Court: Oregon Supreme Court; May 30, 2014; Oregon; State Supreme Court
Relator Davis Wright Tremaine LLP (DWT) is challenging a trial court's order that compels the production of materials which DWT argues are protected by attorney-client privilege under OEC 503. This order emerged from a legal malpractice lawsuit filed by a former client against DWT. The contested materials consist of communications between DWT’s in-house counsel and the firm’s lawyers who represented the former client, specifically regarding the management of actual and potential conflicts of interest.
The trial court found that most of these communications would typically be covered by attorney-client privilege, yet it invoked a "fiduciary exception" to the privilege, suggesting that DWT was attempting to conceal internal communications from a former client. The appellate court affirmed the trial court’s application of the attorney-client privilege to the communications in question but ruled that the trial court incorrectly recognized an exception to OEC 503 not established by the legislature. Consequently, a peremptory writ of mandamus was issued, instructing the trial court to vacate its order compelling the production of the privileged materials.
The background involves Crimson Trace Corp., which engaged DWT for patent prosecution and subsequent litigation against LaserMax, Inc. The lawsuit faced challenges, including counterclaims from LaserMax that questioned the validity of a specific patent, the “235 patent,” and implicated DWT attorneys Birdwell and Boundy in potential conflicts of interest due to their roles. Birdwell and Boundy sought guidance from DWT’s Quality Assurance Committee regarding these conflicts, leading to an email disclosure to Crimson’s CEO about the possible conflict, while Birdwell indicated a perceived lack of concern over the issue.
Crimson proposed to dismiss its claims concerning the “235 patent,” but LaserMax refused to withdraw its counterclaims and sought attorney fees, alleging that Crimson acted in bad faith regarding the patent. The district court authorized discovery to investigate these claims, leading LaserMax to subpoena files related to the patent. Following consultations with the firm’s Quality Assurance Committee (QAC), Crimson and LaserMax reached a confidential settlement. However, when Boundy, representing Crimson, attempted to file the settlement under seal, he inadvertently disclosed details that suggested LaserMax conceded liability, prompting complaints from LaserMax. The court determined Boundy's disclosures were intentional and harmful, resulting in the full settlement being made public and imposing a monetary sanction on Crimson for bad faith actions.
Amidst this, Crimson ceased payments to its legal firm, DWT, with the CEO expressing dissatisfaction with the case's status and value received. DWT lawyers, continuing to consult with the QAC, recognized potential hostility from Crimson's board towards them, suggesting a possible malpractice claim against the firm. Crimson eventually filed a legal malpractice and breach of contract lawsuit against DWT, alleging various failures, including inadequate advice regarding the “235 patent” and conflicts of interest. During the litigation, Crimson sought production of communications among DWT attorneys relating to conflicts of interest during their representation, particularly concerning Boundy's management of the settlement agreement and other professional duties owed to Crimson.
DWT opposed the production of certain communications requested by Crimson, asserting that they were protected under attorney-client privilege per OEC 503, as they involved legal services rendered by the firm’s in-house counsel. DWT further claimed that some documents, created after DWT suspected potential litigation from Crimson, were shielded by the work-product doctrine. In response, Crimson filed a motion to compel DWT to fulfill its discovery obligations. DWT maintained its stance against disclosure, emphasizing the attorney-client privilege and providing an affidavit from QAC member Thurber, which stated that QAC documents are not included in client files. Additionally, affidavits from Birdwell and Boundy asserted that their communications with the QAC were confidential and aimed at obtaining legal advice concerning the LaserMax case.
The trial court partially granted Crimson's motion, requiring DWT to supply a privilege log of responsive documents and to submit the documents for in camera review. Upon reviewing the materials, the court determined that the first three documents listed were not privileged, while the remaining documents were deemed protected by attorney-client privilege. However, the court highlighted a conflict of interest arising from DWT’s representation of both itself and Crimson, leading to its conclusion that the privilege could not be asserted. Consequently, the court ordered DWT to produce all documents identified in the privilege log. DWT subsequently sought a writ of mandamus to overturn this order, which the court conditionally granted. The trial court later declined to vacate its order, affirming that the internal communications during DWT's representation of Crimson in the LaserMax litigation pertained to issues of payment and dissatisfaction with DWT's legal services and were intended to remain confidential.
