Unhappy Ex-Client Can't Pierce Privilege For Firm's Consultations Before Withdrawal

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By Joan C. Rogers  

A former client suing a firm for malpractice is not entitled to see the firm's communications with its internal and outside counsel regarding its representation of him, the Illinois Appellate Court, First District, decided March 1 (Garvy v. Seyfarth Shaw LLP, Ill. App. Ct. 1st Dist., No. 1-11-0115, 3/1/12).

Justice David P. Sterba said that Illinois does not recognize a fiduciary exception to the attorney-client privilege. Even if it did, he added, that exception would not apply here considering the nature of the advice the firm sought and the client's informed consent to continued representation despite conflicts.

Moreover, the court ruled that even though the communications in question occurred while the firm was representing the client in a legal matter, the firm was not representing itself in that matter too, so that the dual-representation exception did not apply.

Family Infighting

While Seyfarth Shaw was representing Peter Garvy regarding a holding company he owned along with his father and four siblings, Garvy and his father took certain steps that led to disagreements within the family, and the siblings filed a chancery suit against them.

At the direction of its in-house counsel, Seyfarth Shaw sent Garvy and his father a detailed letter in November 2004 regarding the potential conflicts of interest in the firm's representation of either or both of them in the chancery litigation. The letter explained, for example, that the firm's role and its advice in the underlying events might be questioned, that Seyfarth might be added as a defendant, and that Seyfarth attorneys could be called as witnesses. The letter strongly urged them to seek independent counsel about the import of giving consent.

Shortly after receiving the letter, Garvy retained Allan Horwich of Schiff Hardin as independent counsel to address the issues raised in the letter. Horwich accused Seyfarth of malpractice and requested a tolling agreement for Garvy's claims against the firm. Seyfarth entered into the agreement. In a follow-up communication, Horwich said that Garvy was satisfied with Seyfarth's handling of the chancery litigation so far and wanted the firm to remain as counsel in the litigation.

Seyfarth continued to represent Garvy in the chancery litigation but retained Jenner & Block in June 2006 to represent the firm with regard to Garvy's possible malpractice claims. Jenner told Horwich that Garvy's claims against Seyfarth would need to be resolved in the near future and that the firm would not continue representing Garvy in the chancery litigation much longer while Garvy's malpractice claims were pending. Horwich took the position, however, that Seyfarth's withdrawal could prejudice settlement discussions in the litigation and would be contrary to prior commitments.

What Was Said

On May 2, 2007, after settlement discussions failed in the chancery litigation, Seyfarth withdrew as Garvy's counsel. Garvy immediately sued Seyfarth for malpractice, fraud, and breach of fiduciary duty.

During discovery in the malpractice action, Garvy sought to compel Seyfarth to produce its internal communications and work product about his malpractice claims up until the firm withdrew from representing him. He also sought to force Seyfarth to turn over its communications with Jenner, as well as Jenner's work product about his malpractice claims up to the point of Seyfarth's withdrawal.

Siding with Garvy, the trial court ordered Seyfarth to hand over all internal and external documents and communications concerning Garvy's malpractice claims prior to Seyfarth's withdrawal. At Seyfarth's request, the court held the firm in contempt so that it could appeal the order.

The appellate court reversed, concluding that Seyfarth's communications internally and with Jenner were protected by the attorney-client privilege and work product doctrine.

No Exception

Garvy argued that the attorney-client privilege did not apply because Seyfarth continued to represent him at the time it sought legal advice and, therefore, owed him an ongoing fiduciary duty. He relied on cases from other jurisdictions that have applied the fiduciary-duty exception to the privilege, including Thelen Reid & Priest LLP v. Marland, No. 06-2071, 2007 BL 226352, 23 Law. Man. Prof. Conduct 184 (N.D. Cal. Feb. 21, 2007), and Koen Book Distrib. v. Powell, Trachtman, Logan, Carrie, Bowman & Lombardo PC, 212 F.R.D. 283, 19 Law. Man. Prof. Conduct 33 (E.D. Pa. 2002).

In considering Garvy's arguments, the court reviewed what an Illinois appellate case said about the fiduciary duty exception. According to that case, the fiduciary duty exception was grounded on the principle that the beneficiary of a trust has a right to see the legal advice the trustee receives about the administration of the trust because that advice is obtained using the authority and funds of the trust and because the beneficiary is the ultimate recipient of the benefit of the advice; however, the exception does not apply to legal advice concerning the fiduciary's personal liability or legal claims against the fiduciary.

