Court Opinion

ID: 9786796
Source: CourtListenerOpinion
Date Created: 2023-08-31 00:02:52.14746+00
Date Added: 2024-06-11T07:36:48.757501
License: Public Domain

MARTONE, Justice,
dissenting.
¶41 I agree with the majority that the Restatement (Third) The Law Governing Lawyers § 80 (2000) and Hearn v. Rhay, 68 F.R.D. 574 (E.D.Wash.1975), set forth the appropriate rule on when a client impliedly waives the attorney-client privilege by putting assistance or communication in issue. Indeed, I subscribed to this view before the majority did. See Ulibarri v. Hancock, 186 Ariz. 419, 924 P.2d 109 (1996) (Martone, J., dissenting). But the Restatement and Hearn both require the privilege holder, not the other party to the litigation, to affirmatively inject an issue which implicates privileged communications. The majority misapplies Hearn and the Restatement by finding waiver even where the plaintiffs, who are not the privilege holders, injected the issue of State Farm’s understanding of the law.
¶42 I first examine Hearn and the Restatement more closely to see that this is so. I then apply Hearn and the Restatement to a bad faith tort case. It then becomes apparent that the majority has ignored the critical elements of both Hearn and the Restatement.
¶ 43 In Hearn, the plaintiff brought claims of violation of due process and cruel and unusual punishment, neither of which implicated the defendants’ attorney-client privilege. The defendants then asserted an affirmative defense of immunity from suit, which was valid only if they were acting in good faith. See Hearn, 68 F.R.D. at 577. Thus the defendants, the privilege holders, raised the issue of good faith. The defendants were both the persons who asserted the privilege and the persons who committed an affirmative act by raising the issue of good faith.
¶44 The Restatement requires the same two elements. It provides as follows:
§ 80. Putting Assistance or a Communication in Issue
(1) The attorney-client privilege is waived for any relevant communication if the client asserts as to a material issue in a proceeding that:
(a) the client acted upon the advice of a lawyer or that the advice was otherwise relevant to the legal significance of the client’s conduct.
Restatement § 80 (emphasis added). Note that it is not enough “that the advice was otherwise relevant to the legal significance of the client’s conduct.” Instead, the client must assert that the advice was otherwise relevant to the legal significance of the client’s conduct. While the majority adopts the Restatement, it completely ignores the Restatement’s requirement that the client must assert that the advice was relevant. Contrary to the majority’s contention, State Farm has made no such assertion in this *68case. That the Restatement requires that the client assert that the advice was relevant is clear not only from its language but also from the rest of the comment quoted by the majority, ante ¶ 26. “The preferred approach is to require that the client either permit a fair presentation of the issues raised by the client or protect the right to keep privileged communication secret by not raising at all an issue whose fair exposition requires examining the communications.” Restatement § 80 (Reporter’s Note, cmt. b) (emphasis added). Thus the Restatement would allow State Farm to make a choice between refuting the bad faith claim on the basis of interpretation of the law without reliance on legal advice, a difficult proposition at best, or reliance on that advice and waiver of the privilege.
¶ 45 The majority relies upon a series of cases to illustrate the injection of an issue into a case. Ante ¶¶ 18 through 21. Yet ail of the cases cited involve a claim or defense raised by the privilege holder who then attempted to use the attorney-client privilege as a shield.
