Opinion ID: 1859634
Heading Depth: 1
Heading Rank: 1

Heading: Constructive Waiver

Text: State Farm, relying on the doctrine of issue injection, contends that Carrington and Brown waived the attorney-client privilege. State Farm argues that it is entitled to review the requested materials because, it says, those records and files provide the only means of substantiating and testing the reasonableness and the accuracy of the fees claimed. State Farm also contends that whether Carrington and Brown mitigated damages is a proper subject of inquiry. State Farm supports this contention by arguing that it needs the discovery to deal with the question why Carrington and Brown chose separate attorneys for one phase of the litigation, after having previously been represented by the same attorney, and the question whether the subsequent representation by separate attorneys constituted an unnecessary duplication of effort; the question why the amounts they testified they owed their attorneys differed from the balances due shown on the attorneys' statements; and the question why the attorneys, according to State Farm, have made no effort to collect the fees Carrington and Brown claim to owe them. Carrington and Brown point out that it is undisputed that State Farm denied a defense in the underlying action and that as a result they incurred damage in that they had to retain their own attorneys. They say that if State Farm had properly afforded them a defense under the homeowner's insurance policies, it would have enjoyed an attorney-client privilege with them. State Farm, they say, chose not to do so and must now live with the consequences of its actions. Carrington and Brown contend the issue they present in their lawsuit is whether State Farm in bad faith failed to investigate and in bad faith eventually denied their request for a defense under their policies. They further contend that State Farm has not defended their present action by claiming that the fees or the quality of representation in the earlier action was wrongful, unreasonable, or otherwise improper. They support this contention by referring to State Farm's answer. However, we have reviewed that answer, and we conclude that it contains denials sufficient to put in issue the reasonableness of the attorney fees. This Court first visited the issue of waiver by issue injection in Ex parte Malone Freight Lines, Inc., 492 So.2d 1301 (Ala. 1986), where a personal-injury victim had secured a foreign judgment against a trucking company; she then filed an action in Alabama to enforce the foreign judgment. The trial court ordered the trucking company to produce its attorney's entire claim file regarding the accident that had led to the foreign judgment. The trucking company, contending that many documents in the attorney's file were privileged under the work-product doctrine, petitioned this Court for a writ of mandamus preventing the discovery. This Court held that the trial court's production order was proper, concluding that the trucking company had put the privileged material at issue by asserting, in the action to enforce the judgment, that that judgment had been obtained by fraud and by supporting that defense with an affidavit of its attorney. In denying the petition for the writ, this Court relied on the reasoning in two federal cases: Garfinkle v. Arcata National Corp., 64 F.R.D. 688 (S.D.N.Y.1974), and Haymes v. Smith, 73 F.R.D. 572 (W.D.N.Y.1976). In Garfinkle, the district court held that the defendant had waived the right to assert the attorney-client privilege: Defendant has clearly injected [an] opinion letter into [the] case as a relevant matter and plaintiff is entitled to probe into the circumstances surrounding the issuance of the letter. [Plaintiff] cannot be limited to the letter itselfthe finished product. He is entitled to know how the letter came into being. Plaintiff argues appropriately that defendant simply cannot use the letter as both a sword and a shield. 64 F.R.D. at 689. Carrington and Brown maintain that Malone Freight Lines is distinguishable. They rely upon Ex parte Great American Surplus Lines Insurance Co., 540 So.2d 1357 (Ala.1989), in which this Court declined to find a waiver based upon disclosure of an attorney's conclusion that there was no coverage under an insurance policy. In Great American, this Court distinguished the situation whereby a client injects advice of counsel as justification for his conduct and then attempts, based upon the attorney-client privilege, to avoid further inquiry. However, Great American turned upon the conclusion that the subject communication was work product and was therefore entitled to protection pursuant to the work-product doctrine. We deal here today only with the attorney-client privilege. As far as the materials before us and our own research indicate, we have here a question of first impression as to how the doctrine of waiver might apply to cause a waiver of the attorney-client privilege, based upon issue injection, in a context where the parties claiming the privilege are seeking to recover, as an element of damages, the attorney fees they claim to have incurred in a related lawsuit. State Farm urges us to follow Ideal Electronic Security Co. v. International Fidelity Insurance Co., 129 F.3d 143 (D.C.Cir.1997). The United States Court of Federal Claims addressed that case in Energy Capital Corp. v. United States, 45 Fed. Cl. 481 (2000): In Afro-Lecon, Inc. v. United States, 820 F.2d 1198, 1204-05 (Fed.Cir.1987), the Federal Circuit endorsed a test set forth in Hearn v. Rhay, 68 F.R.D. 574 (E.D.Wash.1975). The party has waived the attorney client privilege if: `(1) assertion of the privilege was a result of some affirmative act, such as filing suit, by the asserting party; (2) through this affirmative act, the asserting party put the protected information at issue by making it relevant to the case; and (3) application of the privilege would have denied the opposing party access to information vital to his defense.'  Zenith Radio Corp. v. United States, 764 F.2d 1577, 1579 (Fed.Cir.1985) (emphasis added), quoting Hearn v. Rhay, 68 F.R.D. at 581. . . . .  