                                                                                                                           Opinions of the United
1994 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


8-17-1994

Rhone-Poulenc Rorer, Inc., et al. v. Home
Indemnity Co., et al.
Precedential or Non-Precedential:

Docket 93-1962 and 93-1975




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Recommended Citation
"Rhone-Poulenc Rorer, Inc., et al. v. Home Indemnity Co., et al." (1994). 1994 Decisions. Paper 114.
http://digitalcommons.law.villanova.edu/thirdcircuit_1994/114


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        UNITED STATES COURT OF APPEALS
            FOR THE THIRD CIRCUIT
             ____________________

           Nos. 93-1962 and 93-1975
              ___________________

         RHÔNE-POULENC RORER INC. and
        ARMOUR PHARMACEUTICAL COMPANY,

                           Petitioners,

                      v.

          THE HOME INDEMNITY COMPANY,
         a New Hampshire corporation,

                      v.

     AETNA CASUALTY & SURETY INSURANCE; AIU
     INSURANCE COMPANY; AMERICAN CENTENNIAL
  INSURANCE COMPANY; BIRMINGHAM FIRE INSURANCE
COMPANY; FIRST STATE INSURANCE COMPANY; GRANITE
  STATE INSURANCE COMPANY; HARTFORD INSURANCE
  COMPANY; INSCO LIMITED; INSURANCE COMPANY OF
   PENNSYLVANIA; LEXINGTON INSURANCE COMPANY;
   MANHATTAN FIRE & MARINE INSURANCE COMPANY;
  MOTOR VEHICLE CASUALTY COMPANY; OLD REPUBLIC
INSURANCE COMPANY; PANTRY PRIDE INC; PROMETHEAN
INSURANCE LTD.; PRUDENTIAL REINSURANCE COMPANY;
  PURITAN INSURANCE COMPANY; REVLON INC; TWIN
   CITY INSURANCE COMPANY; LONDON MARKET CO.;
   JOHN BARRINGTON HUME, AS REPRESENTATIVE OF
   UNDERWRITERS AT LLOYDS; INSURANCE COMPANY
OF NORTH AMERICA; NATIONAL UNION FIRE INSURANCE
 COMPANY OF PITTSBURGH, PENNSYLVANIA; ALL CITY
INSURANCE COMPANY; EMPLOYER'S MUTUAL CASUALTY;
 GIBRALAR CASUALTY COMPANY; LANDMARK INSURANCE
 COMPANY; NEW ENGLAND INSURANCE COMPANY; ROYAL
INSURANCE COMPANY; REPUBLIC INSURANCE COMPANY;
    INTERNATIONAL INSURANCE COMPANY; PACIFIC
  INSURANCE COMPANY LTD; ATLANTA INTERNATIONAL
 INSURANCE COMPANY; CENTURY INDEMNITY COMPANY;
  LIBERTY MUTUAL INSURANCE COMPANY; TRANSPORT
INSURANCE COMPANY; MIDLAND INSURANCE COMPANY;
  INTEGRITY INSURANCE COMPANY; UNION INDEMNITY
   INSURANCE; TRANSIT CASUALTY COMPANY; CITY
  INSURANCE COMPANY; DRAKE INSURANCE COMPANY;
    EXCESS INSURANCE COMPANY; HOME INSURANCE
COMPANY; PACIFIC EMPLOYER'S INSURANCE COMPANY;
     ROYAL INDEMNITY COMPANY; ZURICH INTERNATIONAL
         INSURANCE COMPANY; HENRIJEAN; ILLINOIS
         NATIONAL INSURANCE COMPANY; NORTH STAR
       REINSURANCE COMPANY; and NATIONAL CASUALTY
                   INSURANCE COMPANY,

                                     Respondents,

                          and

            THE HONORABLE JAMES McGIRR KELLY,
          UNITED STATES DISTRICT JUDGE FOR THE
            EASTERN DISTRICT OF PENNSYLVANIA,

                                Nominal Respondent

        MORGAN, LEWIS & BOCKIUS; REED SMITH SHAW &
     McCLAY; SHANLEY & FISHER, P.C.; HUGHES HUBBARD
      & REED; MONTGOMERY McCRACKEN WALKER & RHOADS;
SKADDEN ARPS SLATE MEAGHER & FLOM; and COOPERS & LYBRAND,

                               Intervenors in support of
                               Petitioners.
                   ___________________

              RHÔNE-POULENC RORER INC. and
             ARMOUR PHARMACEUTICAL COMPANY,

                                Appellants,

                           v.

               THE HOME INDEMNITY COMPANY,
              a New Hampshire corporation,

                           v.

            AETNA CASUALTY & SURETY INSURANCE;
             AIU INSURANCE COMPANY; AMERICAN
              CENTENNIAL INSURANCE COMPANY;
            BIRMINGHAM FIRE INSURANCE COMPANY;
            TRANSPORTATION INSURANCE COMPANY;
      FIRST STATE INSURANCE COMPANY; GRANITE STATE
          INSURANCE COMPANY; HARTFORD INSURANCE
       COMPANY; ILLINOIS NATIONAL INSURANCE CO.;
       INSCO, LTD; INSURANCE COMPANY OF THE STATE
     OF PENNSYLVANIA; LEXINGTON INSURANCE COMPANY;
       MANHATTAN FIRE & MARINE INSURANCE COMPANY;
        MOTOR VEHICLE CASUALTY COMPANY; NATIONAL
    UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA;
NEW ENGLAND REINSURANCE COMPANY; NEW HAMPSHIRE
   INSURANCE COMPANY; OLD REPUBLIC INSURANCE
 COMPANY; PACIFIC EMPLOYERS INSURANCE COMPANY;
PANTRY PRIDE, INC.; PROMETHEAN INSURANCE, LTD.;
     PRUDENTIAL REINSURANCE COMPANY; PURITAN
   INSURANCE COMPANY; REVLON, INC; TWIN CITY
      INSURANCE COMPANY; THE LONDON MARKET
      COMPANIES; and JOHN BARRINGTON HUME A
    REPRESENTATIVE OF UNDERWRITERS AT LLOYDS
                   OF LONDON;

                      and

                 REVLON, INC.;

                       v.

      CITY INSURANCE COMPANY; DRAKE INSURANCE
         COMPANY; EXCESS INSURANCE COMPANY;
      HENRIJEAN; THE HOME INSURANCE COMPANY;
   PACIFIC EMPLOYER'S INSURANCE COMPANY; ROYAL
      INDEMNITY COMPANY; ZURICH INTERNATIONAL
      INSURANCE COMPANY; INSURANCE COMPANY OF
   NORTH AMERICA; NATIONAL UNION FIRE INSURANCE
 OF PITTSBURGH, PA; ALL CITY INSURANCE COMPANY;
         EMPLOYERS MUTUAL CASUALTY COMPANY;
       GIBRALTER CASUALTY COMPANY; LANDMARK
     INSURANCE COMPANY; NEW ENGLAND INSURANCE
    COMPANY; ROYAL INSURANCE COMPANY; REPUBLIC
    INSURANCE COMPANY; INTERNATIONAL INSURANCE
    COMPANY; PACIFIC INSURANCE COMPANY, LTD.;
   ATLANTA INTERNATIONAL INSURANCE CO.; CENTURY
   INDEMNITY COMPANY; LIBERTY MUTUAL INSURANCE
     COMPANY; TRANSPORTION INSURANCE COMPANY;
         MIDLAND INSURANCE COMPANY; PACIFIC
    INSURANCE COMPANY LTD.; ATLANTA INSURANCE
     COMPANY LTD.; CENTURY INDEMNITY COMPANY;
   LIBERTY MUTUAL INSURANCE; MIDLAND INSURANCE
   COMPANY; INTEGRITY INSURANCE COMPANY; UNION
       INDEMNITY INSURANCE COMPANY; TRANSIT
    CASUALTY COMPANY; ROYAL INSURANCE COMPANY;
       ROYAL INDEMNITY COMPANY; NEW ENGLAND
       INSURANCE COMPANY; INSURANCE COMPANY
OF NORTH AMERICA; NORTH STAR REINSURANCE COMPANY;
     and NATIONAL CASUALTY INSURANCE COMPANY,