¶ 46 The majority says that “[i]f State Farm had merely denied bad faith and defended on an objective basis, without advancing its agents’ subjective understanding of the law, we would have a different ease.” Ante ¶ 8. But a bad faith defendant cannot do this. Every bad faith claim requires proof of both objective and subjective unreasonableness on the part of the insurer. Noble v. National Am. Life Ins. Co., 128 Ariz. 188, 190, 624 P.2d 866, 868 (1981). As we said in Zilisch v. State Farm Mutual Automobile Insurance Co., 196 Ariz. 234, 238, 995 P.2d 276, 280 (2000), “[t]he appropriate inquiry is whether there is sufficient evidence from which reasonable jurors could conclude that in the investigation, evaluation, and processing of the claim, the insurer acted unreasonably and either knew or was conscious of the fact that its conduct was unreasonable.” (Emphasis added.) It is thus the plaintiff, not the privilege holder defendant, that puts at issue the subjective reasonableness of the defendant’s conduct. Indeed, the plaintiff must inject the issue of subjective unreasonableness into the litigation. In denying the claim of bad faith, therefore, the defendant necessarily denies that it “knew or was conscious of the fact that its conduct was unreasonable.” Id. The majority now will require a bad faith defendant to choose between defending against both prongs of the Noble /Zilisch test, and thereby waiving the attorney-client privilege, or defending solely on the objective reasonableness of its decision. This means that no bad faith defendant can properly defend the action without waiving the privilege. It can thus be seen that the majority’s application of Hearn and the Restatement in the context of this bad faith case completely subverts the critical elements of the test. It is the plaintiffs, not State Farm (the privilege holder), that affirmatively put into issue the question of bad faith and thereby the subjective reasonableness of the defendant’s conduct.
¶ 47 The majority errs in asserting that State Farm waived the privilege by putting its decision-makers’ subjective understanding of the law into issue. By claiming that State Farm developed an interpretation of the law that was in bad faith, plaintiffs injected the reasonableness of State Farm’s subjective interpretation of the law into the case. Under the majority view, a plaintiff may abrogate the defendant’s attorney-client privilege simply by raising a bad faith claim on any matter regarding an interpretation of the law.
¶ 48 Now it may well be that an insurer would be willing to make a coverage decision without relying on the advice of its lawyers. But the prudent insurer will consult a lawyer and under today’s decision that advice always will be admissible in an action against it claiming bad faith, despite the majority’s protestations to the contrary.
¶ 49 This would be a different case if State Farm raised an affirmative defense such as, to the use the words of the Restatement, asserting that it “acted upon the advice of a lawyer,” or asserting “that the advice was otherwise relevant to the legal significance of [its] conduct.” Restatement § 80. But State Farm has not asserted that it acted upon the advice of its lawyer. And State Farm has not asserted that that advice was otherwise relevant to the legal significance of its decision. All it did was put the plaintiff to its burden of proving both objective and subjective unreasonableness.
*69¶50 The case also would be different if State Farm, despite its disavowal of an advice of counsel defense, introduced evidence which implicated privileged communications. For example, if during direct examination a State Farm officer volunteered information contained in privileged communications, there would be waiver. But if the same information were elicited on cross-examination, over objection, State Farm would preserve its claim of privilege. See generally, e.g., Buffa v. Scott, 147 Ariz. 140, 142, 708 P.2d 1331, 1333 (App.1985) (finding disclosures under compulsory cross-examination are involuntary and do not constitute a waiver). The difference in result is based upon a critical distinction. In the former case, the privilege holder offers the evidence, but in the latter the opponent offers the evidence.
¶ 51 Under the Restatement, which the majority says it follows, State Farm has a choice in defending this matter. Yet under the majority’s approach, it has no choice. Once it denies an essential allegation of the claim (subjective reasonableness of its resolution of the coverage question), it waives its privilege. This is wrong. The Restatement approach advances two important policy objectives. It advances the policy behind the attorney-client privilege and it allows for a fair result. Properly applied, the Restatement and Hearn would give State Farm the difficult choice of either defending the subjective element of the bad faith claim without evidence of legal advice or waiving the privilege.
¶ 52 The majority holds that “waiver exists only when the privilege holder raises and defends on the theory that its mental state was based on its evaluation of the law and the facts show that evaluation included and was informed by advice from legal counsel.” Ante ¶ 33 n. 7. But State Farm expressly disavowed in this case that its “evaluation included and was informed by advice from legal counsel.” The majority is unfaithful to both Hearn and the Restatement, and exposes every bad faith defendant to a claim of waiver of the attorney-client privilege whenever that defendant has consulted a lawyer, even though subjective unreasonableness is injected by the plaintiffs complaint and not the defendant’s defense.
¶ 53 I therefore respectfully dissent.