DWT's lawyers on the QAC were not directly involved in representing Crimson in the LaserMax litigation but communicated with those who were, including discussions about court filings. DWT did not inform Crimson of a potential conflict or seek consent to continue its representation, nor did it attempt to withdraw. The trial court determined that an attorney-client relationship could exist between DWT's lawyers representing Crimson and those on the QAC, thus normally protecting communications under attorney-client privilege. However, the court applied a “fiduciary exception” to this privilege, based on DWT’s obligations of candor and loyalty to Crimson, deeming that DWT could not claim privilege for internal communications relevant to its duties to Crimson. This decision was novel in Oregon but was seen as essential due to DWT's paramount duties to its client. In its mandamus petition, DWT argued the trial court erred by recognizing the fiduciary exception, asserting that OEC 503 solely governs attorney-client privilege and does not include this exception. DWT maintained that the communications fell within the general privilege and were not subject to discovery. Conversely, Crimson contended that the communications were not privileged as no attorney-client relationship existed, given the adverse interests, and alternatively argued that the fiduciary exception should apply even if such a relationship were acknowledged. Mandamus was deemed an appropriate remedy as it corrects legal errors when ordinary appeals are inadequate, specifically when privileged information is improperly ordered for disclosure.
The applicability of the attorney-client privilege under OEC 503, codified at ORS 40.225, is examined. This privilege is statutory, necessitating an analysis of legislative intent through the statute's text, context, and legislative history. OEC 503 defines key terms: 'client' includes individuals and entities seeking legal services; 'confidential communication' refers to communications not intended for third-party disclosure, except to those involved in furthering legal service delivery; and 'lawyer' encompasses anyone authorized to practice law. Under OEC 503(2), a client holds the privilege to refuse disclosure of confidential communications made to facilitate legal services.
In State v. Jancsek, the court outlined three conditions for asserting the privilege: the communication must occur between a defined 'client' and 'lawyer,' be deemed 'confidential,' and aim to facilitate legal services. Crimson asserts a fourth requirement, arguing that an attorney-client relationship, inferred from the reasonable expectations of the parties, must exist for the privilege to apply. Crimson contends that Birdwell and Boundy could not have reasonably believed their discussions with a firm’s QAC established such a relationship due to the Oregon Rules of Professional Conduct, which prohibit representation in conflicts of interest. The determination of an attorney-client relationship hinges on the client's reasonable expectations, validated by objective facts supporting that belief.
The excerpt outlines the legal standards for establishing an attorney-client relationship in Oregon, emphasizing that a reasonable belief by the would-be client that they are entitled to seek advice from the lawyer is not sufficient to invoke the attorney-client privilege under OEC 503. It argues against Crimson's interpretation, asserting that OEC 503 does not require that the existence of an attorney-client relationship be based on the reasonableness of the parties' expectations. The rule specifically addresses the client's belief regarding a person's authorization to practice law, not their belief about being represented by that lawyer.
Crimson's reliance on lawyer-discipline cases is criticized, as those cases do not directly pertain to OEC 503's application. While they support the idea of recognizing an attorney-client relationship based on a reasonable expectation of representation, they do not assert that such expectations are the sole determining factor. Instead, the intention of the parties is typically the primary consideration, with the reasonableness of expectations becoming relevant only when the existence of the relationship is disputed.
The trial court determined that the communications in question fell under the attorney-client privilege but noted an exception under the "fiduciary exception." The court's factual findings are upheld as long as they are supported by the evidence. The primary legal question remains whether Birdwell and Boundy’s consultations with members of their own firm’s QAC constituted communications between a 'client' and their 'lawyer' as defined in OEC 503(1). While it is acknowledged that the QAC members are 'lawyers,' the determination hinges on whether Birdwell and Boundy qualify as 'clients' under the same definition.
OEC 503 allows for a law firm and its individual lawyers to be considered 'clients' of the firm's in-house counsel, as established by case law. The trial court concluded that Birdwell and Boundy could have an attorney-client relationship with the firm's Quality Assurance Committee (QAC) and that their communications would typically be protected by attorney-client privilege, barring the 'fiduciary exception.' This implies that Birdwell and Boundy sought legal advice, a notion supported by evidence, including Thurber's affidavit stating that QAC members act as in-house counsel for the firm.
Despite the Oregon Trial Lawyers Association (OTLA) arguing against this classification, claiming it would harm client loyalty and communication, the court emphasized that its role is to interpret statutes, not to consider policy implications. The court rejected OTLA's contention, affirming that the communications were indeed between the client and the lawyer under OEC 503(2)(a), satisfying the initial requirement for attorney-client privilege.
Regarding the confidentiality of communications, the trial court found that DWT lawyers intended their discussions to remain confidential, a conclusion bolstered by Birdwell and Boundy’s affidavits. This finding is binding, despite Crimson’s challenge that the communications, occurring between Boundy and Johnson in Washington, may not be protected due to Washington court rulings on privilege in similar contexts. Nonetheless, the trial court's determination of intent to maintain confidentiality stands firm.