Ideal Electronic Security Co. v. International Fidelity Ins. Co., 129 F.3d 143, 151-52 (D.C.Cir.1997), explains that when a party seeks attorneys' fees, that party has placed all bills from the attorneys `in issue.' In Ideal, International Fidelity Ins. Co. (IFIC) was seeking attorneys' fees based on an indemnification agreement. IFIC produced redacted bills and the District Court awarded some attorneys' fees but refused to award any money for a redacted bill. Id. at 147. The D.C. Circuit rejected this approach. IFIC `effectively waived its attorney-client privilege with regard to all communications going to the reasonableness of the fees claimed when it placed the purportedly privileged matters in dispute by claiming indemnification for the attorney's fees.... If IFIC [on remand] declines to disclose the redacted portions of the billing statements, then the entire claim for fees must be denied.' Id. at 146. `As a practical matter, the reasonableness of any portion of the billing statement can only be determined by examining all billing statements pertaining to the legal services provided as a whole.' Id. at 151. Other cases take this approach. See, e.g., Potomac Electric Power Co. v. California Union Ins. Co., 136 F.R.D. 1, 4-5 (D.D.C.1990). 45 Fed. Cl. at 486 (final emphasis added). Ideal Electronic does not necessarily stand as authority for requiring Carrington and Brown to disclose their attorneys' entire files related to the earlier action. The court in Ideal Electronic required production only of all of the billing statements, without redaction, and any other communications going to the reasonableness of the amount of the fee award. 129 F.3d at 152. Here, Carrington and Brown have already produced the billing information, without any redactions. The view supporting Carrington and Brown's position is well expressed in Mortgage Guarantee & Title Co. v. Cunha, 745 A.2d 156 (R.I.2000):  Specifically, plaintiff argued that production of copies of the invoices from HCPW [the law firm] was sufficient to satisfy the claim for attorneys' fees, and that production of the underlying communications would be a violation of the attorney-client privilege. Further, plaintiff argued that the hearing justice erred and abused her discretion when finding that plaintiff had waived the attorney-client privilege by making the claim for attorneys' fees. For the following reasons, we agree with plaintiff's contention that the inclusion of attorneys' fees in the claim for damages does not in itself imply a waiver of the attorney-client privilege. It is well established that `communications made by a client to his attorney for the purpose of seeking professional advice, as well as the responses by the attorney to such inquiries, are privileged communications not subject to disclosure.' As a part of that general rule, attorney-client communications are protected only if the privilege has not been explicitly or implicitly waived by the client. In the instant case, defendant argues that by including a claim for attorneys' fees in the claim for damages, plaintiff implicitly waived the privilege as it relates to the communications between plaintiff and HCPW. This Court has not yet addressed the question of whether a demand for attorneys' fees made in connection with a claim for damages amounts to an implicit waiver of the attorney-client privilege. We shall now determine the appropriate rule to apply in such a case. The principle that the attorney-client privilege is implicitly waived when a party puts an attorney-client communication at issue in a case is well accepted in American jurisprudence. See Aranson v. Schroeder, 140 N.H. 359, 671 A.2d 1023, 1030 (1995); see also Mountain States Tel. & Tel. v. DiFede, 780 P.2d 533 (Colo.1989) (citing cases). The defendant urges this Court to apply a liberal analysis whenever a party has put an attorney-client communication at issue, such as the test promulgated in Hearn v. Rhay, 68 F.R.D. 574 (E.D.Wash.1975). The Hearn court stated that `a court should find that the party asserting a privilege has impliedly waived it through his own affirmative conduct' when the following conditions exist: `(1) assertion of the privilege was a result of some affirmative act, such as filing suit, by the asserting party; (2) through this affirmative act, the asserting party put the protected information at issue by making it relevant to the case; and (3) application of the privilege would have denied the opposing party access to information vital to his defense.' Id. at 581. The liberal Hearn test has been criticized by many jurisdictions as potentially chilling the freedom to engage in confidential communications by a client with his or her attorney, causing an increase in litigation costs concerning discovery disputes, and tending to favor wealthier litigants. See Remington Arms Co. v. Liberty Mutual Insurance Co., 142 F.R.D. 408, 413 (D.Del.1992); Metropolitan Life Insurance Co. v. Aetna Casualty & Surety Co., 249 Conn. 36, 730 A.2d 51, 60 (1999); Aranson, [140 N.H. at 370,] 671 A.2d at 1030. Instead, those jurisdictions apply a stricter test to determine if there has been a waiver of the privilege, holding that a party has waived the attorney-client privilege `only when the contents of the legal advice [are] integral to the outcome of the legal claims of the action.' Metropolitan Life, [249 Conn. at 52-53,] 730 A.2d at 60 (citing Remington Arms Co., 142 F.R.D. at 412-15). That is, the contents of the communication [are] integral to the outcome of the litigation in situations where a party specifically pleads, as an element of the claim, his or her reliance on an attorney's advice, or voluntarily testifies regarding portions of the actual advice contained in the communication, or places in issue the nature of the attorney-client relationship during the course of the litigation. In those instances, we are satisfied that a party has waived the right to confidentiality by placing the content of the communication directly in issue and `the issue cannot be determined without an examination of that advice.' Id. In Metropolitan Life, the Supreme Court of Connecticut reasoned that because the attorney-client privilege `was