                            Appellees,

   MORGAN, LEWIS & BOCKIUS; REED SMITH SHAW &
 McCLAY; SHANLEY & FISHER, P.C.; HUGHES HUBBARD
          & REED; MONTGOMERY McCRACKEN WALKER & RHOADS;
    SKADDEN ARPS SLATE MEAGHER & FLOM; and COOPERS & LYBRAND,

                                    Intervenors-appellants.

                       ____________________

         ON APPEAL FROM THE UNITED STATES DISTRICT COURT
            FOR THE EASTERN DISTRICT OF PENNSYLVANIA
                     (D.C. Civ. No. 88-9752)
                      _____________________

                       Argued March 10, 1994

            Before:   MANSMANN, LEWIS, Circuit Judges

                               McKELVIE, District Judge*
                       _____________________


                      (Filed August 17, l994)
                       _____________________


*Hon. Roderick R. McKelvie, United States District Judge for the
District of Delaware, sitting by designation
STEPHEN J. MATHES (Argued)
WILLIAM R. HERMAN
Hoyle, Morris & Kerr
One Liberty Place, Suite 4900
1650 Market Street
Philadelphia, PA 19103

     Attorneys for Appellants/Petitioners Rhône-
     Poulenc Rorer Inc. and Armour Pharmaceutical
     Company

JEFFREY B. ALBERT
Fox, Rothschild, O'Brien & Frankel
2000 Market Street
10th Floor
Philadelphia, PA 19103

JAMES W. CHRISTIE
Christie, Pabarue, Mortensen and Young
1880 JFK Boulevard
10th Floor
Philadelphia, PA 19103

ROY L. REARDON
JAMES P. BARRETT
ROBERT F. CUSUMANO (Argued)
DAVID J. WOLL
KEVIN G. LAURI
Simpson, Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017

     Attorneys for Appellee/Respondent The Home
     Indemnity Company
               H. MARC TEPPER
               Margolis, Edelstein & Scherlis
               Sixth and Walnut Streets
               The Curtis Center, 4th Floor
               Philadelphia, PA 19106

                    Attorney for Appellees/Respondents AIU
Insurance Company,                 Birmingham Fire Insurance,
Granite State Insurance Company,                  Illinois
National Insurance Company, Lexington Insurance
     Company, National Union Fire Insurance Company of
          Pittsburgh, Pennsylvania, New Hampshire Insurance
Company                  and Landmark Insurance Company

               JOSEPH M. OBERLIES
               Connor & Weber
               2401 Pennsylvania Avenue
               Suite 1C-47
               Philadelphia, PA 19130

                    Attorney for Appellee/Respondent American
Centennial                    Insurance Company

               RICHARD B. MARRIN
               Ford, Marrin, Esposito & Witmeyer
               88 Pine Street
               Wall Street Plaza, 23rd Floor
               New York, NY 10005

               WILLIAM G. SCARBOROUGH
               Stradley, Ronon, Stevens & Young
               2600 One Commerce Square
               Philadelphia, PA 19103

                    Attorneys for Appellee/Respondent Transport
Insurance                     Company

               E. DOUGLAS SEDERHOLM (Argued)
               RICHARD J. BORTNICK
               White and Williams
               One Liberty Place
               Suite 1800
               1650 Market Street
               Philadelphia, PA 19103

                    Attorneys for Appellees/Respondents Pacific
                    Employers Insurance Company, Century
                    Indemnity Company and Insurance Company of
                    North America
              WALTER A. STEWART
              Manta & Welge
              2005 Market Street
              One Commerce Square
              37th Floor
              Philadelphia, PA 19103

                    Attorney for Appellees/Respondents Liberty
Mutual Insurance                        Company, Liberty Mutual
Insurance and Royal Indemnity                     Company

              EDWARD M. DUNHAM, JR.
              Miller, Dunham, Doering & Munson
              1515 Market Street
              13th Floor
              Philadelphia, PA 19102

                    Attorney for Appellee/Respondent Aetna
Casualty & Surety                  Company

              SUSAN M. DANIELSKI
              Cozen & O'Connor
              The Atrium
              1900 Market Street
              Philadelphia, PA 19103

                    Attorney for Appellees/Respondents Pantry
Pride Inc.
                    and Revlon Inc.

              THOMAS C. DELORENZO
              Marshall, Dennehey, Warner, Coleman & Goggin
              1845 Walnut Street
              Philadelphia, PA 19103

                    Attorney for Appellees/Respondents Prudential
Reinsurance                   Company and Gibraltar Casualty
Company
               DAVID F. ABERNETHY
               Drinker, Biddle & Reath
               1345 Chestnut Street
               Philadelphia National Bank Building
               Philadelphia, PA 19107-3496

                    Attorney for Appellee/Respondent
International Insurance                 Company

               RONALD P. SCHILLER
               Piper & Marbury
               Two Penn Center Plaza
               Suite 1500
               Philadelphia, PA 19102

                    Attorney for Appellee/Respondent North Star
Reinsurance                   Company

               THOMAS M. KITTREDGE (Argued)
               Morgan, Lewis & Bockius
               2000 One Logan Square
               Philadelphia, PA 19103

                    Attorney for   Intervenor Morgan, Lewis &
Bokius

               KERRY A. KEARNEY
               Reed Smith Shaw & McClay
               Mellon Square
               435 Sixth Avenue
               Pittsburgh, PA 15219

                    Attorney for   Intervenor Reed Smith Shaw &
McClay

               RAYMOND M. TIERNEY, JR.
               SUSAN SHARKO
               Shanley & Fisher
               131 Madison Avenue
               Morristown, NJ 07962

                    Attorneys for Intervenor Shanley & Fisher
                 JEFF H. GALLOWAY
                 Hughes, Hubbard & Reed
                 One Battery Park Plaza
                 New York, NY 10004

                      Attorney for   Intervenor Hughes, Hubbard &
Reed

                 JEREMY D. MISHKIN
                 Montgomery, McCracken, Walker & Rhoads
                 Three Parkway, 20th Floor
                 Philadelphia, PA 19103

                      Attorney for Intervenor Montgomery,
                      McCracken, Walker & Rhoads

                 ED YODOWITZ
                 Skadden, Arps, Slate, Meagher & Flom
                 919 Third Avenue
                 New York, NY 10022

                      Attorney for Intervenor Skadden, Arps,
                      Slate, Meagher & Flom

                 MATTHEW J. BRODERICK
                 Dechert Price & Rhoads
                 4000 Bell Atlantic Tower
                 1717 Arch Street
                 Philadelphia, PA 19103

                     Attorney for Intervenor Coopers & Lybrand
                 _________________________________


McKELVIE, District Judge.



