September 11, 2018

Are you “implicitly” waiving your attorney-client privilege?

Posted in Commercial Litigation, Corporate Litigation, Discovery by Gene Killian |

These days, I hesitate to mention anything that’s even tangentially related to politics, for fear of coming under fire from both “sides” and developing a massive migraine headache as a result. But I have to note that, if you read through President Trump’s Twitter line, you can find a tweet for virtually any situation. Back in April 2018, for example, upset that certain communications with his lawyers may have been disclosed, he tweeted:  “Attorney Client privilege is now a thing of the past. I have many (too many!) lawyers and they are probably wondering when their offices, and even homes, are going to be raided with everything, including their phones and computers, taken. All lawyers are deflated and concerned!”  (From what I’ve read, he isn’t overly zealous about paying his “too many!” lawyers though.)

I’m not really deflated or concerned yet, although I’d like to keep my iPad, because the Kindle app is awesome. But the truth is, as the New Jersey Appellate Division recently held, attorney-client privilege is not absolute, so it’s a mistake to think that whatever you tell your lawyer will always be safe from prying eyes.

(You can read the New Jersey privilege rule (Rule 504) here.  Federal courts generally apply the rule developed by the state whose law governs the case.)

The New Jersey Appellate Division case I’m talking about, Amerestate Holdings, Inc. v. CBRE, Inc. (which you can read here), involves a $19.5 million real estate deal in Jersey City. The buyers claimed that an essential part of the deal rested upon the sellers’ representation that 580 apartment units could be built on the site.  After the deal was concluded, it turned out that the allowable number of apartments was actually only 486, and that the property was about 24,000 square feet less than had been represented. This being America, litigation followed, in which the buyers essentially claimed that they’d been defrauded, and that they’d relied on misrepresentations made by the sellers.

The fight over attorney-client privilege began when the sellers said, in essence, “Oh, you’re saying that you reasonably relied on representations made by us? OK then, we want to look at all the communications you had with your lawyers about the deal, because they’re relevant to whether or not you actually relied on anything we said.”

That, of course, made the buyers unhappy, and a fight resulted as to the  production of communications between the buyers and their  lawyers.

The Court decided that the buyers had implicitly waived attorney-client privilege as to certain key communications, writing: “We are convinced [that] plaintiffs’ communications pertaining to the as of right units, size of the site, and any due diligence or investigation concerning those matters were placed in issue by plaintiffs’ allegation they reasonably relied on the alleged misrepresentations… Indeed, the fulcrum upon which the validity of plaintiffs’ causes of action pivots is their assertion that [they] entered into the purchase agreement in September 2014, and proceeded to close title and purchase the property on February 5, 2015, based on [their] reasonable reliance on the broker defendants’ representations concerning the site’s size and number of as of right units.”

The Court also discussed whether privilege as to certain specific e-mails had explicitly been waived, and ordered production of some, but not others.  An email from the buyers’ transaction counsel to the buyers’ representatives describing an attached deed, and detailing suggested corrections, for example, had been copied to a third-party title officer, and the sellers argued that that was enough to waive privilege.  But the Court wrote:  “The record is bereft of any evidence that counsel was authorized to waive the privilege on [the buyers’] behalf. Thus, there is no basis to conclude counsel’s disclosure of his communication with his clients constituted an explicit waiver of the privilege by plaintiffs.” On the other hand, certain emails from the client disclosing attorney-client communications concerning the number of units at the site did waive privilege as to those emails, because, obviously, the client had authorized production of the information.

One lesson here is to be careful about email strings. Sometimes, since we’re all busy, we “reply all” or forward an e-mail string, and forget that we may be transmitting attorney-client communications. Besides avoiding cluttering the sender’s’ inbox with lengthy communications, it’s always safer simply to start a new email as opposed to participating in a string.

Another lesson:  Most businesspeople (like, apparently, the President) don’t really know what a privilege claim is and how important maintaining privilege can be for the continued success of the business. Your employees may not understand the consequences of their actions when they inadvertently waive the privilege by disclosing legal advice to a third party, like a vendor.

Solution:  Train them.

Lastly, think carefully before you say you “reasonably relied” on someone’s representations, or that you relied on “advice of counsel.”  You could be opening the door to disclosure of protected communications.