created to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observation of law and administration of [justice,] ... [e]xceptions to the attorney-client privilege should be made only when the reason for disclosure outweighs the potential chilling of essential communications.' Metropolitan Life, [249 Conn. at 52,] 730 A.2d at 60 (quoting Upjohn Co. v. United States, 449 U.S. 383, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981)). This Court has consistently held that the attorney-client privilege `must be narrowly construed because it limits the full disclosure of the truth.' However, in light of its important purpose, we have stated that the attorney-client privilege `should not be whittled away by fine distinctions.' Based upon these important policy considerations, we conclude that the more stringent analysis promulgated in Metropolitan Life is the appropriate test for determining whether an implicit waiver of the attorney-client privilege has been made in a particular case. This determination turns on whether the actual content of the attorney-client communication has been placed in issue such that the information is actually required for the truthful resolution of the issues raised in the controversy. Applying the more strict analysis to the case at hand, defendant has made no showing that the information contained in the documents is integral to plaintiff's claims, namely negligence and breach of contract, nor has there been a showing that the information sought is relevant to defendant's defense to those claims. Nor are we persuaded that defendant could conceivably make such a showing. In order to establish an entitlement to damages (attorneys' fees incurred in connection with defending the underlying lawsuit), plaintiff produced copies of invoices presented by HCPW and paid by plaintiff. We are satisfied that the substantive content of the correspondence between HCPW and plaintiff is not necessary to prove damages in a negligence and breach of contract action; instead, the reasonableness of the attorneys' fees can be determined independently by expert testimony, without resorting to disclosure of the actual advice given by HCPW to plaintiff.  Furthermore, the mere fact that plaintiff made a claim for attorneys' fees as part of the claim for damages does not indicate a waiver of the attorney-client privilege. We agree with the court in Metropolitan Life that `[m]erely because the [attorney-client] communications are relevant does not place them at issue.' Metropolitan Life, [249 Conn. at 54,] 730 A.2d at 61 (citing Remington Arms Co., 142 F.R.D. at 415). 745 A.2d at 158-60. (Emphasis added.) (Some citations omitted.) We agree with Carrington and Brown that Malone Freight Lines is distinguishable. We are not here presented with a circumstance where a party has injected the content of the communications as an integral element of its claim, as was the case in Malone Freight Lines, where the party invoking the privilege had challenged the validity of a foreign judgment and in support of its challenge had submitted an affidavit of its attorney. We find the Rhode Island court's rationale and holding persuasive. The question whether a party has implicitly waived the attorney-client privilege turns on whether the actual content of the attorney-client communication has been placed in issue [in such a way] that the information is actually required for the truthful resolution of the issues raised in the controversy. See Mortgage Guarantee & Title Co. v. Cunha, 745 A.2d at 160. State Farm's stated need for the privileged materials turns entirely on its legitimate interest in challenging the reasonableness of the attorney fees. However, the substantive content of the attorneys' files related to the earlier action is not essential to proof of Carrington and Brown's damages claim in their breach-of-contract and bad-faith action. Under the rule stated in Mortgage Guarantee & Title Co., we conclude that the mere fact that Carrington and Brown have claimed damages to compensate for the attorney fees they incurred in the earlier action does not indicate a waiver of the attorney-client privilege. The reasonableness of the attorney fees can be determined independently by use of expert testimony, without disclosure of the documents relating to the actual advice given by the attorneys to Carrington and Brown. Id. Competent attorneys can examine the pleadings, discovery materials, and nonprivileged communications and review the invoices and from that examination form an opinion as to the number of hours that should have been expended on the case and the number of attorneys who would have had to work on it, and then render an opinion as to the reasonableness of the fees charged. State Farm suggests several reasons it says it needs to see the attorneys' filesto determine why in the earlier action Carrington and Brown hired separate attorneys, to determine whether the work of the separate attorneys was an unnecessary duplication of effort, and to determine why the amounts Carrington and Brown testified they owed the attorneys differed from the amounts shown on the attorneys' statements. It appears that each of these reasons can be dealt with without requiring Carrington and Brown to disclose otherwise privileged information dealing with substantive issues in the earlier lawsuit. The court in Ideal Electronic required, in addition to production of billing statements, disclosure of other communications going to the reasonableness of the fee award. In this respect, any documents relating to communications between Carrington and Brown and their attorneys dealing with the reasonableness of the fees, redacted where necessary to protect substantive content, would be subject to discovery. Likewise, State Farm is entitled, subject to similar redaction, to production of any other documents dealing with the reasonableness or the amount of the fees, such as calendars, billing files, time sheets, statements of account, lists of expenses, retainers or payments on account, collection letters, notices of past-due accounts, letters of referral, referral agreements, legal-services agreements, contracts, and retainer agreements.