       In this insurance coverage case, the district court has

ordered the insureds, their attorneys and their accountants to

produce documents that would normally be protected from

disclosure by the attorney client privilege, by the accountant

client privilege, or as attorney work product.    The documents to

be produced were created before the insureds purchased coverage,
and contain evaluations of the insureds' potential liability to

consumers of their products.

     The district court found the information in the documents

relevant to matters in issue in the action in that it may tend to

show whether or not the insureds expected or intended the claims

for which they seek coverage.   The court held the insureds had

waived any right to maintain confidentiality of these documents

by filing this action for coverage and by putting in issue the

matter of their knowledge of facts relating to the claims.

     The insureds have appealed from that order.   They have also

filed a petition for a writ of mandamus directing the district

court to vacate and reverse the order.   The six law firms and the

accounting firm that have been subpoenaed to produce documents

have moved to intervene and join in the insureds' requests for

relief.

     For the reasons set out below, we will grant the

petitioners' request for relief and issue a writ of mandamus to

the district court and direct it to vacate its order that these

documents be produced.
I.     FACTUAL BACKGROUND AND PROCEDURAL HISTORY
       A.   The Parties and the Nature of the Proceedings

       Rhône-Poulenc Rorer Inc. is the successor to the Rorer Group

Inc.    In the fall of 1985, soon after Pantry Pride, Inc. had

acquired Revlon, Inc., Rorer entered into an agreement with

Pantry Pride to purchase Revlon's ethical pharmaceutical

businesses, including USV and Armour Pharmaceutical Company.      One

of Armour's products was Factorate, a blood clotting product

processed by Armour and sold principally for use by hemophiliacs.

       Rorer formally acquired Armour on January 7, 1986.   On April

21, 1986, Armour was named in the first of a series of lawsuits

filed by individuals who claimed Factorate had infected them with

the Human Immunodeficiency Virus (HIV), which is thought to be

the cause of Acquired Immunodeficiency Syndrome (AIDS).     To date,

Armour has been joined as a defendant in more than two hundred

AIDS-related cases.

       Rorer had purchased a general liability insurance policy

from The Home Indemnity Company on December 31, 1985, and looked

to it for coverage for the claims against Armour.    In addition,

it sought coverage under a blanket excess policy it purchased

from Pacific Employers Insurance Company on July 29, 1986.     Home

denied coverage for these AIDS-related claims.

       In December of 1988, Rorer and Armour brought this suit in

the United States District Court for the Eastern District of

Pennsylvania.    In the complaint, they allege they are insureds

under a primary comprehensive general liability insurance policy

provided by The Home Indemnity Company.    They contend Home has
failed and refused to honor its obligations to defend and

indemnify them from liability for the AIDS-related claims.       They

contend the district court has subject matter jurisdiction based

on diversity of citizenship of the parties under 28 U.S.C. §

1332.   Rhône-Poulenc and Armour seek, among other things, a

declaration that Home accepted coverage for these claims.

     Home answered the complaint by denying that Rhône-Poulenc

Rorer and Armour are entitled to the relief sought.    In addition,

it has asserted a number of affirmative defenses and has filed a

counterclaim for a declaration that it does not owe a duty to

indemnify or defend the plaintiffs for the claims identified in

the complaint.   Home has also filed a third party complaint

against Pantry Pride, Inc., Revlon, Inc. and a number of

insurance companies, including Pacific Employers Insurance

Company.   Certain of the third-party defendant insurers have

filed fourth-party complaints against other insurers.

     One of Home and Pacific Employers' affirmative defenses is

that the claims identified in the complaint are excluded from

coverage because they do not result from "occurrences."    The

insurers agreed to indemnify and defend against claims relating

to bodily injury that is caused by an occurrence.     An occurrence

is defined in the Home policy as "an accident, including

continuous or repeated exposure to conditions, which results in

bodily injury or property damage neither expected nor intended

from the standpoint of the insureds."   The insurers argue that

the alleged transmission of HIV from Factorate was known when the

insurance policies were purchased, that the resulting injuries
were not "neither expected nor intended," and that the resulting

claims are not insured.

     A second affirmative defense asserted by the insurers is

that Rorer and Armour wrongfully obtained the coverage by

intentionally failing to disclose their knowledge of the

potential for these claims.   A third defense is that Armour sold

the products knowing that they would create an unreasonable risk

of harm to others and that the resulting claims are, therefore,

uninsurable.

     B.     The Discovery Sought by Home and Pacific Employers
     In connection with these defenses, Home and Pacific

Employers have sought discovery from the plaintiffs on what

information they may have had prior to purchasing the policies

that would have suggested that Armour's products might transmit

the HIV virus and that Armour would be subject to claims for

injuries suffered as a result of transmitting that virus.

     During a September, 1992 deposition, Robert E. Cawthorn,

Rhône-Poulenc Rorer's chairman and chief executive officer,

testified to the investigation and analysis undertaken by Rorer

in connection with its decision to purchase Armour.   Cawthorn

testified that at the time Rorer was negotiating to purchase

Armour he and others at Rorer were aware of reports in the press

that blood products might have transmitted the AIDS virus and had

sought and obtained advice from counsel with regard to

liabilities for claims alleging damages for transmitting the

virus.    He testified:
          We had got the advice of outside counsel on
          the potential legal liabilities in this area
          and had learned that blood products are not
          considered in most states as products, per
          se, and are not subject to the same liability
          laws as regular pharmaceutical products. We
          had learned that there was some precedence
          [sic] in terms of transmission of the
          hepatitis virus which these plasma products
          had transmitted to hemophiliacs. And that,
          in fact, my recollection is we were told that
          there had been no successful cases against
          the fractionaters [sic] and hepatitis because
          of the particular legal situation. And the
          opinion was that that should hold, also, for
          the AIDS virus.


      After the deposition, Home and Pacific Employers moved for

an order extending the time for completion of discovery and

compelling Rhône-Poulenc and Armour to produce all evaluations of

their potential liability for AIDS-related claims, including any

documents confirming the advice described by Cawthorn.    In

response to the motion, Rhône-Poulenc and Armour produced copies

of four documents, subject to an agreement with the insurers that

the production would not waive any privilege with respect to any

other communication.

     The first of the four documents produced is the minutes of

the November 26, 1985, meeting of the Board of Directors of Rorer

Group Inc.   During this meeting the Board considered the Armour

acquisition.   Those minutes show that John W. Eckman chaired the

meeting, and that Cawthorn and Rorer's general counsel, Richard

H. Lange, were present.   Also present were representatives of the

accounting firm of Coopers & Lybrand and the investment banking

firm of First Boston Corporation, as were attorneys from the law
firms of Hughes, Hubbard & Reed; Skadden, Arps, Slate, Meagher &

Flom; and Montgomery, McCracken, Walker & Rhoads.   The following

summary is included in the minutes:
          In response to a question by Mr. Eckman concerning
     Armour's product liability exposure, Mr. Lange said
     that Armour's products are not regarded as drug
     products, with associated strict liability, and that it
     has been necessary to prove negligence by the
     manufacturer as a basis for liability. In addition,
     many states have legislation limiting liability for
     blood products. There have been only about six to
     eight AIDS contamination suits to date in the industry,
     none of them against Armour. Revlon has carried an
     umbrella excess liability policy of $60 million, and
     the benefits of a substantial portion of this coverage
     will be available for USV/Armour product claims arising
     during the pre-acquisition period.


