Malpractice Action Doesn’t Waive Privilege for Client’s Contact With Successor Counsel

By Joan C. Rogers  


A law firm being sued for malpractice is not entitled to see privileged communications between its former clients and the attorneys they hired to undo or ameliorate the firm's alleged malpractice, the Connecticut Supreme Court held July 31 (Woodbury Knoll LLC v. Shipman and Goodwin LLP, Conn., No. SC 18584, 7/31/12).

In an opinion by Justice Peter T. Zarella, the court decided that the former clients' complaint seeking reimbursement for settlement payments and attorneys' fees did not place the second firm's representation at issue so as to waive the attorney-client privilege.

Splitting 4-3 on a jurisdictional issue, the court also ruled that the second firm was entitled to immediately appeal the trial court's ruling ordering production of records relating to its representation of the plaintiffs.

Follow-Up Litigation.

Woodbury Knoll LLC and others sued the Shipman & Goodwin law firm for malpractice. They allege that when the firm represented them in certain real estate transactions it negligently failed to discover the fraudulent conduct of a party to those deals and that, as a result, the plaintiffs became embroiled in legal proceedings and had to pay settlements of nearly $3 million.

As damages from the alleged malpractice, the plaintiffs sought reimbursement not only for the settlement payments but also for more than $1.3 million in attorneys' fees that they paid to Finn, Dixon & Herling, the law firm that represented them in the follow-up litigation.

During discovery in the malpractice action, Shipman & Goodwin served a subpoena on Finn Dixon for all of the firm's documents relating to its representation of Woodbury Knoll and the other plaintiffs during the preceding five years. Finn Dixon refused to produce the materials, citing the attorney-client privilege and work product doctrine.

The trial court overruled Finn Dixon's objection to the subpoena and denied its motion to quash. The supreme court reversed, holding that the motion to quash should have been granted.

As an initial matter, the court held that Finn Dixon had standing to assert the attorney-client privilege and that the trial court's ruling to the contrary was incorrect. Although the privilege is often said to be “held” by the client, this characterization simply refers to the client's ability to waive the privilege and does not prevent the client's attorney from asserting the privilege, Zarella explained. Indeed, he noted, it is clear from the commentary to Connecticut Rule of Professional Conduct 1.6 that a lawyer has an obligation to claim the privilege.

On the merits, the court held that the subpoena inappropriately sought privileged materials, as it demanded any and all documents about Finn Dixon's representation of the plaintiffs. It could have been quashed for that reason alone, the court said. The law firm had no affirmative obligation to submit a privilege log detailing all of the materials and why they were privileged, especially since it was not a party to the malpractice action, it also ruled.

No At-Issue Waiver.

On the question of waiver, the court held that the plaintiffs did not place Finn Dixon's representation at issue and thereby give up the privilege merely because the issue of damages in the malpractice action will likely involve the reasonableness of the settlements the plaintiffs entered into on Finn Dixon's advice.

The fact finder should be able to assess damages adequately without resorting to privileged communications between the plaintiffs and their successor counsel, Zarella said. He emphasized that the reasonableness of a settlement is evaluated under an objective standard.

“[T]he vast majority of jurisdictions that have addressed the issue have concluded that the privilege is not waived simply because a plaintiff is seeking to recover the amount of a settlement that arose out of a claim resulting from the alleged malpractice of the plaintiff's former counsel,” the court stated, citing decisions from California, Illinois, and New York as examples.

“We decline to adopt the contrary rule urged by the defendants because it lacks precedential support and runs counter to our narrow construction of exceptions to the attorney-client privilege,” Zarella wrote.

The court agreed with Fischel & Kahn Ltd. v. Van Straaten Gallery Inc., 727 N.E.2d 240, 16 Law. Man. Prof. Conduct 32 (Ill. 2000), which on similar facts found that the attorney-client privilege would be unduly curtailed if protection for communications with successor counsel were automatically deemed to be waived by seeking damages in a malpractice action.

“[T]he privilege is not waived simply because a plaintiff is seeking to recover the amount of a settlement that arose out of a claim resulting from the alleged malpractice of the plaintiff's former counsel.”
Connecticut Supreme Court

The court was unpersuaded by the contrary ruling in Rutgard v. Haynes, 185 F.R.D. 596 (S.D. Cal. 1999), which “appears to be an outlier,” Zarella said. He pointed out that the court in Rutgard based much of its holding on the intermediate appellate decision in the Fischel case, which was reversed on further appeal.

Immediate Appeal.

The justices split on whether the court should have decided the privilege issue at all. The majority concluded the trial court's ruling concerning the subpoena, which Zarella described as a discovery order, was immediately appealable as a final judgment under the standards established in Connecticut case law.

In reaching this conclusion, the court noted that there were no further proceedings before the trial court concerning the order, as the trial court had unequivocally mandated Finn Dixon's compliance with the order. Zarella also stressed that Finn Dixon was not involved in any way with the merits of the malpractice claim that the plaintiffs asserted against Shipman & Goodwin.

In addition, the court found compelling policy reasons to allow a nonparty attorney to challenge a discovery order by direct appeal rather than requiring the attorney to undergo a contempt citation, which is ordinarily needed for an immediate appeal.

The court pointed out even though Rule 1.6 permits a lawyer to disclose information to comply with a court order, a lawyer is still obligated to disclose only what is necessary and to challenge the order when he believes that disclosure is not necessary.

Zarella also noted that Rule 3.4 prohibits knowing disobedience of a court order and that Rule 8.4 makes it professional misconduct to violate or attempt to violate the professional conduct rules. No sound reason exists for requiring a lawyer to violate the ethics rules to maintain the attorney-client privilege, which is “foundational to our legal system,” the court found.

“We decline to apply our final judgment jurisprudence in a manner that requires a nonparty attorney, in his or her role as an officer of the court, to disobey a court order as the sole means of raising a good faith challenge to a discovery order in order to satisfy his or her professional obligation to the client,” Zarella wrote.

Dissent: Floodgates Now Open.

Justice Dennis G. Eveleigh, joined by Justices Lubbie Harper Jr. and Christine S. Vertefeuille, argued in dissent that the trial court's discovery order is not an appealable final judgment and therefore the court should not address the merits of Finn Dixon's objections to the order.

The court has previously concluded, Eveleigh said, that a party may not immediately appeal a discovery order even if an erroneous order will deprive the party of rights that cannot be restored without an immediate appeal. This principle should apply equally to discovery orders directed at nonparties, he said.

“[B]y allowing immediate appeals to nonparties from discovery orders that implicate the attorney-client privilege, the majority raises the privilege to an unduly exalted status,” Eveleigh wrote. He predicted that the majority's decision “will open a floodgate of immediate appeals from all discovery orders.”

Harold B. Finn III, Donna Nelson Heller, and Tony Miodonka of Finn, Dixon & Herling in Stamford, Conn., represented that firm.

Patrick M. Noonan and Matthew H. Geelan of Donahue, Durham & Noonan in Guilford, Conn., represented Shipman & Goodwin.

Barbara L. Cox of the Gallagher Law Firm, New Haven, Conn., represented the malpractice plaintiffs.

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