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By Steven R. Popofsky
Steven R. Popofsky is a partner in Kleinberg Kaplan’s Litigation and Risk Management Department. He handles a wide variety of complex litigation matters for corporations and partnerships and provides ongoing business advice and counseling for individuals and family entities regarding a wide range of issues, including employment relations.
“I have to do this; lawyer’s advice.” A time-honored client technique for deflecting responsibility—sometimes true, sometimes merely a convenient excuse—but now potentially a dangerous one in light of a recent First Department ruling.
In Siras Partners LLC v. Activity Kaufu Hudson Yards LLC, 2017 NY Slip Op 31216(U) (Sup. Ct. N.Y. Co. June 5, 2017), aff’d, 157 A.D.3d 445 (1st Dept. 2018), a defendant had e-mailed a non-party investor as follows: “I was about to write to you this email last Friday but I decided to wait until we all sit down with attorneys this morning. It is concluded by legal counsels that we have no choice but buying the note from UBS immediately to clean up the mess at Hudson Rise. Otherwise, all the equity we invested is at risk to be wiped out.” [emphasis added]
The lower court held that because defendant’s e-mail “provided a detailed description of specific legal advice and the course of action given to him by his attorneys” and was “voluntarily divulged to a third party,” defendant “waived the attorney-client privilege as to any communications and documents dealing with his counsel’s advice” regarding the acquisition of the UBS note. A panel of the Appellate Division, First Department, unanimously and without much discussion, affirmed: “By disclosing to a third party by email certain advice given to them by counsel, defendants waived the attorney-client privilege as to other documents pertaining to that advice.”
“Waiver” is defined by Merriam-Webster, not atypically, as “intentionally relinquishing or abandoning a known right.” But in the context of attorney-client privilege, “waiver” is not so closely tied to the concept of intentional relinquishment. In Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 27 N.Y.3d 616, 624 (2016), the Court of Appeals explained: "[A] client waives the privilege if a communication … made in confidence [is] subsequently revealed to a third party. … [S]ubsequent disclosure … destroy[s] the privilege as a matter of fairness: ‘when [the privilege holder’s] conduct touches a certain point of disclosure, fairness requires that the privilege shall cease whether he intended that result or not.’”
Thus, what is commonly described as “waiver” might better be described in this context as “forfeiture.” Nonetheless, the result is the same.
It is one thing to hold that a particular document or conversation needs to be disclosed to one’s litigation adversary. It is quite another to require, as the appellate court did in Siras Partners, the further production of “other documents pertaining to that advice,” known as a “subject matter waiver.” The significance, and hazard, of Siras Partners stems from its imposition of a subject matter waiver arising out of what was clearly an informal, unsophisticated and uncounseled communication that was in no way actually intended to forgo any rights.
It oftentimes is possible to salvage the privilege, even for a communication disclosed to a third party, if the third party is deemed to have a “common interest” with the speaker and the parties agreed to maintain one another’s confidentiality. But as the Court of Appeals held in the Ambac case, in New York the common interest exception is limited to “the context of pending or reasonably anticipated litigation” (27 N.Y.3d at 627 et seq.). Thus purely business communications will not qualify for protection in the absence of potential litigation, even if the (non-lawyer) parties reasonably understand their respective business interests to be aligned. Indeed, that was presumably the case in Siras Partners, where the First Department (which did cite to Ambac) implicitly found the common interest exception inapplicable.
The result of all this is that in New York state courts at least—the rule in federal court is different: Federal Rule of Evidence 502(a) limits subject matter waiver to a disclosure made “in a federal proceeding or to a federal office or agency,” and expressly requires the waiver to have been “intentional” (which of course confirms that “waiver” in the privilege context can be imposed in the absence of volition)—the invocation of legal advice to a counter-party is fraught with peril. Subject matter waiver can be very broad, and parties may be shocked and dismayed to discover that a careless offhand phrase has forced the production of a whole host of “other documents pertaining to” the legal advice cited. While one could theoretically word a communication carefully to avoid the problem—“Of course we’ve consulted counsel. I can’t say specifically the legal advice we received, but this is what we intend to do …”—in real life it is very difficult to be that precise, particularly if speaking or writing off the cuff without review by counsel.
Siras Partners has been the subject of some commentary, but has not yet been cited by any court. That will change, and perhaps it will be narrowed, but until then it represents the law in New York, and a unanimous appellate division ruling cannot be written off as a lower-court aberration. Thus, parties should do their utmost to avoid references to legal advice, and assuredly should not do so in writing, when communicating with others. And lawyers counseling their clients should expressly advise them not to cite the advice in those terms. Better safe than sorry, to cite a phrase.
Steven R. Popofsky is a partner in Kleinberg Kaplan’s Litigation and Risk Management Department. He handles a wide variety of complex litigation matters for corporations and partnerships and provides ongoing business advice and counseling for individuals and family entities regarding a wide range of issues.
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