     The second document produced by the insureds is a copy of an

April 10, 1986, letter from John S. Allee, an attorney with

Hughes, Hubbard & Reed, to Richard Lange, forwarding to Lange a

copy of the third document produced, a memorandum by Hughes

Hubbard titled "Survey of Blood Immunity Statutes and Case Law."

This survey provides a state-by-state analysis of the law

applicable to entities engaged in the preparation, distribution

and use of human blood and blood products.

     The fourth document is a copy of an April 18, 1986, letter

from Allee to Lange following up on the April 10 letter and

suggesting steps Lange should consider as a part of his risk

assessment and reduction efforts.   In producing a copy of this

seven page letter, Rhône-Poulenc and Armour redacted

approximately one half of the typed material on the fifth page

and the entire sixth page, and reported to the insurers that the
deleted material contained very general advice of a legal nature

as well as Allee's mental impressions.

     On receiving copies of these documents, Home and Pacific

Employers continued to pursue their motion to compel, and asked

the court to enter an order directing the plaintiffs to produce

all documents in their possession, custody or control relating to

the 1985 and early 1986 assessments of potential AIDS-related

claims.

     In the briefing in support of their motion, the insurers

argued that these documents would disclose what information the

insureds had about the AIDS-related claims at the time they

obtained the coverage, the advice they received on whether those

claims would be asserted, and their intent or expectation as to

whether they would become obligated to pay damages as a result of

those claims.   Home and Pacific Employers argued that this

information would be relevant to a number of issues in the

litigation, including whether the AIDS-related claims fell within

the definition of an "occurrence" under the policy, whether Rorer

and Armour had sufficient knowledge of the probability of the

AIDS-related claims so that in obtaining the coverage they had

breached duties owed the insurers by failing to disclose facts

relating to the risk that Armour's products transmitted the HIV

virus, and whether or not the probability of the AIDS-related

claims was sufficiently clear at the time the insureds obtained

the coverage that they would not be insurable as fortuitous

claims.
     Home and Pacific Employers argued that by filing the suit

and putting these matters in issue, Rhône-Poulenc and Armour had

waived any right to object to the disclosure of the requested

documents on the grounds of privilege or work product.   The

insurers also argued Rhône-Poulenc and Armour had waived any

protection from disclosure by failing to file timely objections

to the initial discovery requests seeking the disclosure of these

documents and by failing to identify them on a list of documents

being withheld as privileged or as work product.   With regard to

the redacted portion of the April 18 Hughes Hubbard letter, they

argued Rorer had disclosed the letter to First Boston after the

acquisition and thus had waived the privilege.   They further

argued that by producing a portion of the letter Rhône-Poulenc

and Armour had waived the privilege as to the balance of the

contents, including the advice that had been redacted.

     The insurers asked the district court to enter an order

compelling Rhône-Poulenc and Armour to produce all evaluations or

assessments of their potential liability for AIDS-related claims

arising from Armour's blood products, including those in their

possession and those in the possession of their present and

former agents and attorneys.   This request includes documents in

the possession of the law firms that had advised Rorer in

connection with the acquisition of Armour: Hughes, Hubbard &

Reed;   Skadden, Arps, Slate, Meagher & Flom; and Montgomery,

McCracken, Walker & Rhoads, as well as the accounting firm

Coopers & Lybrand, and three law firms that have represented
Armour in connection with the AIDS-related claims: Morgan, Lewis

& Bockius; Shanley & Fisher; and Reed Smith Shaw & McClay.
     C.   The Magistrate Judge's Orders Providing for the
          Production of Documents


     The district court referred the motion to a magistrate

judge.   By an opinion and order dated March 30, 1993, the

magistrate judge found the advice in the April 18 Hughes Hubbard

letter relevant to matters in issue in the litigation, including

whether the underlying claims arose from a fortuitous event or

circumstance and were not the result of a known loss, and whether

the injuries giving rise to the claims were not expected or

intended.   The magistrate judge held that as Rhône-Poulenc and

Armour had brought the action and had put their own conduct and

the conduct of their counsel in issue, they had waived any right

to object to the disclosure of the documents based on the

attorney client privilege or the work product doctrine.

     In addition, the magistrate judge noted that a related

rationale for a finding of waiver is that the selective use of

privileged information may garble the truth.   In that situation,

he noted, fairness demands a party be allowed to examine the

whole picture.   The magistrate judge therefore ordered the

redacted portions of the April 18 letter produced and scheduled

further argument on the balance of the documents sought by the

insurers.

     The magistrate judge heard further argument from the parties

on April 13, 1993.   During that argument, counsel for the

insurers argued that Rhône-Poulenc and Armour had wrongfully
failed to disclose the existence of the assessments in response

to discovery requests.    At the conclusion of the argument, the

magistrate judge reviewed the basis for his March 30 opinion and

found that the insurers had sought production of the documents

long before the end of discovery.    He directed Rhône-Poulenc and

Armour to produce the liability assessments sought by the

insurers and also directed counsel for the insurers to prepare

and submit for approval subpoenas to be delivered to the law

firms and accounting firm directing them to produce the documents

sought by the insurers.

     By letter dated April 20, 1993, counsel for the insurers

submitted to the magistrate judge copies of proposed subpoenas

addressed to the six law firms and the accounting firm.    On April

21 the magistrate judge entered an order approving the subpoenas

and providing that any objections to the subpoenas must be

presented to the district court within five days from the date of

the order.   Thereafter, the insurers' counsel delivered subpoenas

issued by the Southern District of New York on Hughes Hubbard,

Skadden Arps, and Coopers & Lybrand at their offices in New York

City and sought production of the documents at Simpson Thatcher &

Bartlett's offices in New York on May 3, 1993.    They delivered

subpoenas issued by the Eastern District of Pennsylvania on

Morgan Lewis, and Montgomery McCracken at their offices in

Philadelphia and sought production of the documents at Fox,

Rothschild, O'Brien & Frankel's offices in Philadelphia on May 3,

1993.   They also delivered subpoenas issued by the Eastern

District of Pennsylvania on Shanley & Fisher at its offices in
Morristown, New Jersey and on Reed Smith at its offices in

Philadelphia and sought production of the documents at White and

Williams' offices in Philadelphia on May 3, 1993.   The subpoenas

sought production of the following documents:
     1. All documents, including, but not limited to, time
     billing records, that reflect the date of your
     retention by plaintiffs and/or the purpose of your work
     for plaintiffs.

     2. All documents concerning actual or potential AIDS-
     related claims against plaintiffs or against any other
     company or entity which manufactured and/or distributed
     blood products, to the extent that such documents were
     received or created, or are contained in files
     pertaining to, your work for plaintiffs.

     3. All documents that constitute, were reviewed in
     preparation for, or are contained in files concerning
     actual or potential AIDS-related claims.

