Was Production Precluded by Attorney-Client and Other Privileges?
In an action between founders of MedReviews LLC, a company that publishes medical journals, podcasts, webcasts, and seminars. Michael Brawer, a minority member of MedReviews, sued Herbert Lepor, MedReview’s President, Vice President, and majority member, and other officers for allegedly mishandling company funds.
Brawer moved to compel disclosure of several withheld documents. Defendants asserted that the documents were properly withheld as they constituted attorney work product, documents prepared in anticipation of litigation, and documents covered by the attorney client privilege.
By interim order, the Court directed defendants provide the withheld documents for an in-camera review. Upon review of the withheld documents, Brawler’s motion to compel was granted, only to the extent that defendants were required to disclose legal counsel’s retention and engagement letters and invoices. The motion was otherwise denied.
CPLR 3101 requires full disclosure of all matter material and necessary in the prosecution or defense of an action. The phrase “material and necessary” is to be interpreted liberally to require disclosure, upon request, of any facts bearing on the controversy which will assist preparation for trial by sharpening the issues and reducing delay and prolixity. The test is one of usefulness and reason.
New York courts generally favor open and liberal discovery. However, the CPLR establishes three categories of protected materials: privileged matter, attorney work product and trial preparation materials.
The attorney-client privilege shields from disclosure confidential communications between an attorney and client made for the purpose of obtaining legal advice. It is narrowly construed so to not be in tension with the court’s policy favoring liberal discovery. The party asserting the privilege bears the burden of establishing entitlement to the privilege, as well as the burden of showing confidentiality has not been waived.
Communications do not automatically obtain privilege status merely because they were created or communicated by an attorney. And where corporations are concerned, caution must be exercised to prevent the mere participation of an attorney in an internal investigation from being used to seal off disclosure. Only if the communications are transmitted in the course of professional employment, that convey a lawyer’s assessment of the client’s legal position, does the privilege apply.
A review of the in-camera submission made clear to the Court that an attorney at the firm was hired as an attorney to represent MedRviews in connection with claims asserted by Brawer. Counsel was not simply hired to conduct a neutral third-party investigation of Brawer’s claims. He was hired to provide legal advice to MedReviews and to assist with the defense against Brawer’s claims. Those communications with MedReview’s corporate officers were not subject to disclosure.
Also exempted from disclosure were communications with the professional at the accounting expert hired by the law firm to assist in providing counsel. The attorney-client privilege extended to communications of one serving as an agent of an attorney. The work of experts retained as consultants to assist in analyzing or preparing a case, qualified for complete exemption from disclosure under attorney work-product doctrine and statutes limiting discovery of materials prepared in anticipation of litigation.
Brawler argued that the fiduciary exception and the crime-fraud exception justified disclosure of the otherwise privileged communications with the lawyers. The crime/fraud exception to the attorney-client privilege is aimed at serious misconduct, and it can be invoked only if the party seeking to invoke it demonstrated that there was probable cause to believe that a fraud or crime had been committed and that the communications in question were in furtherance of the fraud or crime. Based upon the in-camera inspection of the documents, the Court was not persuaded that the communications were undertaken in the furtherance of a crime or criminal enterprise.
The Court also declined to apply the fiduciary exception to the attorney-client privilege. The rule was that when a trustee obtained legal advice to guide the administration of the trust, and not for the trustee’s own defense in litigation, the beneficiaries were entitled to the production of documents related to that advice. The courts reasoned that the normal attorney-client privilege did not apply in such situation because the legal advice was sought for the beneficiaries’ benefit and was obtained at the beneficiaries’ expense by using trust funds to pay the attorney’s fees. Whether the fiduciary exception applied depended on whom the communications ultimately served.
The fiduciary exception does not apply to a fiduciary who seeks legal advice to protect its interests in litigation as opposed to legal advice obtained in furtherance of the performance of duties to the beneficiary. Nor does fiduciary exception apply to circumstances where the fiduciary is in an adversarial relationship with the beneficiaries and the communications sought concern communications that speak directly to the issues at the heart of litigation.
Here, Brawer’s initial demand for accounting was made through counsel to MedReviews under threat of legal action. MedReviews’ acts in retaining counsel and investigating member expenses were undertaken in response to Brawer’s threat. Correspondence with the law firm was undertaken in defense of MedReviews’ operations and in defense of claims asserted against MedReviews’ officers individually.
Both Brawer and Lepor were using MedReviews finances to pay for personal expenses. Brawer could not competently argue that his demands were made only as a beneficiary in furtherance of MedReviews’ fiscal interests. Brawer was not a beneficiary of the investigation as it was not undertaken in furtherance of any fiduciary duties owed to him. Rather, the hiring of the law firm, the retention of a forensic accountant and the investigation of MedReview expenses were all undertaken in defense of claims made by Brawer. The fiduciary exception to the attorney-client privilege did not compel disclosure of the lawyers’ correspondence with MedReview in those circumstances.
The communications between defendants were similarly not discoverable. Generally, communications between attorney and client made in the presence of or subsequently disclosed to third parties are not protected by the attorney-client privilege. Under the common interest doctrine, however, attorney-client communications disclosed to a third party remain privileged if shared with parties of common legal interest in pending or anticipated litigation. In such cases, as here, when one attorney represents multiple clients concerning a matter of common interest, any confidential communications exchanged among them are privileged against the outside world. The Court’s review of the withheld communications found written communications between defendants that were privileged by virtue of the parties’ common legal interests in the defense of this action.
And documents drafted by an attorney during litigation are exempted from disclosure as attorney work product. Draft word documents generated by counsel in response to demands fall within this category. However, retention and engagement letters and invoices are discoverable. Communications regarding the identity of a client and information about fees paid by the client are not generally protected under the attorney-client privilege, nor are communications regarding the payment of legal fees by a third person] Fee arrangements are not confidential communications and are not privileged. The law firms’ invoices and engagement letters were improperly withheld.