First Federal Savings & Loan Ass'n of Pittsburgh v. Oppenheim, Appel, Dixon & Co.
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Full Opinion
Three savings and loan associations and the City of Farmington, New Mexico commenced this action in 1985 to recover for losses incurred as a result of the financial collapse of Comark, a California-based government securities dealer. The plaintiffs were customers of Comark and seek to hold Comark’s former auditor — Oppenheim, Appel, Dixon & Co. (“OAD”) — responsible for their damages based on a variety of federal statutory and state com
At present the Court faces a set of related motions by various of the parties concerning the proposed disclosure by Co-mark’s former general counsel, Mr. Harkins, of information that is concededly within the scope of the attorney-client privilege. . Mr. Harkins proposes to provide this information, in the form of documents and deposition testimony, on the theory that, as a named third-party defendant, he is entitled to use in his defense any helpful information even if it would otherwise be protected from disclosure by his client’s privilege. None of the other parties nor Co-mark’s bankruptcy trustee — who has appeared solely for purposes of these motions — disagrees with the general proposition that such a “self-defense” exception to the privilege has been recognized by the Second Circuit. Nonetheless they are in dispute as to the preliminary showing, if any, that must be made before a party-attorney may override the privilege, and as to the scope of the disclosure that may be made if the exception is established.
The announced intention of Mr. Harkins to make the disclosures in question initially triggered a motion for a protective order by third-party defendant E. Keith Owens, formerly a general partner of Comark. Mr. Owens has since conceded that he has no standing to invoke the privilege of Comark, see CFTC v. Weintraub, 471 U.S. 343, 105 S.Ct. 1986, 1992-96, 85 L.Ed.2d 372 (1985) (trustee of corporation in bankruptcy holds the privilege), but he claims to be asserting a personal privilege on the theory that, as a general partner, he was personally liable for Comark’s debts and accordingly Harkins was necessarily functioning as his attorney when representing Comark. Owens contends that the “self-defense” exception is limited to information that is “necessary” to the attorney’s defense and furthermore that no disclosure may be permitted unless OAD, as the discovering party, establishes a prima facie case against Harkins on its claim that he aided and abetted a fraud by Comark.
The privilege of Comark has been asserted in this case by the bankruptcy trustee, Sam Jonas, who appeared in this action at the request of the Court. Initially, the trustee did not address the questions of the “self-defense” exception but has since urged that Harkins must demonstrate, on a document-by-document basis, the “necessity” for each item of information that he proposes to disclose.
Not surprisingly, OAD has argued that no initial showing by it or by Harkins is necessary before he may disclose otherwise privileged information. OAD also asserts that the disclosure may encompass all information that may be useful to Harkins and, necessarily, all related information— even if harmful to Harkins — so that waiver of the privilege will not result in unfairness to OAD.
Apart from the “self-defense” issue, OAD has sought to obtain the same material by its own cross-motion to compel disclosure by Harkins; this motion is premised on the assertion that the otherwise protectible communications come within the “fraud” exception to the privilege. All of the other parties as well as the trustee oppose this motion on the ground that OAD has not made an adequate showing of
For the reasons that follow, discovery from Mr. Harkins will be permitted to proceed to the extent indicated based upon the “self-defense” exception to the privilege. Since the disclosure order pursuant to this principle is coextensive with the discovery that would be available under the “fraud” theory, I do not reach OAD’s cross-motion. Analysis
A. The Governing Law
Although not explicitly addressed, the parties appear to concede the applicability of federal law, which they uniformly cite in their papers. This appears to be correct.
The pertinent choice-of-law rule is established by Fed.R.Evid. 501. It provides that privileges “shall be governed by the principles of the common law as they may be interpreted by the courts of the United States in the light of reason and experience...” except that, “with respect to an element of a claim or defense as to which State law supplies the rule of decision, the privilege.. .shall be determined in accordance with State law.”
