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Discovery & Evidence: Attorney Client Privilege in Attorney Malpractice Action

Posted by Ted A. Schmidt | Oct 04, 2017 | 0 Comments

Baird & Co., Inc. v. Kutak Rock L.L.P., __Ariz. Adv. Rep.__,No. 1 CA-SA 17-0034 (App. Div. I, September 29, 2017) (J. Swann)


Defendant Bond Counsel wrote bonds for Underwriters (plaintiffs). Bondholders sued Underwriters alleging misrepresentations and defects in the bond documents. After millions of dollars in defense costs Underwriters settled with the bondholders and then sued Bond Counsel for the cost of defending the action.  Bond Counsel defended alleging contributory negligence by Underwriters and sought discovery of Underwriters' litigation counsel records including  “status  reports, litigation budgets, and analyses of liability exposure and the likelihood of settlement,” and information regarding “how the underwriters themselves viewed the claims” and “why [Bond Litigation Counsel] were doing [what they did ].” Underwriters voluntarily produced their litigation counsel's billing records but claimed work product and privilege as to everything else. The trial court ruled the privilege was waived and the Arizona Court of Appeals accepted plaintiffs' petition for special action and granted plaintiffs the relief requested.

The applicable standard for waiver of the attorney client privilege is set forth in Hearn  v.  Rhay,  68  F.R.D. 574  (E.D.  Wash.  1975) as adopted in State  Farm Mutual Insurance Co. v. Lee, 199 Ariz. 52 (2000):

(1) [The] assertion of the privilege was the result of some affirmative act, such as filing suit [or raising an affirmative defense], by the asserting party;

(2) Through this affirmative act, the asserting party put the protected information at issue by making it relevant to the case; and

(3) Application of the privilege would have denied the opposing party access to information vital to his defense.

Here none of these elements are met. First, the discoverability of the communications is only raised in the context of the Bond Counsel's claim of contributory negligence. The communications are not relevant to the Underwriters' claim of negligence in the execution of the transaction by Bond Counsel.  Thus it was Bond Counsels' affirmative act of raising the contributory negligence defense and not Underwriters' act of filing suit which put the communications in play—No affirmative act of the asserting party.

Second,  the substance of communications between the underwriters and their litigation counsel have no relevancy to whether or not Bond Counsel negligently put the bond deal together.  “The substance of Underwriters' communications with defense counsel are not  necessary  to  decide  whether  Bond  Counsel  committed malpractice before the bondholders ever sued Underwriters. Further, even if Bond Counsel is correct that tortious conduct by parties other than Bond Counsel led to the Bond Litigation, Underwriters' privileged communications with Bond Litigation Counsel are not inherently relevant to that defense theory.  That is not to say that Underwriters' decision to assert the privilege is without risk to Underwriters. Indeed, the decision may well impair Underwriters' claims—to the  extent  that  the disclosed billing records are insufficient to permit an informed assessment of how much of Bond Litigation Counsel's work related to Bond Counsel's alleged negligence, Underwriters ultimately may be unable  to recover all or a portion of their damages.  Underwriters' privilege, however, remains intact.”

Last, the court of appeals held that the privileged information sought was only of tangential interest to Bond Counsel's contributory negligence claim and certainly was not vital to that defense.

About the Author

Ted A. Schmidt

Ted's early career as a trial attorney began on the other side of the fence, in the offices of a major insurance defense firm. It was there that Ted acquired the experience, the skills and the special insight into defense strategy that have served him so well in the field of personal injury law. Notable among his successful verdicts was the landmark Sparks vs. Republic National Life Insurance Company case, a $4.5 million award to Ted's client. To this day, it is the defining case for insurance bad faith, and yet it is only one of several other multi-million dollar jury judgments won by Ted during his career. He is certified by the State Bar of Arizona as a specialist in "wrongful death and bodily injury litigation".


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