Reliance on Counsel Found to Waive Attorney-Client Privilege

• Posted on: Nov 23 2022

By: Jeffrey M. Haber

“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.”¹ The privilege “fosters the open dialogue between lawyer and client that is deemed essential to effective representation.”² “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.”³

Although the privilege serves an important function – the open dialogue between attorney and client – there exists an “[o]bvious tension” between the privilege and the policy of New York State that favors liberal discovery.⁴ Because the privilege shields from disclosure “material and necessary” information “and therefore ‘constitutes an “obstacle” to the truth-finding process,’” courts narrowly construe its application.⁵ For this reason, “[t]he party asserting the privilege bears the burden of establishing its entitlement to protection by showing that the communication at issue was between an attorney and a client ‘for the purpose of facilitating the rendition of legal advice or services, in the course of a professional relationship,’ that the communication is predominantly of a legal character, that the communication was confidential and that the privilege was not waived.”⁶ 

Sometimes, a party possessing the privilege can waive its protection by affirmatively making the subject matter of the privileged communication an issue in a litigation. This is called “at-issue” waiver or “subject matter waiver”.⁷  

Notably, the fact that privileged communications may contain information “relevant” to issues the parties are litigating will not, without more, place the contents of the privileged communication itself “at issue.”⁸ Rather, “at issue” waiver occurs “when the party has asserted a claim or defense that he intends to prove by use of the privileged materials.”⁹ An example of an affirmative act that constitutes a subject matter waiver of the privilege is the affirmative defense of a party’s “reliance upon the advice of counsel.”¹⁰ “Moreover, selective disclosure is not permitted as a party may not rely on the protection of the privilege regarding damaging communications while disclosing other self-serving communications.”¹¹ 

This Blog examined subject matter waiver here and here.

Whether the attorney-client privilege was waived by a party to a litigation was the subject of Pala Assets Holding Ltd. v. Rolta, LLC, 2022 N.Y. Slip Op. 06642 (Nov. 22, 2022) (here).

Pala involved a post-judgment enforcement proceeding. In September 2020 and December 2020, the motion court entered two judgments against defendants (totaling more than $200 million) based on their default on certain bond debt that plaintiffs purchased post default. As part of plaintiffs’ post-judgment efforts, plaintiffs obtained, among other things, a turnover order directing defendants to turn over certain property (“Turnover Order”) and receivership orders placing certain entities under the control of a court-appointed receiver. Plaintiffs also obtained an order requiring a corporate representative to sit for a deposition.

During his deposition, the corporate representative of defendant Rolta India testified that the company’s decisions with respect to the Turnover Order – e.g., waiting to comply with the Turnover Order – were based on the advice of its Indian counsel and its need to comply with Indian law. The motion court found that the representative’s statements effectuated a waiver of the attorney-client privilege on behalf of all defendants regarding all communications concerning the Turnover Order and receivership orders. 

On appeal, the Appellate Division, First Department affirmed the foregoing order.¹² Like the motion court, the Court held that the deposition testimony by the CEO and Chairman of defendants’ corporate parent, Rolta India, waived defendants’ attorney-client privilege as to communications had with various counsel representing them in New York courts and in India.¹³ The Court found that “[t]he CEO’s testimony that defendants did not comply with post-judgment orders calling for a turnover of assets to a receiver because the turnover and receivership orders had yet to be domesticated in India in accordance with Indian law affirmatively placed the subject matter of their privileged communications in litigation.”¹⁴ The Court noted that the “CEO testified, among other things, that defendants’ counsel in India advised noncompliance with the post-judgment orders pending domestication of such orders in India, and that defendants’ U.S. counsel would yield to the advice of its Indian counsel on the matter.”¹⁵ Thus, concluded the Court, “invasion of the privilege was required for plaintiffs to adequately contest the validity of defendants’ defense in failing to comply with the turnover and receivership orders (see generally Lightstone Holdings LLC, 196 AD3d at 447), particularly inasmuch as contempt proceedings had already been brought against the president of Rolta India’s primary subsidiary, and additional contempt proceedings were in the process of being commenced against other principals.”¹⁶

