Litigators beware—an attorney's ethical duties with respect to inadvertently disclosed documents apply not only to privileged records produced by opposing counsel, but also, for the first time, information received from the attorney's own client. A divided California appeals court affirmed the disqualification of a law firm that used privileged emails without following the state's procedure for handling inadvertent disclosures. The decision departs from the conventional assumption that a client's own file, including information obtained from the opponent pre-litigation, is fair game. The opinion also highlights that regardless of the document's provenance, practitioners should be on the lookout for any potential inadvertent, privileged disclosures and act in accord with the applicable ethical guidelines.
Privileged Email Is Forwarded to Opposing Attorneys
In Hausman v. McDermott Will & Emery LLP, McDermott provided estate planning services to Dick Hausman and his family and also represented the family's holding corporation, M. Hausman, Inc. (MHI) in various matters. Dick hired his own personal attorney at Pepper Hamilton LLP when a dispute arose over control of MHI. The Pepper Hamilton lawyer sent Dick an email advising him on the dispute. Dick inadvertently forwarded the email to a non-party family member, who then forwarded it to another family member acting as an intermediary in the dispute, which then was forwarded to a McDermott attorney, Dick's children, and others.
Dick first learned of the inadvertent disclosure about a year later, during a related probate action, wherein Dick produced the subject email. McDermott retained Gibson Dunn & Crutcher LLP to represent one of its attorneys who was deposed in the probate action. At the deposition, Gibson Dunn introduced the email. Dick's attorneys objected on the grounds of privilege and demanded return of the email. Gibson Dunn refused, citing waiver.
While the probate action was pending, Dick sued McDermott for legal malpractice, alleging a conflict of interest arising out of the firm's representation of multiple family members. McDermott hired Gibson Dunn to also defend the malpractice actions. When Gibson Dunn used the email during depositions in the malpractice suits, Dick moved to adjudicate the privilege and disqualify Gibson Dunn. The trial court granted the motion, finding no intentional waiver of the privilege, and concluding that Gibson Dunn's improper use of the email would prejudice Dick and undermine public confidence in the integrity of the proceedings.
Appellate Court Splits on Extension of Ethical Rule
A split appellate court affirmed on appeal. It found substantial evidence that Dick did not waive attorney-client privilege, including the following: The email was forwarded from his iPhone without any message or explanation, he rarely spoke to the recipient of his forwarded email, and Dick was elderly, with reduced dexterity. The court held that the subsequent disclosures could not constitute a waiver since those recipients did not hold the privilege.
The majority next considered the scope of California's ethical rule set forth in State Compensation Insurance Fund v. WPS, Inc. and whether or not Gibson Dunn violated it. State Fund requires lawyers receiving materials that "obviously" or "clearly" appear to be privileged and inadvertently produced "to refrain from examining the materials any more than is essential to ascertain if the materials are privileged, and shall immediately notify the sender that he or she possesses material that appears to be privileged." The privilege issue is then to be resolved by the court if the parties cannot reach agreement.
Significantly, the appellate court held that State Fund may apply "regardless of how the attorney obtained the documents" so long as the materials are obviously or clearly privileged and inadvertently produced, and thus also applied to documents received from an attorney's client. The appellate court also explained that though State Fund arose in the context of an attorney's inadvertent production of privileged documents during litigation, the policy underlying the rule did not limit its application to those circumstances. The majority then concluded there was substantial evidence that the email was presumptively privileged, and State Fund required Gibson Dunn to return the email, regardless of its colorable argument of waiver. The court reasoned that to hold otherwise would create an exception that swallowed the rule.
In contrast, the dissent concluded that State Fund did not apply and that the majority's decision was "an unwarranted extension" of the rule. It observed that the issue of inadvertence was reasonably disputed, particularly since the disclosures occurred outside of litigation, and Dick's lawyers failed to seek a protective order or any other action to secure the privilege for almost a year. The dissent also pointed out that the policy considerations underlying State Fund, encouraging candor in the attorney-client relationship and addressing inadvertent disclosures in large document productions, did not apply in these circumstances. Even if State Fund did apply, the firm discharged its duty of notification by producing the email to Dick's lawyers.
Additionally, the dissent expressed concern that the majority's rule penalized Gibson Dunn for its opponent's failures by "impos[ing] on Gibson Dunn an obligation to respect their opponent's interests which is greater than and in direct conflict with their primary obligation to zealously represent their own client's interests." It also found disqualification to be an inappropriate remedy, as there was no precedent prohibiting Gibson Dunn's actions, and it deprived McDermott of its choice of counsel.
Notably, the California Supreme Court has declined to review this decision. McDermott's request to depublish the opinion, which would bar citation to or reliance upon the ruling, was also denied. As such, Hausman may be the last word on this issue in California.
Proceed with Caution or Risk Disqualification
ABA Section of Litigation leaders counsel practitioners to check the law of their jurisdiction, and proceed with caution to avoid the risk of disqualification. California's rule "aims to promote respect for the protection of attorney-client confidences by imposing duties on attorneys in receipt of otherwise privileged documents that appear to have been inadvertently produced," says Thomas G. Wilkinson Jr., member of the Ethics and Professionalism Committee.
Thus, "while many lawyers would resist the temptation to use inadvertently disclosed documents, where state law permits use of the document, an attorney's obligations to be a zealous advocate may require use of the document," notes Nicholas B. Reuhs, cochair the Section of Litigation's Ethics & Professionalism's Conflicts of Interest Subcommittee. Accordingly, when a potentially privileged document surfaces, "it is important to review both case law and ethics opinions when responding to an inadvertently disclosed document," Reuhs advises.
Josephine Bahn is a contributing editor for Litigation News.