     4. All documents concerning insurance coverage for
     actual or potential AIDS-related claims against
     plaintiffs.

    5. All documents concerning (i) blood shield statutes;
    (ii) the nature and scope of liability arising from the
    manufacture and/or sale and/or use of blood products
    generally; and (iii) the nature and scope of liability
    arising from the manufacture and/or sale and/or use of
    Armour's blood products in particular.

    6. All documents concerning information and/or advice
    pertaining to plaintiffs' actual or potential liability
    for AIDS-related claims arising from the manufacture
    and/or sale and/or use of Armour's blood products
    communicated by Rorer or any agent or representative of
    Rorer to persons and/or entities interested in
    acquiring Armour or any of its assets in 1986.

    7. All documents concerning information and/or advice
    pertaining to plaintiffs' actual or potential liability
    for AIDS-related claims arising from the manufacturer
    and/or sale and/or use of Armour's blood products
    communicated by you or others to Rorer in connection
    with the attempted sale of Armour in 1986.
     8. All documents concerning information and/or advice
     pertaining to plaintiffs' actual or potential liability
     for AIDS-related claims arising from the manufacture
     and/or sale and/or use of Armour's blood products
     communicated by Rorer or any agent or representative of
     Rorer to others in connection with the attempted sale
     of Armour in 1986.


     Rhône-Poulenc and Armour did not appeal the March 30 order

directing them to produce the redacted portion of the April 18

Hughes Hubbard letter.   They did, however, take an appeal to the

district court from the magistrate judge's April 13 order, and

moved to quash the subpoenas.   Skadden Arps and Morgan Lewis also

moved to quash and the district court granted their motions.     In

addition, all seven firms served objections to the subpoenas on

the grounds that they sought documents protected from disclosure

as privileged and as work product and on the grounds of

relevance, vagueness and oppressiveness.   The presentation of

these matters resulted in a clarification of the status of

certain discovery requests, of Rhône-Poulenc and Armour's

responses to those requests, and of agreements that had

apparently been reached by the parties but had not been filed

with the court.   The rediscovery of this information caused

counsel for the insurers to abandon the argument that Rhône-

Poulenc and Armour had wrongfully failed to identify these

documents in discovery or had waived objections to producing them

by failing to respond to discovery requests or by failing to list

the documents on a privilege log.   Thereafter, the district court

found that these procedural matters would not be controlling on

an appeal from the magistrate judge's order, as it appeared the
magistrate judge would have ordered production of the documents

in any event.
     D.   The District Court's Order Denying Objections to the
          Magistrate Judge's Order and Denying Motions to Quash


     The district court heard argument on the appeal and motions

to quash on July 28, 1993.   By an opinion and order dated August

6, 1993, and entered on August 9, the court found:
          In accordance with [the magistrate judge's]
          findings, this court adjudges the subpoenas
          to pertain to directly relevant information.
          At issue is Plaintiffs' knowledge of the
          liabilities associated with the acquisition
          of Armour. The issues put into question by
          this lawsuit focus around Plaintiffs'
          knowledge of the underlying claims and when
          they became aware of such claims. This court
          finds that the documents The Home and PEIC
          seek will aide in disclosing what and when
          Plaintiffs knew of the underlying claims.
          Thus, the information contained in the
          requested documents is directly relevant.
          Therefore, in this instance this court finds
          it necessary to invade the attorney-client
          privilege.


The district court denied the insureds' objections to the

magistrate judge's order and the motions to quash, and reinstated
Skadden Arps and Morgan Lewis' obligations to produce documents

identified in the subpoenas.   By that decision, the district

court held: (1) in filing the action for a declaration of

insurance coverage, Rhône-Poulenc and Armour had put in issue the

knowledge they had as to potential AIDS-related claims at the

time they purchased the coverage; (2) by putting their knowledge

of those matters in issue, they had waived the privilege to

prevent the disclosure of attorney client and accountant client
communications relevant to those matters; and (3) by putting

their knowledge of these matters in issue, they had also waived

the protection from disclosure of the work product of their

attorneys.

     Plaintiffs, their attorneys and accountants sought

reargument on that decision and by an order dated October 4,

1993, the district court denied their motion.

     E.      The Appeal and Petition for a Writ of Mandamus
     On October 15, 1993, Rhône-Poulenc and Armour filed

petitions with this court for a stay of the August 6 order and

for a writ of mandamus directing the district court to vacate and

reverse the August 6 order.    On October 19, 1993, Rhône-Poulenc

and Armour filed a notice of appeal from that order and the

court's order denying the motion for reargument.

     We have entered orders staying the discovery, consolidating

the proceedings on the petition and the appeal, and granting the

petition to intervene filed by the six law firms and Coopers &

Lybrand.
II.   DISCUSSION
      A.   Jurisdiction and Scope of Review

      Rhône-Poulenc and Armour urge us to find that we have

jurisdiction to hear this appeal under 28 U.S.C. § 1291.      Section

1291 states that the courts of appeals have jurisdiction over

appeals from all final decisions of the district courts of the

United States.     Generally, discovery orders are not final and not

reviewable under this section.    However, under the collateral

order doctrine a discovery order is appealable where it meets the

following three criteria:
     First, the order must conclusively determine the
     disputed question. Second, the order must resolve an
     important issue completely separate from the merits of
     the action. Third and finally, the order must be
     effectively unreviewable on appeal from a final
     judgment.


Smith v. BIC Corp., 869 F.2d 194, 198 (3d Cir. 1989).

      Rhône-Poulenc and Armour argue that each element of this

test is present here because: (1) the order they appeal from

conclusively determines that they must disclose privileged

communications and work product; (2) the order resolves issues

totally separate from the merits of the case; and (3) the order

will not be effectively reviewable after judgment, as the

privilege and confidentiality for the information in the

documents will be lost when they are produced.

      In Smith, we held that the public disclosure of trade

secrets is not effectively reviewable.    A trade secret is

valuable because it allows a business to obtain an advantage over

competitors who do not know or use it.     The damage suffered by a
business due to public disclosure of trade secrets cannot be

remedied by an appellate court because the court cannot make the

information secret again.   Here, however, an appellate court can

remedy any damage resulting from the erroneous disclosure of

documents after judgment.   As the United States Court of Appeals

for the Tenth Circuit recently explained:
     The practical consequences of the district court's
     decision on the controversy between the parties can be
     effectively reviewed on direct appeal following a
     judgment on the merits. If this court determines that
     privileged documents were wrongly turned over to the
     plaintiffs and were used to the detriment of defendants
     at trial, we can reverse any adverse judgment and
     require a new trial, forbidding any use of the
     improperly disclosed documents. Plaintiffs would also
     be forbidden to offer at trial any documents,
     witnesses, or other evidence obtained as a consequence
     of their access to privileged documents.


Boughton v. Cotter Corporation, 10 F.3d 746, 749 (10th Cir.

1993).

     As the district court's order is effectively reviewable on

appeal from a final judgment, section 1291 does not give us

jurisdiction to hear an appeal at this time.