The Court rejected defendants’ argument that the waiver should be restricted to communications with Rolta India’s counsel in India. The Court explained that the “dual representation and evidence of a defense strategy shared by defendants” sufficed to waive the privilege as to the company’s U.S. counsel.¹⁷ 

Takeaway

The testimony by the company’s CEO showed that he relied on the advice of counsel. The testimony quoted by the motion court made this point clear: 

Q. So did you receive specific legal advice from your counsel, whether in India or elsewhere, stating that you did not – that Rolta India did not have to comply with orders from the New York court unless they had been domesticated in India.

A. Yes, please.

In fact, as noted in the motion court order, when asked why Rolta India had not complied with the Turnover Order, the CEO testified that it was based on the advice of counsel: “I … have given testimony, time and again, in these nine hours, that whatever steps were taken by us on behalf of Rolta India were taken because of the legal advice we had, and we took that and consciously based on that.”

In light of such testimony, it appears to have been an easy decision for the courts to find that the CEO affirmatively placed the subject matter of the company’s privileged communication at issue in the litigation. As such, it was necessary to invade the privilege to determine the matters surrounding the alleged violation of the Turnover Order and receivership orders.

Footnotes

1. Ambac Assur. Corp. v. Countrywide Home Loans, Inc., 27 N.Y.3d 616, 623 (2016).
2. Spectrum Sys. Intl. Corp. v. Chemical Bank, 78 N.Y.2d 371, 377 (1991).
3. Matter of Priest v. Hennessy, 51 N.Y.2d 62, 67-68 (1980).
4. Ambac, 27 N.Y.3d at 624 (citing, Spectrum, 78 N.Y.2d at 376-377); see also CPLR § 3101(a)(1) (requiring “full disclosure of all matter material and necessary in the prosecution or defense of an action”).
5. Ambac, 27 N.Y.3d at 624 (quoting, Matter of Jacqueline F., 47 N.Y.2d 215, 219 (1979)); Spectrum, 78 N.Y.2d at 377.
6. Ambac, 27 N.Y.3d at 624. (quoting, Rossi v. Blue Cross & Blue Shield of Greater N.Y., 73 N.Y.2d 588, 593-594 (1989)).
7. Deutsche Bank Trust Co. of Ams. v. Tri- Links Inv. Trust, 43 A.D.3d 56, 64 (1st Dept. 2007) (holding, subject matter waiver of a privilege occurs when “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.”).
8. See Long Is. Light. Co. v. Allianz Underwriters Ins. Co., 301 A.D.2d 23, 33 (1st Dept. 2002); see also Veras Inv. Partners, LLC v. Akin Gump Strauss Hauer & Feld LLP, 52 A.D.3d 370, 372 (1st Dept. 2008).
9. North Riv. Ins. Co. v. Columbia Cas. Co., 1995 WL 5792, *6, 1995 U.S. Dist. LEXIS 53, *17 (S.D.N.Y. 1995) (citations omitted); see also Manufacturers & Traders Trust Co. v. Servotronics, Inc., 132 A.D.2d 392, 397 (1987) (no “at issue” waiver where the party asserting privilege “does not need the privileged documents to sustain its cause of action”).
10. Village Bd. of Vil. of Pleasantville v. Rattner, 130 A.D.2d 654, 655 (2d Dept. 1987).
11. Id.; see also Orco Bank v. Proteinas Del Pacifico, 179 A.D.2d 390, 390 (2d Dept. 1992) (attorney-client privilege was waived by client’s “selective disclosure” of legal advice).
12. The Court modified other portions of the motion court’s order.
13. Slip Op. at *1.
14. Id. (citations omitted).
15. Id.
16. Id.
17. Id. at *1-*2 (citation omitted).

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.