For several reasons, the court held that the trial court was wrong to apply the fiduciary duty exception. First, it said that “Illinois has not adopted the fiduciary-duty exception to the attorney-client privilege” and that the cases cited by Garvy “do not persuade us to create new law in Illinois by adopting it here.”

Informed Consent

The court also ruled that “even if Illinois did recognize the fiduciary-duty exception, it clearly would not apply here where Seyfarth sought legal advice in connection with Garvy's legal malpractice claims against it, and not in its fiduciary capacity as Garvy's counsel in the chancery litigation.”

Sterba pointed out that according to a leading case on the fiduciary exception, a key factor in determining the “real client” to whom the attorney-client privilege belongs is whether any adversarial proceedings were pending between the fiduciary and the beneficiary at the time the legal advice was sought.

This factor is important, the court explained, because if adversarial proceedings were pending it would indicate that the fiduciary was seeking legal advice in a personal rather than a fiduciary capacity, and the exception would not apply. The cases cited by Garvy misapply the exception, Sterba said, to the extent they do not take this factor into consideration.

Moreover, the court ruled that even under the case law cited by Garvy, the exception would not apply because Garvy gave informed consent to Seyfarth's continued representation in spite of the conflicts.

In rejecting Seyfarth's informed consent argument, the trial court said it could not be sure that Seyfarth had fully disclosed everything and that its assurance of full disclosure was the equivalent of “the student grading the paper.” But under that reasoning, the appellate court observed, the disclosure requirement could never be met.

The court found it clear that the conflicts were disclosed, that Garvy sought independent counsel as Seyfarth had urged, and that his consent to continued representation was fully informed. The firm even entered into a tolling agreement with Garvy in order to preserve his malpractice claims, it noted.

“Garvy cannot have it both ways,” Sterba wrote. “He cannot insist that Seyfarth continue to represent him in the chancery litigation while he has malpractice claims pending against Seyfarth, but then use that continued representation to insist that Seyfarth produce all documents related to legal advice sought in relation to the malpractice claims generated during that time.”

Rules Allow Consultations

Garvy contended that the attorney-client privilege did not apply in the first place because Seyfarth could not have expected its communications with counsel to be confidential in light of its fiduciary duty to him. The court rejected this argument as a different way of pressing the fiduciary duty exception.

Garvy also argued that the firm's communications with its counsel could not be viewed as confidential in light of the disclosure requirements imposed by Illinois Rule of Professional Conduct 1.4 (communication) and 1.7 (conflicts of interest).

The court disagreed, pointing out that according to Rule 1.6(b)(4) cmt. [9], “A lawyer's confidentiality obligations do not preclude a lawyer from securing confidential legal advice about the lawyer's personal responsibility to comply with these Rules,” and that according to Rule 5.1 cmt. [3], lawyers are permitted to make confidential reports of ethics issues to designated firm counsel.

In addition, the court spurned the idea that the firm's communications with its in-house counsel could not be considered confidential because the firm was allegedly engaged in dual, conflicting representation of itself and Garvy.

The doctrine that makes the attorney-client privilege inapplicable between clients in the dual representation situation is limited to communications relating to the clients' common interest, the court explained.

Here, the court said, the firm's representation of itself did not involve a common interest with Garvy. Therefore, the dual representation doctrine does not apply and the attorney-client privilege attaches to communications with Seyfarth's in-house counsel regarding Garvy's malpractice claims.

Furthermore, Garvy waived any right to invoke the crime-fraud exception when his counsel specifically told the trial court he was not claiming it, the court added.

Work Product Protection

The court also held that Seyfarth did not have to turn over documents that its in-house and outside counsel prepared in anticipation of litigation with Garvy. The trial court erred when it ordered Seyfarth to turn over those materials without any showing by Garvy that it would be impossible to secure similar information from other sources, Sterba found.

The court rejected Garvy's argument that the work product doctrine does not apply when a client is seeking discovery of his own attorney's mental impressions.

Returning to the “real client” premise underlying the fiduciary duty exception, the court reasoned that “The mental impressions Garvy seeks to obtain are not those related to his attorney's representation of him in the chancery litigation, but those related to the adversarial proceedings between himself and his attorney.”

Flaherty & Youngerman represented Garvy. Jenner & Block and Mayer Brown represented Seyfarth Shaw.

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