     Alternatively, the insureds argue that we should decide the

matter pursuant to our authority to issue a writ of mandamus

under the All Writs Act, 28 U.S.C. § 1651(a), which provides that

the federal courts may issue all writs "necessary or appropriate

in aid of their respective jurisdictions and agreeable to the

usages and principles of law."   The two prerequisites for the

issuance of a writ of mandamus are that the petitioners have no

other adequate means to obtain the relief sought and that they

have shown that their right to the writ is clear and
indisputable.    Kerr v. United States Dist. Court, 426 U.S. 394,
96 S.Ct. 2119, 48 L.Ed.2d 725 (1976).

     Mandamus may properly be used as a means of immediate

appellate review of orders compelling the disclosure of documents

and information claimed to be protected from disclosure by

privilege or other interests in confidentiality.     Haines v.

Liggett Group Inc., 975 F.2d 81, 89 (3d Cir. 1992); Cipollone v.

Liggett Group, Inc., 785 F.2d 1108, 1118 (3d Cir. 1986); Sporck

v. Peil, 759 F.2d 312, 314, 315 (3d Cir. 1985), cert. denied, 474

U.S. 903; Bogosian v. Gulf Oil Corp., 738 F.2d 587, 592 (3d Cir.

1984).     See also, Chase Manhattan Bank, N.A. v. Turner & Newall,

PLC., 964 F.2d 159 (2d Cir. 1992); In re von Bulow, 828 F.2d 94

(2d Cir. 1987).    We find that the petitioners have no other

adequate means to attain relief from the district court's order

that compels the disclosure of privileged information and work

product.    In addition, we find that the district court has

committed clear errors of law in ordering that information

disclosed.    The petitioners' right to the writ is, therefore,

clear and indisputable.    We will exercise mandamus jurisdiction

to resolve the issues raised by the petitioners.
     B.   Whether Rhône-Poulenc and Armour have Waived the
          Attorney Client Privilege by Filing this Suit to
          Establish Insurance Coverage


     Federal Rule of Civil Procedure 26(b)(1) provides:
          Parties may obtain discovery regarding any
          matter, not privileged, which is relevant to
          the subject matter involved in the pending
          action, whether it relates to the claim or
          defense of the party seeking discovery or to
          the claim or defense of any other party,
          including the existence, description, nature,
           custody, condition, and location of any
           books, documents, or other tangible things
           and the identity and location of persons
           having knowledge of any discoverable matter.
           The information sought need not be admissible
           at the trial if the information sought
           appears reasonably calculated to lead to the
           discovery of admissible evidence.


      Rule 26 thus provides that relevant but privileged matters

are not discoverable.    As a result, it frequently occurs that a

party has documents containing information relevant to matters of

consequence in the action, but does not produce the documents or

disclose confidential communications, and the information is not

offered into evidence at trial.   In this case, Home and Pacific

Employers seek to discover more than just information on what

facts Rorer and Armour had gathered about potential AIDS-related

claims before they purchased the policies.     They also seek to

discover the advice counsel provided to Rorer with regard to the

legal significance of those facts and documents that identify and

disclose communications relating to that advice.     Those

communications and the documents containing those communications

would normally be protected from disclosure by the attorney

client privilege.

      As the claims and defenses in issue in this action arise

under state law, Federal Rules of Evidence 501 and 1101(c)

provide that we should apply state law in determining the extent

and scope of the attorney client privilege.1    The parties and

1
    Rule of Evidence 501 reads:

      Rule 501.   General Rule
intervenors agree that we should look to the privilege rules of

the forum state, the Commonwealth of Pennsylvania, as

establishing the privilege for the attorney client communications

in issue in this case.2   No one has argued, however, that there

are any principles or rules of law as to the attorney client

privilege unique to Pennsylvania that should control the

resolution of our decision on these matters.

     The traditional elements of the attorney client privilege

that identify communications that may be protected from


     Except as otherwise required by the Constitution of the
     United States or provided by Act of Congress or in
     rules prescribed by the Supreme Court pursuant to
     statutory authority, the privilege of a witness,
     person, government, State, or political subdivision
     thereof shall be governed by the principles of the
     common law as they may be interpreted by the courts of
     the United States in the light of reason and
     experience. However, in civil actions and proceedings,
     with respect to an element of a claim or defense as to
     which State law supplies the rule of decision, the
     privilege of a witness, person, government, State, or
     political subdivision thereof shall be determined in
     accordance with State law.

Rule of Evidence 1101(c) reads:

     (c)   Rule of privilege.

     The rule with respect to privileges applies at all
     stages of all actions, cases, and proceedings.
2
   Pennsylvania has codified the attorney-client privilege at 42
Pa.C.S.A. § 5928 (Purdon 1982) as follows:

     In a civil matter counsel shall not be competent or
     permitted to testify to confidential communications
     made to him by his client, nor shall the client be
     compelled to disclose the same, unless in either case
     this privilege is waived upon the trial by the client.
disclosure in discovery are: (1) the asserted holder of the

privilege is or sought to become a client; (2) the person to whom

the communication was made (a) is a member of the bar of a court,

or his or her subordinate, and (b) in connection with this

communication is acting as a lawyer; (3) the communication

relates to a fact of which the attorney was informed (a) by his

client (b) without the presence of strangers (c) for the purpose

of securing primarily either (i) an opinion of law or (ii) legal

services or (iii) assistance in some legal proceeding, and (d)

not for the purpose of committing a crime or tort; and (4) the

privilege has been (a) claimed and (b) not waived by the client.

See In re Grand Jury Investigation, 599 F.2d 1224, 1233 (3d Cir.
1979) citing United States v. United Shoe Machinery Corp., 89 F.

Supp. 357, 358-59 (D.Mass. 1950); see also, 8 Wigmore, Evidence,

§ 2292, at 554 (J. McNaughton rev. 1961) (1st ed. 1904).

      While documents may be protected from disclosure in

discovery because they contain confidential communications that

are privileged, that protection may be inapplicable to facts

incorporated in the communication.   Upjohn Co. v. United States,

449 U.S. 383, 395-396, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981).
          [T]he protection of the privilege extends
          only to communications and not to facts. A
          fact is one thing and a communication
          concerning that fact is an entirely different
          thing. The client cannot be compelled to
          answer the question, `What did you say or
          write to the attorney?' but may not refuse to
          disclose any relevant fact within his
          knowledge merely because he incorporated a
          statement of such fact into his communication
          to his attorney.
Id. (quoting City of Philadelphia, Pa. v. Westinghouse Elec.
Corp., 205 F. Supp. 830, 831 (E.D.Pa. 1962)).


     Evidentiary privileges are an exception to the general rule

that relevant evidence is admissible.    Privileges forbid the

admission of otherwise relevant evidence when certain interests

the privileges are thought to protect are regarded as more

important than the interests served by the resolution of

litigation based on full disclosure of all relevant facts.      The

privilege forbidding the discovery and admission of evidence

relating to communications between attorney and client is

intended to ensure that a client remains free from apprehension

that consultations with a legal adviser will be disclosed.      See

Hunt v. Blackburn, 128 U.S. 464, 470, 9 S.Ct. 125, 32 L.Ed. 488

(1888).   See Wigmore, § 2290, at 543.   The privilege encourages

the client to reveal to the lawyer confidences necessary for the

lawyer to provide advice and representation.    Upjohn Co. v.