Although plaintiff asserts principally state law claims against OAD, the information at issue is also pertinent to the federal claims it asserts and to the third-party claims asserted by OAD based upon those federal claims. When evidence that is the subject of an asserted privilege is relevant to both federal and state law claims, the courts have consistently held that federal law governs the privilege. E.g., Wm. T. Thompson Co. v. General Nutrition Corp., 671 F.2d 100, 104 (3d Cir.1982); Sirmans v. City of South Miami, 86 F.R.D. 492, 494-95 (S.D.Fla.1980); FDIC v. Mercantile Nat’l Bank of Chicago, 84 F.R.D. 345, 349 (N.D.Ill.1979); Robinson v. Magovern, 83 F.R.D. 79, 84-85 (W.D.Pa.1979); Lewis v. Capital Mortg. Investments, 78 F.R.D. 295, 313 (D.Md.1977). This approach is consistent with the Senate Report accompanying the Senate’s version of Rule 501, which states that “[i]t is also intended that the Federal law of privileges should be applied with respect to pendent State law claims when they arise in a Federal question case.” See S.Rep. No. 93-1277, reprinted in 1974 U.S. Code, Cong. & Admin. News 7051, 7059 n. 16; 2 J. Weinstein & M. Berger, Weinstein’s Evidence n 501[02] at 501-21 to 22 (1985). Accordingly federal law governs the attorney-client privilege issues in this case.
B. The “Self-Defense”Exception to the Attorney-Client Privilege
The principle has long been accepted that, in appropriate circumstances, an attorney may disregard the privilege of a current or former client, and disclose otherwise protected attorney-client communications. The definition of the appropriate circumstances has, however, been a matter of some dispute.
The most frequently invoked rule, which was principally a product of nineteenth-century American common law, permitted disclosure by the attorney if he was suing the client to collect a fee, e.g., Mitchell v.
In each of these circumstances, the factual dispute is, in effect, between the attorney and his client. See Levine, supra, 5 Hofstra L.Rev. at 796. To the extent that the client initiates the dispute, he can be said to have put in issue his communications with his attorney and thus waived his right to the protection of the privilege. See, e.g., 8 J. Wigmore, Evidence If 2327(6) at 638 (McNaughton rev. 1961); Laughner v. United States, 373 F.2d 326, 327 n. 1 (5th. Cir.1967); United States v. Mierzwicki, 500 F.Supp. 1331, 1335 (D.Md.1980); cf. Joy v. North, 692 F.2d 880, 893-94 (2d Cir.1982), cert. denied, 460 U.S. 1051, 103 S.Ct. 1498, 75 L.Ed.2d 930 (1983); United States v. Aronoff, 466 F.Supp. 855, 862 (S.D.N.Y.1979). In the fee collection case, even though it is initiated by the attorney and thus not easily characterized as a waiver by the client, invasion of the privilege was justified, according to the courts, because it would be a “manifest injustice” to “permit [ ] a client to use the privilege to his attorney’s disadvantage.” Levine, supra, 5 Hofstra L.Rev. at 793 (citing, inter alia, Mitchell v. Bromberger, supra, 2 Nev. at 349; Stern v. Daniel, 47 Wash. 96, 91 P. 552 (1907)). In short, the traditional rule did not contemplate an exception to the privilege merely because it was in the attorney’s pecuniary or legal interest to make the disclosure, such as when he was sued by someone other than the client. See Levine, supra, 5 Hofstra L.Rev. at 797-98 & n. 73.
