It is generally known and accepted that a client who sues its attorney waives the attorney-client privilege as to the alleged malpractice the client has placed at issue in the litigation.¹
The easiest examples of “at issue” waiver concern communications between the client and attorney, as well as the documents reflecting the attorney’s work in the underlying matter at issue. But what happens when the client retains successor counsel to take over the representation and to sue the first attorney? In the malpractice lawsuit, is the defendant-attorney entitled to obtain in discovery the communications between the client and successor counsel, and if so, to what extent? What about communications reflecting the advice successor counsel gives the client in the underlying lawsuit if the defendant-attorney believes that advice was questionable and led to, for example, an unnecessarily bad settlement?
The Appellate Division in Lane Construction, Inc. v. Munday, Docket No. A-0494-19T3, 2020 WL 126741 (N.J. Super. Ct., App. Div. Mar. 2, 2020), addressed this question. The defendant-attorney is entitled to discovery concerning the client’s communications with successor counsel if they relate to advice successor counsel provided the client that affected the disposition of the underlying action. That discovery may show that the defendant’s alleged malpractice was not the sole cause of the plaintiff’s damages, but that the plaintiff’s damages were caused in part or entirely by the successor counsel’s advice. In that case, it was successor counsel’s advice to the client to settle that the defendant-attorney called in question. The court held that, by suing the defendant, the plaintiff had placed successor counsel’s advice in the underlying action “at-issue” and thus waived privilege on that subject matter. The court’s decision, however, shows that at-issue waiver is not unlimited and should be appropriately tailored so as not to have a chilling effect on the willingness of attorneys to act as successor counsel under such circumstances.
That is the court’s holding in a nutshell, but to flesh this out further, a hypothetical, a more detailed discussion of the decision and some practice pointers to consider follow.
Colleen Client wants to sue Anthony Attorney for shoddy litigation work. While the underlying litigation is pending, Client retains Suzy Successor to take over her representation in the underlying lawsuit and to file a new lawsuit against Attorney for legal malpractice.
As between Attorney and Client, the attorney-client privilege is obviously out the door to the extent it relates to the underlying matter. Attorney can obtain discovery from Client concerning, as basic examples, Client’s discussions with Attorney and Client’s discussions with non-attorney, third parties concerning the underlying litigation and Attorney’s advice.
But Attorney wants to leave no stone unturned and isn’t very pleased at Client or Successor for suing him. Attorney does not believe he committed malpractice and is shocked to learn that Client, with Successor’s help, ended up settling the underlying litigation for pennies on the dollar. Attorney wants to secure discovery concerning every communication between Client and Successor about the lawsuit, Attorney’s advice and the settlement Successor apparently counseled Client to accept. While he is at it, Attorney wants all communications relating to the malpractice lawsuit because those communications will inevitably relate to the underlying matter. Does Attorney get everything?
The Lane Construction Case
Based on the Appellate Division’s decision in Lane Construction, Attorney will not get everything he is asking for, but is entitled to some important discovery. There, the defendant-attorneys had filed a mechanic’s lien on the plaintiff-client’s behalf in the underlying lawsuit arising out of nonpayment for services. The defendants, however, not only allowed the lien to expire by failing to extend it, but allegedly exposed the plaintiff to a “willful exaggeration” of lien claim. After the defendants advised the plaintiff of their potential malpractice, the plaintiff hired successor counsel to take over the underlying litigation. Shortly thereafter, the plaintiff agreed to pay $90,000 to settle the willful exaggeration claim.
In the legal malpractice action, the defendants attempted through paper discovery and in depositions to explore the plaintiff’s communications with successor counsel, including whether successor counsel had recommended that the plaintiff settle the claim. After the plaintiff objected to this discovery, the dispute ended up before the trial court, which held that the attorney-client privilege did not shield communications between the plaintiff and its successor counsel from discovery. The court ordered the plaintiff to produce those communications and reappear for depositions to allow the defendants to re-ask the questions that the plaintiff’s successor counsel had directed the plaintiff not to answer based on privilege. The Appellate Division granted the plaintiff leave to file an interlocutory appeal and affirmed the trial court’s decision.
The court applied the three-part test in In re Kozlov, 79 N.J. 232, 243-44 (1979), which applies when a party is seeking to pierce the attorney-client privilege: “(1) there [must be] ‘a legitimate need . . . to reach the evidence sought to be shielded’; (2) the evidence must be relevant and material to an issue in the case; and (3) there must be a finding, by a fair preponderance of the evidence, that the information sought cannot be obtained from a less intrusive source.” The three-part test was easily satisfied given the defendants’ need to explore whether the unfavorable settlement was a product of successor counsel’s improper advice and, more generally, why the plaintiff had decided to settle inasmuch as the plaintiff claimed that the defendant’s malpractice had given it no other viable alternative. Such discovery could lead to evidence exonerating the defendants in whole or in part, and it would be solely in the hands of the plaintiff and successor counsel and not a “less intrusive source.”
