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Attorney-client Privilege Exceptions: Communications That Establish A Legal Argument

Stock v. Schnader Harrison Segal & Lewis LLP

Stock v. Schnader Harrison Segal & Lewis LLP, 142 A.D.3d 210 (1st Dep’t 2016), on intra-company communications by lawyers requesting ethical advice, and Rossi v. Blue Cross and Blue Shield of Greater N.Y., 73 N.Y.2d 588 (1989), which offered protections for corporate communications that are primarily legal in nature, helped extend and improve attorney-client p The Appellate Division has now given guidance as to the scope of attorney-client privilege in two recent rulings by the First and Third Departments.

First Department, at Metropolitan Bridge & Scaffolds Corp. v. New York City Houses, in January 2019. Auth., 168 A.D.3d 569 (1st Dep’t 2019), held that the New York City Housing Authority (NYCHA) waived the right of attorney-client when it questioned its lawyer’s knowledge of records subject to a discovery dispute. In particular, because NYCHA argued that the third-party defendants defrauded their law department, they were forced to create fair dependency on the “alleged misrepresentation” of third-party defendants. The Court further held that NYCHA could not rely on the right of attorney-client to draft or withhold documents while selectively releasing other protected correspondence in favor of its own interests. (See Deutsche Bank Trust Co. of Ams. v. Tri-Links Inv. Trust, 43 A.D.3d 56, 64 (1st Dep’t 2007); 179 A.D.2d 390, 390 (1st Dep’t 1992); Orco Bank v. Proteinas Del Pacifico).

The case concerned the alleged non-payment by NYCHA to Metropolitan for equipment and services rendered at separate NYCHA homes. In addition, NYCHA filed a third-party lawsuit alleging that the third-party defendants (Liberty Architectural Goods, et. al.) had conspired to mislead NYCHA by offering false certificates certifying that the former owners of Metropolitan had never been convicted of a crime (a conviction would have resulted in disqualification). Following a discovery battle over the failure of NYCHA to produce documents relating to the suspected plot and its dependence on false certifications, NYCHA ultimately created more than 700 highly redacted documents and privileged another collection of more than 400 documents. The depositions were accompanied by another late development of documents. Plaintiff and Third-Party Defendants sought to force NYCHA to comply with previous orders of discovery, and the Court granted the motion, challenging NYCHA’s claims of protection of attorney-client.

On appeal, the First Department upheld the judgment of the motion court, ruling that “the court correctly found that NYCHA waived attorney-client privilege with respect to the subject documents having put the knowledge of its law department at issue” and further that “NYCHA may not rely on attorney-client privilege while selectively disclosing other self-serving privileged communications.” 168 A A NYCHA may not rely on attorney-client privilege.


Galasso v. Cobleskill Stone Prods.

In a similar way, the Third Department repeated the clarification of the First Department in February 2019 as to which content does not come under attorney-client privilege. In Galasso v. Cobleskill Stone Prods., Inc., 169 A.D.3d 1344 (3rd Dep’t 2019), Plaintiff, a Cobleskill Stone Products, Inc. shareholder (Defendant), charged that the defendant squandered corporate assets and “engaged in self-dealing,” behaving in self-interest rather than in the interests of corporate shareholders, pursuant to Business Company Law §§ 706(d) and 716(c). In the course of the discovery, the defendant demanded a stock valuation report prepared by an independent company valuation and consulting firm for the plaintiff. The plaintiff declined to request the report on the ground that it was not material and relevant and that it was also privileged knowledge, at which point the defendant moved to force the discovery. The defendant’s motion to force discovery was granted by the Supreme Court, in which the plaintiff appealed.

On appeal, the Third Department unanimously upheld the judgment of the lower court, ruling that the discretion of the Supreme Court was vested in deciding whether discovery was “material and necessary in the prosecution or defense of an action” (CPLR § 3101(a))). Ambac Assur was the key to the Court’s review in assessing the validity of the valuation study that came under attorney-client privilege. Corp. v. Countrywide Home Loans, Inc., 27 NY3d 616, 623 (2016), which held that the party alleging attorney-client privilege was necessary to prove that the contact in question was “for the purpose of facilitating the provision of legal advice or services” between an attorney and a client and was “predominantly of a legal nature.”

Most notably, the Court noted that because the valuation report expressed “serious and substantial concerns” to the claimant on the basis of its assessment of the stock of the plaintiff in the defendant, the valuation report played a role in the initiation of legal proceedings in this matter. The court thus ruled it “probative,” claiming that it offered facts or proof of why, in the first place, the plaintiff brought charges of gross malfeasance against the defendant. Applying the reasoning, the Appellate Division agreed with the decision of the lower court that a criterion was provided by the valuation report authorizing the court to determine the damages of the Plaintiff.

These recent rulings indicate that in cases where the communications in question are the basis for bringing a legal case before the court, attorney-client privilege may be inapplicable. Due to their very existence as intrinsic to the legal case in question, access to information which might be categorized as ‘privileged’ in other circumstances must be given to the Court and to all parties involved in the action. While the privilege offers substantial cover, litigants and their lawyers are cautioned that they should not automatically presume that attorney-client privilege provides material and required knowledge exemptions from disclosure for which a legal argument is claimed.