This narrow rule was in general followed in the wording of Uniform Rule of Evidence 26(2)(c) and Federal Standard of Evidence 503(d)(3). Both permit disclosure only of a “communication relevant to an issue of breach of duty by the lawyer to his client or by the client to his lawyer.” See 2 Weinstein’s Evidence, supra, at 503-2. As Professor Weinstein notes: “[T]he exception is required by consideration of fairness and policy when questions arise out of dealings between attorney and client, as in cases of controversy over attorney’s fees, claims of inadequacy of representation, or charges of professional misconduct.” Id. at 503-7 (citing, inter alia, C. McCormick, Evidence § 95 (2d ed. 1972); Cal.Evid.Code § 958). As the examples suggest, the wording is apparently designed to limit the exception to instances in which the client and attorney are in conflict: “Standard 503(d)(3) codifies the generally accepted view that when the attorney and client become opponents in a subsequent controversy, the attorney may, to the extent necessary to defend his rights, reveal any communication or advice given.” Id., 11 503(d)(3)[01] at 503-72 to 73.
If the foregoing authority were deemed to govern the scope of the privilege and the exceptions to it in this case, it is at least doubtful that the proposed disclosure by Harkins would be tenable since his former client does not charge him with a breach of duty in the attorney-client relationship, or indeed in any other respect. Accordingly, to justify his proposed disclosure Harkins points to a different body of law, comprising principally a provision of the ABA’s
The Code provision states that, notwithstanding the general prohibition against disclosure by the attorney of the “confidences” and “secrets” of the client,
[confidences or secrets necessary to establish or collect his fee or to defend himself or his employees or associates against an accusation of wrongful conduct.
DR 4-101(C)(4). Although the notes to this provision could be read as reflecting an intention to incorporate only the traditional rule that an attorney may reveal otherwise privileged information when sued by the client or charged by him with malfeasance or when the attorney sues for fees, see DR 4-101 Note 19,
This broader view of DR 4-101 has been explicitly endorsed by the Second Circuit in Meyerhofer v. Empire Fire & Marine Ins. Co., 497 F.2d 1190, 1194-96 (2d Cir.), cert. denied, 419 U.S. 998, 95 S.Ct. 314, 42 L.Ed.2d 272 (1974). The initial question, however, is whether Meyerhofer is controlling in this case-
Plaintiffs in Meyerhofer commenced a securities fraud class action against an insurance company, its officers and directors, an underwriter, certain selling shareholders, and the attorneys that had represented the insurance company in connection with a public offering. Apparently shortly after the filing of the complaint, one of the defendant attorneys — Stuart Charles Goldberg, Esq. — approached plaintiffs’ counsel and offered to demonstrate that he had not been involved in whatever fraud may have occurred. To substantiate his innocence he provided to plaintiffs’ counsel a copy of an affidavit, with attachments, that he had previously prepared for and submitted to the Securities and Exchange Commission in connection with its investigation of the transaction. Apparently satisfied with this information, plaintiffs dropped Goldberg as a defendant.
On this set of facts the district court dismissed the complaint without prejudice and enjoined plaintiff’s attorneys and Goldberg “from acting as counsel or participating with counsel for plaintiffs in...any ...action against Empire involving the transactions placed in issue in this lawsuit and from disclosing confidential information to others.” Id. at 1193. In so ruling the Court relied upon “the broader obligations of Canons 4 and 9” of the Code of Professional Responsibility. Id. at 1194.
Despite the breadth of paragraphs EC 4-4 and DR 4-101(B), DR 4-101(C) recognizes that a lawyer may reveal confidences or secrets necessary to defend himself against “an accusation of wrongful conduct.” This is exactly what Goldberg had to face when, in their original complaint, plaintiffs named him as a defendant who wilfully violated the securities laws.
The charge, of knowing participation in the filing of a false and misleading registration statement, was a serious one. The complaint alleged violation of criminal statutes and civil liability computable at over four million dollars. The cost in money of simply defending such an action might be very substantial. The damage to his professional reputation which might be occasioned by the mere pendency of such a charge was an even greater cause for concern.
Under these circumstances Goldberg had the right to make an appropriate disclosure with respect to his role in the public offering. Concomitantly, he had the right to support his version of the facts with suitable evidence.
