By Samson Habte
May 30 --Internal consultations between a law firm's attorneys and the firm's in-house counsel are privileged from discovery in a malpractice action even if they concern the firm's potential liability to a current client, the Oregon Supreme Court held May 30.
The ruling is the third in a series of recent state supreme court opinions that rejected the “fiduciary exception” to the attorney-client privilege. See St. Simons Waterfront, LLC v. Hunter, Maclean, Exley & Dunn, P.C., 746 S.E.2d 98, 29 Law. Man. Prof. Conduct 424 (Ga. 2013); RFF Family P'ship, LP v. Burns & Levinson, LLP, 991 N.E.2d 1066, 29 Law. Man. Prof. Conduct 422 (Mass. 2013).
Prior cases adopting that judicially created exception held that internal firm communications could not be shielded from discovery if they related to possible liability to a firm client who subsequently sued for malpractice.
Justice Jack L. Landau said no such exception exists in Oregon because the state legislature--which codified the privilege in Oregon's Evidence Code--did not include a “fiduciary exception” when it enumerated the five circumstances under which the privilege will not apply.
“[I]t bears emphasis that, among the courts that have adopted the fiduciary exception, most are not governed by a legislatively adopted privilege,” Landau wrote.
Crimson Trace Corp. hired William Birdwell, a lawyer at Davis Wright Tremaine LLP, to prosecute various patents. The company later retained DWT to sue LaserMax Inc., a competitor accused of infringing those patents.
That case--assigned to Birdwell and lead counsel Frederick Boundy--did not go well. LaserMax asserted in a counterclaim that one patent--the “'235 patent”--was invalid because Crimson and Birdwell deceptively omitted material information when applying for it.
[Birdwell] is also alleged to be part of the deceptive activity. … [P]art of the intent is to try to drive a wedge between lawyer and client by suggesting [he] did something wrong. Under the circumstances, I should advise you that someone could argue I have a conflict of interest in that I may be defending my partner at the same time as I am representing Crimson Trace. I frankly don't see this as an issue, but I do want you to know that you certainly have the right to consult with independent counsel to fully consider this.
LaserMax demanded attorneys' fees on the grounds that Crimson procured the '235 patent and litigated the infringement claim over it in bad faith. It subpoenaed Birdwell's files relating to the patent, leading to additional in-house consultations at DWT.
The suit was resolved through a settlement in which LaserMax admitted no liability and was given royalty-free licenses to disputed patents. Those confidential terms were revealed as part of a sanction order after Boundy filed a court filing that gave a “false impression” about the settlement.
Crimson eventually stopped paying DWT's fees. It then filed a malpractice complaint that accused DWT of negligently failing to advise Crimson about problems with the '235 patent and conflicts that arose during the litigation.
Crimson sought to discover internal DWT communications “regarding professional duties owed [to Crimson], possible or actual breach of those duties, and/or prevention of loss related to” those duties.
The trial court ordered production. It acknowledged that the requested communications met the three basic requirements in Section 503 of the Oregon Evidence Code, which states that the attorney-client privilege applies to communications: (1) between a “client” and a “lawyer” (2) that are “confidential” and (3) made “for the purpose of facilitating the rendition of professional legal services to the client.”
But the court then recognized a “fiduciary exception.” The duties of candor, disclosure and loyalty preclude a law firm from asserting the privilege to shield from a client communications that concern its representation of that client, the trial judge said.
The supreme court reversed. It pointed out that the legislature did not include a fiduciary exception when enumerating five circumstances in which the attorney-client privilege will not exist. The court declined to recognize a judicially created rule recognizing such an exception.
“The rule says nothing about the authority of the courts to add to those five exceptions,” Landau wrote. “To the contrary, by taking the trouble to enumerate five different circumstances in which there is no privilege, the legislature fairly may be understood to have intended to imply that no others are to be recognized.”
That “negative inference is especially strong” because “the enumerated list is not short or general,” the court noted. Moreover, it added, enumerated exceptions to other evidentiary privileges are typically “preceded by a statement that the list is not exclusive.”
Landau acknowledged that some courts have recognized the fiduciary exception. But those decisions have largely been issued by federal courts that “are not governed by a legislatively adopted privilege,” he added. “Under federal law, the attorney-client privilege is recognized as judge-made and, as a result, is subject to judge-made exceptions.”
“Indeed, among federal courts addressing the issue as a matter of state law, the result has not been as uniform as Crimson suggests,” Landau noted, citing TattleTale Alarm Sys. Inc. v. Calfee, Halter & Griswold LLP, 772 F. Supp.2d 893, 27 Law. Man. Prof. Conduct 106 (S.D. Ohio 2011) (applying Ohio law, declining to adopt exception).
Crimson argued that failing to recognize a fiduciary exception would be “absurd” because it would allow a lawyer to breach a duty of loyalty to a client and then “compound the conflicts of interest by communicating with other lawyers in his firm that not only indirectly through imputation represent the client, but actually and directly represent the client on the very same matter, and then shield those internal communications from disclosure to the client.”
The court was not persuaded. “Crimson conflates ethical considerations with the separate issue of the scope of the privilege set out in OEC 503,” it said.
“[R]ules of professional conduct may require or prohibit certain conduct, and the breach of those rules may lead to disciplinary proceedings,” Landau explained. “But that has no bearing on the interpretation or application of a rule of evidence that clearly applies.”
Kevin S. Rosen of Gibson, Dunn & Crutcher LLP, Los Angeles, argued for DWT. Bonnie Richardson of Folawn Alterman & Richardson LLP, Portland, Ore., argued for Crimson Trace.
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Copyright 2014, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
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