United States, 449 U.S. 383, 389, 101 S.Ct. 677, 682, 66 L.Ed.2d

584 (1981).   See E. Cleary, McCormick on Evidence, § 87, at 314
(3d ed. 1984).   As the privilege serves the interests of justice,

it is worthy of maximum legal protection.     Haines v. Liggett

Group Inc., 975 F.2d 81, 90 (3d Cir. 1992).

     If we intend to serve the interests of justice by

encouraging consultation with counsel free from the apprehension

of disclosure, then courts must work to apply the privilege in

ways that are predictable and certain.    "An uncertain privilege--

or one which purports to be certain, but rests in widely varying
applications by the courts--is little better than no privilege."

In re von Bulow, 828 F.2d at 100.
     There is authority for the proposition that a party can

waive the attorney client privilege by asserting claims or

defenses that put his or her attorney's advice in issue in the

litigation.   For example, a client may waive the privilege as to

certain communications with a lawyer by filing a malpractice

action against the lawyer.   See Wigmore, § 2327, at 638.    A

defendant may also waive the privilege by asserting reliance on

the advice of counsel as an affirmative defense.   Chevron Corp.

v. Pennzoil Co., 974 F.2d 1156 (9th Cir. 1992) (party's claim

that its tax position was reasonable because it was based on

advice of counsel puts advice in issue and waives privilege); see

also, Hunt v. Blackburn, 128 U.S. at 470, (client waives

privilege when she alleges as a defense that she was misled by

counsel).   See generally, E. Cleary, McCormick on Evidence § 93,

at 343 (3d ed. 1984).   In an action for patent infringement,

where a party is accused of acting willfully, and where that

party asserts as an essential element of its defense that it

relied upon the advice of counsel, the party waives the privilege

regarding communications pertaining to that advice.   Mellon v.
Beecham Group PLC, 17 U.S.P.Q.2d 1149, 1151 (D.N.J. 1991); see

also, e.g., W.L. Gore & Associates, Inc. v. Tetratec Corp., 15

U.S.P.Q.2d 1048, 1051 (E.D.Pa. 1989) (client waived privilege by

asserting reliance upon advice of counsel as an essential element

of his defense).
     In these cases, the client has made the decision and taken

the affirmative step in the litigation to place the advice of the

attorney in issue.   Courts have found that by placing the advice

in issue, the client has opened to examination facts relating to

that advice.   Advice is not in issue merely because it is

relevant, and does not necessarily become in issue merely because

the attorney's advice might affect the client's state of mind in

a relevant manner.   The advice of counsel is placed in issue

where the client asserts a claim or defense, and attempts to

prove that claim or defense by disclosing or describing an

attorney client communication.   North River Insurance Company v.
Philadelphia Reinsurance Corporation, 797 F. Supp. 363, 370

(D.N.J. 1992); Pittston Company v. Allianz Insurance Co., 143

F.R.D. 66, 71 (D.N.J. 1992).

     Thus, in a patent suit, where an infringer is alleged to

have acted willfully, the advice of the infringer's lawyer may be

relevant to the question of whether the infringer acted with a

willful state of mind.   However, the advice of the infringer's

counsel is not placed in issue, and the privilege is not waived,

unless the infringer seeks to limit its liability by describing

that advice and by asserting that he relied on that advice.     When

the advice of counsel is asserted as a defense by the infringer,

the patent owner may explore facts that would make it more

probable than not that the infringer did not rely in good faith

on that advice, including for example, what the advice was, when

it was given, whether the alleged infringer's conduct suggests he

had relied on the advice and whether he had knowledge of facts
that would have led him to believe it would not be reasonable to

rely on that advice.    See, e.g., Underwater Devices Inc. v.
Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983).

     Finding a waiver of the attorney client privilege when the

client puts the attorney's advice in issue is consistent with the

essential elements of the privilege.    That is, in leaving to the

client the decision whether or not to waive the privilege by

putting the attorney's advice in issue, we provide certainty that

the client's confidential communications will not be disclosed

unless the client takes an affirmative step to waive the

privilege, and we provide predictability for the client

concerning the circumstances by which the client will waive that

privilege.   This certainty and predictability as to the

circumstances of a waiver encourage clients to consult with

counsel free from the apprehension that the communications will

be disclosed without their consent.

     Some decisions have extended the finding of a waiver of the

privilege to cases in which the client's state of mind may be in

issue in the litigation.    These courts have allowed the opposing

party discovery of confidential attorney client communications in

order to test the client's contentions.   See, e.g., Byers v.

Burleson, 100 F.R.D. 436 (D.D.C. 1983); Hearn v. Rhay, 68 F.R.D.

574 (E.D.Wash. 1975).    These decisions are of dubious validity.

While the opinions dress up their analysis with a checklist of

factors, they appear to rest on a conclusion that the information

sought is relevant and should in fairness be disclosed.

Relevance is not the standard for determining whether or not
evidence should be protected from disclosure as privileged, and

that remains the case even if one might conclude the facts to be

disclosed are vital, highly probative, directly relevant or even

go to the heart of an issue.

       As the attorney client privilege is intended to assure a

client that he or she can consult with counsel in confidence,

finding that confidentiality may be waived depending on the

relevance of the communication completely undermines the interest

to be served.    Clients will face the greatest risk of disclosure

for what may be the most important matters.    Furthermore, because

the definition of what may be relevant and discoverable from

those consultations may depend on the facts and circumstances of

as yet unfiled litigation, the client will have no sense of

whether the communication may be relevant to some future issue,

and will have no sense of certainty or assurance that the

communication will remain confidential.

       A party does not lose the privilege to protect attorney

client communications from disclosure in discovery when his or

her state of mind is put in issue in the action.    While the

attorney's advice may be relevant to the matters in issue, the

privilege applies as the interests it is intended to protect are

still served by confidentiality.

       It appears that one matter in issue in this case is whether

or not the insureds knew, before they obtained coverage, that

Armour's pharmaceutical products were causing the transmission of

HIV.    Rhône-Poulenc has not waived the attorney client privilege

by filing this lawsuit or by placing its state of mind in issue.
As Rhône-Poulenc and Armour have not interjected the advice of

counsel as an essential element of a claim in this case, the

district court erred in affirming the magistrate judge's decision

and in finding they must disclose documents relating to the AIDS-

related evaluation that would otherwise be protected from

disclosure by the attorney client privilege.   Accord, Remington
Arms Co. v. Liberty Mut. Ins. Co., 142 F.R.D. 408 (D.Del. 1992).

     In summary, we emphasize that our holding is not meant to

preclude disclosure of the knowledge the insureds possessed at

the time they obtained coverage.   Facts are discoverable, the

legal conclusions regarding those facts are not.   A litigant

cannot shield from discovery the knowledge it possessed by

claiming it has been communicated to a lawyer; nor can a litigant

refuse to disclose facts simply because that information came

from a lawyer.   Rather than separately review each subpoena

served on the law firms, it should suffice to say that each

subpoena seeks the production of both privileged and discoverable

documents.   Because some documents may contain both discoverable

and privileged information it would be appropriate, if not too

burdensome, to redact them accordingly.   See Bogosian v. Gulf Oil

Corp., 738 F.2d 587, 595 (3d Cir. 1984); In re Martin Marietta

Corp., 856 F.2d 619, 626 (4th Cir. 1988).   On remand the insurers

may redraft the subpoenas in a manner consistent with this

opinion.
     C.    Whether Rhône-Poulenc and Armour have Waived the
           Accountant Client Privilege by Filing this Suit to
           Establish Insurance Coverage
     In affirming the magistrate judge's decision approving the

subpoena served on Coopers & Lybrand, the district court did not

speak to the accountant client privilege recognized under

Pennsylvania law.3   On remand, the district court should

determine the applicability of the accountant client privilege,

and whether that privilege has been waived.   If there has been a

waiver, the district court should then determine the extent of

that waiver.   The district court should also examine the other

objections to the subpoena.