Id. at 1194-95. The Court went on to conclude that the particular disclosure made by Goldberg — via the detailed affidavit and exhibits — was justifiable under the circumstances even though it not only dealt with his role in preparing the offering plan but also with the discovery by the underwriter’s counsel of an intended non-disclosure in connection with another transaction. See id. at 1195. As explained by the Court, Goldberg “was clearly in a situation of some urgency____,” he consulted with his own attorney before making the disclosure, and disclosure of the entire SEC submission was an effective way of demonstrating his innocence. Ibid.
Meyerhofer does not directly control the present case. The Second Circuit did not purport to adjudicate an attorney-client privilege claim or an attempt by an attorney to overcome his client’s assertion of the privilege. What was at issue was an alleged breach of the standards of ethical conduct defined by the Code of Professional Responsibility, and the pertinent provisions of the ABA’s Code are not necessarily coterminous with the privilege. See generally Levine, supra, 5 Hofstra L.Rev. at 806 — 08.
The Code provision is, in one respect, broader than the commonly recognized privilege since it covers not merely information protected under the privilege — the so-called client “confidence” — but also any other information obtained by the attorney in the course of his “professional relationship that the client has requested be held inviolate or the disclosure of which would be embarrassing or would be likely to be detrimental to the client.” DR 4-101(A) (defining “secret”). On the other hand, the Code appears to narrow the client’s protection from that recognized in the common law insofar as it authorizes disclosure by the attorney whenever he is accused of wrongful conduct, and it is to be assumed that such a narrowing by the ABA does not automatically or necessarily result in a corresponding change in the rules of privilege recognized by the courts. See, e.g., N.L. R.B. v. Harvey, 349 F.2d 900, 906 (4th Cir.1965). Cf. Bates v. State Bar, 433 U.S. 350, 97 S.Ct. 2691, 53 L.Ed.2d 810 (1977)
The ambiguous scope of Meyerhofer is also suggested by the fact that the Second Circuit affirmed the District Court’s orders insofar as they barred Goldberg from disclosing any “material information” relating to facts in the case except in the course of discovery or at trial. 497 F.2d at 1196. This indicates that the precise contours of the attorney-client privilege in that case were still to be decided and would be dealt with by the District Court in a manner that permitted the client to articulate and assert whatever privilege claims it wished to interpose.
The cases that have followed Meyerhofer have not shed a great deal of light on the parameters of the exception to the attorney-client privilege, although all are consistent with a recognition of the exception in some form. Most of the cases have either involved solely questions of attorney disqualification, e.g., Warpar Mfg. Corp. v. Ashland Oil, Inc., 606 F.Supp. 852, 854-57 (N.D. Ohio 1984); George v. LeBlanc, 78 F.R.D. 281, 288-89 & n. 4 (N.D.Tex.), aff'd, 565 F.2d 1213 (5th Cir.1977), or limited their comments — whether dictum or holding — to the effect of an attack by a client on the conduct of his attorney. See, e.g., United States v. Sindona, 636 F.2d 792, 804 (2d Cir.1980), cert. denied, 451 U.S. 912, 101 S.Ct. 1984, 68 L.Ed.2d 302 (1981) (mischaracterizing Meyerhofer as involving client challenge to attorney’s conduct); International Elect. Corp. v. Flanzer, 527 F.2d 1288, 1292 (2d Cir.1975) (invoking attorney disqualification; Court asserts in dictum that an attack by a client on his attorney “may even permit the divulging of confidences in defense.”). Cf. Doe v. A Corp., 709 F.2d 1043, 1048-49 (5th Cir. 1983) (attorney not barred from prosecuting own lawsuit merely because he previously represented defendant). Others have recognized the right of an attorney under the Code to disclose privileged information if charged with, or even investigated for, criminal misconduct. See United States v. Amrep Corp., 418 F.Supp. 473, 474 (S.D.N.Y.1976) (attorney as defendant); Application of Friend, 411 F.Supp. 776, 777 (S.D.N.Y.1975) (attorney disclosure to grand jury). Finally, several courts have indicated that the attorney is entitled to disclose privileged information over an assertion of privilege when sued by someone other than the former client on an aider- and-abettor theory, provided that the information is necessary to the attorney’s defense. See, e.g., Housler v. First Nat’l Bank of East Islip, 484 F.Supp. 1321, 1322-24 (E.D.N.Y.1980) (prohibiting disclosure of privileged information by former attorney, who was named as third-party defendant; court views Meyerhofer as narrow holding and apparently would permit disclosure of information solely if necessary to defense by attorney against charge of misconduct). Cf. Rosen v. N.L.R.B., 735 F.2d 564, 575-77 (D.C.Cir.1984) (suggesting
The doubt as to Meyerhofer’s direct applicability is further underscored by a review of the opinion, which does not even make plain whether the information disclosed by Goldberg came within the ambit of the attorney-client privilege at the time of its disclosure. Indeed, this seems doubtful since it consisted of an affidavit and exhibits previously supplied to the SEC. It is thus quite conceivable that the material constituted client “secrets” — as defined by DR 4-101(A) — and thus was not within the privilege in any event.