The Court applied the “at-issue” waiver rule within the second prong of the Kozlov test, and, and, in fact, it appears that this well-settled rule was the driving factor in the Court’s decision. The Court saw “no principled reason under the facts here to except communications between successor counsel and a client, particularly when those communications may relate directly to the cause and quantum of the alleged damages.” Lane Constr., 2020 WL 1026741, at *6 (citing Connell, Foley & Geiser, LLP v. Israel Travel Advisory Servs., Inc., 377 N.J. Super. 350, 361-62 (App. Div. 2005) ((“While there might be instances in the predecessor-successor suits where implied waiver would be unfair to the client, we cannot envision any circumstance where that would be so when the client retains two attorneys to handle the same litigation . . . .”).
The court did not allow unlimited discovery from successor counsel, but, in upholding the trial court’s order, allowed discovery concerning the “negotiation process” with the party the plaintiff had settled with – materials the trial court described as non-extensive. The Appellate Division also noted that the trial court would “conduct a careful in camera inspection . . . to ensure that no other privileged communications are disclosed.” With those safeguards, the Court foresaw no “chilling effect” from its decision on the willingness of attorneys to serve as successor counsel.
What are some takeaways here for our hypothetical players (or their counsel) above, noting that this is a non-exhaustive list and each case is different.
Anthony Attorney: Obviously, make sure you have a firm understanding of the scope of discovery to which you may be reasonably entitled. Don’t assume you can’t get discovery relating to Suzy Successor’s advice based on a blanket privilege because clearly you may be entitled to it. That information may be very relevant and helpful if you think something Successor did was either the sole cause of or aggravated Client’s losses – something you had no control over. This information can lead to exoneration or reduction in the amount of any damages Client may able to recover against you.
But make sure to tailor your requests, especially if you take the issue before the court. You are probably not entitled to a wholesale review of Successor’s files, particularly communications relating solely to the malpractice action against you. Some emails, for example, may be discoverable in part, and Successor should produce those emails, redacting nondiscoverable content.
If you need to fight the issue in Court, you should make a showing under the Kozlov factors and very specifically demonstrate your need and entitlement to those documents. While at-issue waiver itself may be a specific basis for obtaining such discovery, we are, after all, dealing with piercing the attorney-client privilege, which is a serious matter.
Colleen Client and Suzy Successor: Be mindful that your communications and emails may be discoverable if they relate to your handling of the underlying litigation. That reality should not substantively change how you both approach the representation itself. Advice should be conveyed in a manner enabling both parties to understand. But be mindful of the discoverability of these communications.
At the same time, do not be too quick to turn over these communications if you are asked for them in discovery without considering whether each communication would be fair game under an at-issue waiver. What exactly has been placed at-issue in terms of Successor’s representation of Client and how does each communication relate specifically to that issue? You may want to reach an understanding with Attorney as to what the scope of permitted discovery is in light of any at-issue waiver and to agree that privilege is otherwise preserved as it relates to the malpractice action and potentially certain communications relating to the underlying litigation that are not covered by an at-issue waiver of privilege. If a communication contains portions that are discoverable and portions that are not discoverable, then carefully redact as appropriate.
Just for Suzy Successor: Be careful when you are asked to take over a lawsuit and sue the first attorney. Colleen Client’s frustrations and litigation objectives may be perfectly reasons. Anthony Attorney may very well have made a mistake. But have a careful intake process. Before accepting the retention, gain an understanding of whether anything went wrong, and, if so how. Are Client’s frustrations with Attorney reasonable? Are Client’s expectations of fixing Attorney’s mistakes realistic? Can they be fixed? How will you clearly document – for both your benefit and the Client’s benefit – any difficulties you foresee as a result of what Attorney may have done? Can you be the next malpractice defendant? Also understand that Attorney (fairly or unfairly) may be second-guessing your actions in connection with his defense. Will he try to drag you into the lawsuit? I dare say consider avoiding the situation altogether due to these sensitivities. In fact, be aware that a conflict of interest may arise in either or both lawsuits if your representation in the underlying action is called into question.
¹ See, e.g., State v. Mauti, 208 N.J. 519, 538-39 (2012); Kinsella v. Kinsella, 150 N.J. 276, 300 (1997); accord N.J.S.A. 2A:84A-20 (the privilege “shall not extend . . . (c) to a communication relevant to an issue of breach of duty by the lawyer to his client, or by the client to his lawyer”).