Court Finds No “At-Issue” Waiver of the Attorney-Client Privilege in Complex Note Transaction Case

• Posted on: Feb 10 2021

It is well settled that communications between an attorney and a client for the purpose of obtaining legal advice are privileged and not discoverable unless the privilege is deemed to have been waived by the client. Veras Inv. Partners, LLC v. Akin Gump Strauss Hauer & Feld LLP, 52 A.D.3d 370, 374 (1st Dept. 2008) (citing Jakobleff v. Cerrato, Sweeney & Cohn, 97 A.D.2d 834, 835 (2d Dept. 1983)). 

A client who voluntarily testifies to a privileged matter, who publicly discloses such matter, or who permits his attorney to testify regarding the matter is deemed to have impliedly waived the attorney-client privilege. Veras Inv. Partners, 52 A.D.3d at 375 (citations omitted). A client is also deemed to have waived the privilege when it affirmatively places the subject matter of its privileged communication “at issue” in the litigation, “so that invasion of the privilege is required to determine the validity of the [client]’s claim or defense, and application of the privilege would deprive the opposing party of vital information. Id. (citing Deutsche Bank Trust Co. of Ams. v. Tri-Links Inv. Trust, 43 A.D.3d 56, 63-64 (1st Dept. 2007)). 

Whether the attorney-client privilege was waived by a party to a litigation was the subject of Securitized Asset Funding 2011-2, Ltd. v. Canadian Imperial Bank of Commerce, 2021 N.Y. Slip Op. 00815 (1st Dept. Feb. 9, 2021) (here).

Securitized Asset Funding arose out of a payment dispute between parties to a complex note transaction. During discovery, plaintiff/counterclaim-defendant Securitized Asset Funding 2011-2, Ltd. and counterclaim-defendants Securitized Asset Funding 2009-1, Ltd., Promontoria Europe Investments XXIII LDC, and CSMC 2012-8R, Ltd. (collectively “Cerberus”), moved to compel defendant Canadian Imperial Bank of Commerce (“CIBC”) to produce certain documents it withheld or redacted as privileged, and to allow examination before trial testimony on topics objected to on the basis of privilege. 

Cerberus argued that CIBC waived the attorney-client privilege in response to its request for certain documents and testimony. CIBC claimed that there was a mistake as to its “business understanding” of the transaction documents such that the actual terms in the documents differed from those drafted by counsel. Cerberus maintained that, in light of this defense, any attorney-client privilege assertion relating to CIBC’s “business understanding” was waived. Therefore, because CIBC put its understanding of the subject documents “at issue” through its mistake and estoppel defenses, said Cerberus, the “at-issue” waiver “prevent[ed] [it] from simultaneously (1) asserting a different understanding than the Contracts’ plain meaning, and (2) denying [plaintiff] evidence that might contradict that assertion.”

Plaintiff also argued that CIBC waived the privilege by selectively testifying about the subject matter of the relevant attorney-client communications.

In opposition, CIBC maintained that it did not intend to rely on any of the privileged documents or communications to support its mistake defense. Rather, it intended to rely on non-privileged contemporaneous documents, witness testimony, and the parties’ course of conduct and performance. CIBC noted that plaintiff even admitted that it did not need the privileged documents and testimony to defend against CIBC’s arguments because it could rely on other documents and testimony.

CIBC further contended that mistake was not its only defense in the action, and, in any event, a mistake defense could be asserted successfully without waiving the privilege. According to CIBC, advancing the defense of mistake did not automatically result in an “at-issue” waiver of the privilege. 

Finally, CIBC contended that the testimony referred to by plaintiff did not disclose the content of any privileged communications with counsel or any advice from counsel. That testimony, CIBC maintained, merely demonstrated that there was communication with counsel but did not refer to any of the substance of the advice given by counsel. And, CIBC said, even if some testimony about an understanding of privileged material was mistakenly disclosed, it would not constitute a waiver of all testimony.

The motion court denied the motion.

The motion court held that Cerberus failed to demonstrate that the failure to waive the privilege would cause any prejudice or deprive it of access to vital information, especially since there were other available means of discovery to prove the validity of the claims asserted; namely, through discovery already provided. Credit Suisse First Boston v. Utrecht-America Fin. Co., 27 A.D.3d 253 (1st Dept. 2006). The motion court also held that Cerberus failed to identify to any specific testimony showing that CIBC placed the subject matter of counsel’s advice at issue and made selective disclosure of that advice.

On appeal, the Appellate Division, First Department affirmed.

The Court held that the motion court “properly found that CIBC ha[d] not waived its attorney-client privilege concerning the material and testimony Cerberus [sought] to compel by placing them at issue.” Slip Op. at *1. The Court noted that CIBC had “disavowed any intention to use privileged documents to prove the relevant defense or counterclaim” and, as such, “the invasion of the privilege [was] not necessary to determine their validity.” Id. (citations omitted). 

The Court explained that Metropolitan Bridge & Scaffolds Corp. v. New York City Hous. Auth., 168 A.D.3d 569 (1st Dept. 2019), upon which Cerberus relied, was distinguishable even though the defendant stated that it did not intend to use privileged communications and documents in its defense, because the plaintiff was required to use them to prove its claim, which was based on the defendant’s reliance on the advice of counsel (168 A.D.3d at 571–72). Id. The Court explained that in Securitized Asset Funding, “the CIBC defense and counterclaim [could] be fairly litigated based on other available, nonprivileged evidence including the testimony of nonlawyers.” Id.

Finally, the Court found that the record supported “the motion court’s finding that CIBC did not waive its privilege to the materials … by selectively disclosing privileged communications during depositions in this action.”

Takeaway

 “The attorney-client privilege shields from disclosure any confidential communications between an attorney and his or her client made for the purpose of obtaining or facilitating legal advice in the course of a professional relationship.” Ambac Assur. Corp. v. Countrywide Home Loans, Inc., 27 N.Y.3d 616, 623 (2016). The privilege “fosters the open dialogue between lawyer and client that is deemed essential to effective representation.” Spectrum Sys. Intl. Corp. v. Chemical Bank, 78 N.Y.2d 371, 377 (1991)). “It exists to ensure that one seeking legal advice will be able to confide fully and freely in his attorney, secure in the knowledge that his confidences will not later be exposed to public view to his embarrassment or legal detriment.” Matter of Priest v. Hennessy, 51 N.Y.2d 62, 67-68 (1980).

Nevertheless, the privilege may be waived where, as noted, “a party affirmatively places the subject matter of its own privileged communication at issue in litigation, so that invasion of the privilege is required to determine the validity of a claim or defense of the party asserting the privilege, and application of the privilege would deprive the adversary of vital information.” Deutsche Bank, 43 A.D.3d at 63-64 (citation omitted). Notably, “[a] privileged communication contain[ing] information relevant to issues the parties are litigating does not, without more, place the contents of the privileged communication itself ‘at issue’ in the lawsuit.” Id. at 64. “If that were the case, a privilege would have little effect.” Id. (citations omitted). Consequently, “‘at issue’ waiver occurs ‘when the party has asserted a claim or defense that he intends to prove by use of the privileged materials.’” Id. (citation omitted).

In Securitized Asset Funding, the Court found that there was no “at-issue” waiver because CIBC was not relying on any privileged material to support its claims or defenses. In fact, as noted, it specifically disavowed use of those materials, because its defense could be litigated through other non-privileged materials.