Notwithstanding the distinctions that could be drawn between the Meyerhof er case and the present situation, there is good reason for recognizing a “self-defense” exception to the attorney-client privilege in appropriate circumstances. First, if an attorney is sued for alleged misconduct in representing a client, it is self-evident that he has a compelling interest in being able to defend himself. Second, that interest may well outweigh the interest of the client in maintaining the confidentiality of his communications, particularly if disclosure of those communications will not imperil the legal interests of the client. Cf. Meyerhofer v. Empire Fire & Marine Ins. Co., supra, 497 F.2d at 1194 (noting that attorney’s disclosures were made after suit was filed and thus did not trigger the suit against his former client). Indeed, even the most cogent critic of the Meyerhofer decision has acknowledged the appropriateness of recognizing a limited self-defense exception to the privilege. See Levine, supra, 5 Hofstra L.Rev. at 819-26. Third, such disclosure will serve the truth-finding function of the litigation process, and is thus consistent with the general principle of narrowly construing evidentiary privileges. See, e.g., In re Horowitz, 482 F.2d 72, 81 (2d Cir.), cert. denied, 414 U.S. 87, 94 S.Ct. 64, 38 L.Ed.2d 86 (1973); 2 Weinstein’s Evidence, supra, U 501[01] at 501-13 (discussing Advisory Committee’s rationale for proposed federal rules governing privileges).
Furthermore, although perhaps not directly controlling, Meyerhofer and succeeding cases surely provide substantial support for permitting an attorney in appropriate cases to disregard his client’s privilege. The Second Circuit in Meyerhofer plainly recognized the importance of the attorney’s ability to defend himself against bona fide claims of misconduct that could, if proven, impose substantial liability on him. Moreover, although not explicitly stated, the Court appears to have assumed that in such a case the attorney’s interest in disclosure — at least to the extent necessary to defend himself — will usually outweigh the more general interest of the client in preserving confidentiality:
DR 4-101(C) recognizes .that a lawyer may reveal confidences or secrets necessary to defend himself against “an accusation of wrongful conduct.” This is exactly what Goldberg had to face when, in their original complaint, plaintiffs named him as a defendant who wilfully violated the securities law____
Under these circumstances Goldberg had the right to make an appropriate disclosure with respect to his role in the public offering. Concomitantly, he had the right to support his version of the facts with suitable evidence.
The fact that the client in Meyerhofer had not asserted its privilege, if any, in
Finally, I note that the assumption underlying Meyerhofer — that an attorney may disclose privileged information if necessary to defend against pending civil or criminal charges — appears to have general support in the case law, albeit largely in dictum. See, e.g., NLRB v. Rosen, supra, 735 F.2d at 576; Doe v. A Corp., supra, 709 F.2d at 1048-50; Housler v. First Nat’l Bank of East Islip, supra, 484 F.Supp. at 1322-23 & nn. 3-4; Sullivan v. Chase Inv. Services of Boston, Inc., 434 F.Supp. 171, 188 (N.D.Cal.1977); In re Conduct of Robeson, 293 Or. 610, 652 P.2d 336, 344-45 (1982) (per curiam) (en banc); Heslin v. Connecticut Law Clinic of Trantolo & Trantolo, 190 Conn. 510, 461 A.2d 938, 946 n. 16 (1983). See also George v. LeBlanc, supra, 78 F.R.D. at 289 n. 4.