3
   Pennsylvania has codified the accountant client privilege at
63 Pa.C.S.A. § 9.11a (Purdon 1994) as follows:

     Except by permission of the client or person or entity
     engaging him . . . a certified public accountant . . .
     shall not be required to, and shall not voluntarily,
     disclose or divulge information of which he may have
     become possessed relative to and in connection with any
     professional services as a certified public accountant.
     . . . The information derived from or as the result of
     such professional services shall be deemed confidential
     and privileged[.]
    D.      Whether Rhône-Poulenc and Armour have Waived the
            Attorney Client Privilege by Failing to Object to
            Discovery Requests and by Failing to Serve a Privilege
            Log


     In their motion to compel, Home and Pacific Employers also

argued that Rhône-Poulenc and Armour had wrongfully failed to

object to the disclosure of documents in their response to the

insurers' discovery requests, and had wrongfully failed to serve

a list identifying the documents they were withholding.   Home and

Pacific Employers sought an order from the magistrate judge

finding that by failing to object and to supply a list of

documents being withheld, Rhône-Poulenc and Armour had waived the

protection of the attorney client privilege.

     It appears from the transcript of the April 13, 1993,

hearing on their motion to compel that the magistrate judge did

look to the plaintiffs' failure to list privileged documents as a

basis for granting the insurers' motion to extend the time for

discovery.    The magistrate judge did not, however, find that the

insureds' failure to object and to provide a list of privileged

documents was a waiver of the privilege.    The failure to object

was not a basis for his decision to order these documents

produced.

     As we noted above, in connection with the appeal to the

district court from the magistrate judge's decision, Home and

Pacific Employers abandoned this waiver argument after Rhône-

Poulenc put on the record documents that suggest Home had agreed

to defer the insureds' obligation to respond to certain discovery

requests.    In their briefing on the petition and this appeal,
Home and Pacific Employers have sought to reintroduce this issue

into the case and have suggested that the magistrate judge and

district court concluded that a major factor warranting expedited

disclosure of these documents was the petitioners' concealment of

the documents.   That argument is neither consistent with the

facts nor supported by the record.   Therefore, we find that the

magistrate judge was correct in disregarding the failure to

object.
     E.   The Extent of Rhône-Poulenc and Armour's Waiver of the
          Attorney Client Privilege by Cawthorn's Testimony and
          the Disclosure of the Hughes Hubbard Correspondence


     Home and Pacific Employers also argued to the magistrate

judge that Rhône-Poulenc and Armour had waived the protection of

the privilege for the AIDS-related evaluation documents when

Cawthorn testified about the investigation and when Rhône-Poulenc

produced the First Hughes Hubbard report and all but a portion of

the second.   The magistrate judge apparently agreed, at least to

the extent that he found in his March 30, 1993, memorandum

opinion that in fairness the selective disclosure of privileged
communications required disclosure of the whole picture and

ordered the disclosure of the redacted portion of the second

Hughes Hubbard letter.   Rhône-Poulenc and Armour did not appeal

that decision to the district court.

     Neither the magistrate judge nor the district court relied

on this waiver by disclosure as a basis for granting the

insurers' motion to compel the production of the documents
relating to the AIDS-related evaluation.    As this issue was never

presented to the district court, we need not address its merits.
     F.   Whether Rhône-Poulenc and Armour have Waived the
          Protection From Disclosure for Their Attorneys' Work
          Product


     There are numerous substantive and procedural errors with

the subpoenas approved by the magistrate judge.    In granting the

petitioners the relief they seek and in finding they are not

obligated to produce the documents identified in the subpoenas,

we will not address each of these issues.    Two principal matters

lead us to the conclusion that the subpoenas should not have been

approved or issued.   First, it appears the magistrate judge and

the district court's decisions to approve the subpoenas were

based on their conclusion that Rhône-Poulenc and Armour's

privilege to protect the disclosure of confidential attorney

client communications had been waived as the insureds' state of

mind was in issue in the action.   As noted above, we have

concluded that these decisions constituted an error of law.

     Second, it appears the magistrate judge and the district

court had concluded that a finding that the insureds had waived

the attorney client privilege necessarily meant they had also

waived the protection from disclosure for the work product of the

firms that had represented and advised them.    For a number of

reasons, one does not lead to the other.    As a factual matter, if

the state of mind of the insureds is in issue, papers reflecting

the work product of counsel that were not shared with or

communicated to the clients are not relevant.    Work product that
was not communicated to the client cannot affect the client's

state of mind.   See Thorn EMI North America, Inc. v. Micron
Technology, Inc., 837 F. Supp. 616 (D.Del. 1993).   In approving

the subpoenas and denying the motions to quash, the court failed

to determine whether the documents sought were relevant to the

matters in issue or were reasonably calculated to lead to the

discovery of admissible evidence.

     More significantly, in ordering the broad range of documents

produced, the magistrate judge and the district court failed to

consider that the protection stemming from the work product

doctrine belongs to the professional, rather than the client, and

that efforts to obtain disclosure of opinion work product should

be evaluated with particular care.   See Fed. R. Civ. P. 26(b)(3);

Hickman v. Taylor, 329 U.S. 495, 509, 67 S.Ct. 385, 91 L.Ed. 451

(1947) ("Not even the most liberal of discovery theories can

justify unwarranted inquiries into the files and the mental

impressions of an attorney."); Haines v. Liggett Group Inc., 975

F.2d at 94 ("This court has accorded an attorney's work product

almost absolute protection from discovery."); In re Grand Jury
Proceedings (FMC Corp.), 604. F.2d   798, 801 n. 4 (3d Cir. 1979)

(right to assert the privilege belongs to the attorney).

     We find the district court erred in denying the motions to

quash these subpoenas.   While the subpoenas may identify certain

documents that are discoverable, as drafted and served they

appear to seek the production of documents that are protected

from disclosure as the work product of attorneys or by the

attorney client privilege.
     While Rhône-Poulenc and Armour's disclosure of the Hughes

Hubbard reports may provide a basis for finding that certain of

the documents identified by the subpoenas are discoverable, it

appears that the subpoenas are generally directed to documents

for which there is no basis for believing there had been or could

be a waiver by the clients.



III. CONCLUSION
     We find that the district court erred in affirming the

magistrate judge's decision finding Rhône-Poulenc and Armour had

waived the attorney client privilege by putting their state of

mind in issue, and erred in denying the motions to quash the

subpoenas served on the law firms.   The district court should

reconsider its decision not to quash the subpoena served on the

accounting firm.   We will dismiss the appeal.   We will issue a

writ of mandamus, and direct the district court to vacate its

Order of August 6, 1993, and to quash the subpoenas served on the

law firms.   We will remand the case for further proceedings.

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