its former engineers, Guanghi Cao, alleging that he uploaded Tesla’s Autopilot source code and took that proprietary information to a competitor, Xiaopeng Motors Technology Company. Calling this source code the “crown jewel of Tesla’s intellectual property portfolio,” Tesla sought significant monetary damages.  For his part, Cao admitted uploading the source code, but denied that he used it at Xpeng.

And although the case recently settled, two privilege opinions related to internal investigations remain relevant.

It was the Epoch of Belief

During discovery, Cao sought production of the notes from and summaries of interviews conducted by Tesla’s internal investigators. Tesla lawyers did not prepare these notes and summaries but attended some—but not all—of those interviews.  Cao further claimed that, as admitted by a Tesla employee, it was “standard practice” of conducting interviews and writing summaries during an investigation.  For these reasons, Cao argued, Tesla conducted the internal investigation for routine business purpose and not for the purpose of obtaining legal advice.

The court noted, however, that the corporate attorney–client privilege protects communications from the client’s employees to the client’s lawyer—or the lawyer’s subordinates. And Tesla proved that the primary purpose of the interviews was to secure legal advice. Tesla showed that its interviewers, while not lawyers, conducted the interviews for counsel to provide legal advice. Tesla’s lawyers reviewed the interview transcripts and assessed the legal landscape by reviewing the notes and summaries saved to an investigation file.

The court brushed aside the “standard practice” testimony, saying that, even if true, that does not foreclose a finding that Tesla conducted this particular investigation for the purpose of obtaining legal advice. And because Tesla proved the legal-advice element, the court upheld the privilege.

It was the Epoch of Incredulity

Xpeng, too, conducted an internal investigation into whether the engineer Cao or other Xpeng employees used Tesla’s Autopilot source code. Tesla wanted access to the investigation results but Xpeng, following Tesla’s earlier lead, claimed that the privilege protected it.  Understanding the court’s position on privileged internal investigations, Tesla challenged the privilege objection on waiver grounds, not legal-advice grounds.

And with good reason.  Xpeng’s CEO, Xinzhou Wu, filed a declaration, available here, stating that, to his knowledge, Cao never provided Tesla’s source code to Xpeng employees. Tesla’s lawyers deposed him and asked the basis for this statement and Wu said that the basis was Xpeng’s investigative report.  But Xpeng’s lawyers objected to further questioning about the report’s content, claiming privilege.

The court rejected Tesla’s waiver argument because Wu’s testimony about the basis of his denial was “conclusory and undetailed.” The court held that waiver does not occur where a disclosure about an internal investigation is “little more than ‘undetailed conclusions about its investigation,’ and were not used in support of a legal claim.”  Xpeng—here a third party—was not discussing its investigation as part of claim or defense but in response to discovery-related questions.  And that is insufficient, the court ruled, to find privilege waiver.

So, Tesla enjoyed the spring of privilege hope but also endured the winter of privilege despair. Let us all remember why in our own privilege tales.