In sum, the exception for attorney self-defense is recognized and accepted by the courts, albeit with varying degrees of warmth. The key issue, then, involves what limitations — both procedural and substantive — must be placed on its invocation.
The most obvious potential abuse is that, in an otherwise bona fide suit against the client, the plaintiff may assert claims against the attorney for the sole purpose of forcing counsel to divulge confidential material in order to defend himself. See, e.g., Sullivan v. Chase Inv. Service of Boston, Inc., supra, 434 F.Supp. at 188-89; Levine, supra, 5 Hofstra L.Rev. at 815. To avoid this danger in the present case, third-party defendant Owens urges that OAD, the party that has asserted the aiding-and-abetting claim against the attorney, be required to establish a prima facie case against Harkins before disclosure by him is permitted.
I need not reach the question of whether any showing is required of OAD, although I note that it is Harkins, and not OAD, who is the immediate beneficiary of an order permitting disclosure. In any event, OAD’s claim against Harkins is plainly legally sufficient — indeed, the District Court recently denied a motion to dismiss a similar claim asserted against Co-mark’s outside counsel, the firm of Memel, Jacobs — and the evidentiary record made by OAD in support of its cross-motion to compel is sufficient to establish that the claim asserted against Harkins is not pretextual.
The second question is the proper scope of disclosure to be permitted under the exception. The Second Circuit in Meyerhofer expressed some concern that the attorney in that case had revealed considerably more information than simply the facts
In this case, of course, the “urgency” of the situation is attentuated by the fact that the proposed disclosure is to be made in the context of ongoing pre-trial discovery. Accordingly, the Court can limit the scope of the disclosure in order to reconcile, to the extent possible, the competing interests of Harkins in disproving OAD’s allegations of wrongdoing by him and of his client Co-mark in protecting the confidentiality of its communications with its attorneys.
To this end, Harkins was directed to submit to the Court for its in camera review all of the documents he proposes to disclose, together with an affidavit explaining the necessity for his proposed disclosures, both by deposition and by document production. The trustee, as the holder of the privilege, has responded to Harkins’ showing on this point.
In reviewing the proposed disclosures, I have applied a standard of reasonable necessity, a somewhat opaque term derived from Rule 1.6 of the Model Rules of Professional Conduct. See 52 U.S.L.W. at 5, 6. In effect, disclosure is authorized for those items that, as a practical matter, seem likely to provide significant assistance to Harkins’ defense. In general terms, this standard permits Harkins to testify about all of his conversations with Comark officers or employees concerning the commingling problem since it will be necessary for Harkins to explain what he knew about the issue, what he did about it, what he advised his client to do about it, and what he did not do about it. Necessarily, the production of documents must be similar in scope.
A related issue is whether discovery should be ordered in addition to that which Harkins proposes to reveal in his defense. Specifically, OAD raises the question whether it should be provided all privileged documents — if any — that are potentially damaging to Harkins’ defense and that are thus not being volunteered by him. Assuming hypothetically that Harkins chose to provide helpful documents while not disclosing any damaging ones, I conclude that fairness would require disclosure of all documents pertaining to the communications at issue, whether Harkins volunteered them or not. This is a logical and unavoidable extension of the long-settled rule that a client’s disclosure of a portion of an attorney-client privileged document, or of some but not all privileged documents relating to a particular event, may constitute a waiver of the privilege. As described by Wig-more:
[W]hen [the client’s] conduct touches