Crimson's arguments fail to convincingly apply Washington law to the interpretation of OEC 503(1)(b), since the relevant litigation is occurring in Oregon, where state evidentiary rules govern. The trial court's determination that the DWT attorneys intended to maintain confidentiality in their communications meets the second requirement for the attorney-client privilege. The court also found that these communications were made to facilitate legal services, satisfying the third requirement, except for three specific documents. Evidence, including affidavits from Birdwell and Boundy, supports that their communications aimed to secure legal advice related to their professional duties in the LaserMax case. Thus, aside from the three communications, the court concluded that the remaining communications typically fall within the attorney-client privilege as outlined in OEC 503(2). However, the potential applicability of a "fiduciary exception" to this privilege was addressed, referencing OEC 503(4), which outlines five circumstances under which the privilege does not apply, including instances of criminal intent, disputes among parties claiming through a deceased client, breaches of duty, attested documents where the lawyer is a witness, and communications relevant to shared interests among multiple clients in disputes.
The trial court identified a 'fiduciary exception' to the attorney-client privilege, stating that law firms cannot invoke this privilege to shield communications with in-house counsel from their clients due to the fiduciary duties owed to those clients. This exception, considered a 'better rule' by the trial court, is supported by numerous courts that recognize a law firm's inability to maintain privilege against a current client when self-representation may lead to a conflict of interest. The fiduciary exception originated in nineteenth-century English trust law, requiring trustees to disclose legal advice obtained regarding trust administration to beneficiaries, as the attorney's fiduciary relationship with the beneficiaries negated the privilege. While this reasoning gained traction in American courts in the 1970s, not all jurisdictions have adopted it. Some courts reject the exception, citing reasons such as skepticism towards the rationale behind it or the belief that the attorney-client privilege, codified in legislation, should not be expanded through judicial exceptions. Specific cases, such as Garvy v. Seyforth Shaw LLP and Wells Fargo Bank v. Superior Court, illustrate this reluctance, with Illinois notably not adopting the fiduciary-duty exception.
Among courts that have recognized the fiduciary exception to attorney-client privilege, most are federal and not bound by legislatively adopted privilege laws. Federal law treats attorney-client privilege as judge-made, allowing for judicial exceptions, as Congress did not enact a rigid framework for privilege law. The application of the fiduciary exception varies among federal courts addressing state law, with some, like Tattletale Alarm Systems, Inc. v. Calfee, Halter, Griswold, and Murphy v. Gorman, declining to recognize the exception based on state law specifics.
The discussion transitions to whether a fiduciary exception should be recognized under Oregon Evidence Code (OEC) 503, which is legislatively established. The scope of the privilege and its exceptions is determined by legislative intent, as seen in interpretations of statutory language. Courts may interpret non-exhaustive phrases like “including, but not limited to,” as allowing for additional exceptions. Conversely, OEC 503(4) explicitly lists five circumstances where privilege does not apply, suggesting that the legislature intended these to be the only exceptions, invoking the principle of expressio unius est exclusio alterius. However, careful application of this principle is necessary, as expressing one exception does not automatically exclude all others.
A sign stating “No dogs allowed” does not imply that all other animals, including elephants and tigers, are permitted. The principle of expressio unius suggests that the interpretation of such signs relies on context. The strength of this inference increases with the number of specific items listed, indicating legislative intent for an exhaustive list. In the context of the Oregon Evidence Code (OEC), a detailed enumeration of exceptions to a privilege implies that the list is comprehensive, especially when compared to other privileges that explicitly state their exceptions are nonexclusive. For instance, OEC 503(4) provides five specific exceptions without a nonexclusive statement, which suggests the list is meant to be exhaustive. Conversely, OEC 504(2) and OEC 504-1(2) include nonexclusive statements for their exceptions. Additionally, judicial interpretations of similar statutory wording, such as those concerning the husband-wife privilege under OEC 505, have reinforced the notion that listed exceptions should not be expanded beyond what is explicitly stated. The case of Serrano exemplifies this, where the court addressed the limits of the husband-wife privilege in the context of a murder case involving communications about divorce.
The court dismissed the state's argument regarding the absence of a "marital health" exception in the marital privileges outlined in OEC 505(4), emphasizing that the legislature specified three exceptions but did not include this particular one. Crimson contended that the legislative intent behind OEC 503(4) was not exhaustive of exceptions to the privilege, citing commentary that recognized two additional exceptions not listed in the rule—regarding assets held by an attorney and the client's identity. However, the court found this reasoning unpersuasive, noting that the commentary only explicitly mentioned these two exceptions, and it was equally plausible that no further exceptions were intended. The court clarified that these cited "exceptions" were not truly exceptions but rather circumstances outside the attorney-client privilege's scope. Furthermore, the court rejected Crimson's argument that not recognizing exceptions would lead to ethical conflicts among lawyers, stating that ethical obligations do not alter the privilege's definition under OEC 503. It referenced a precedent case, State v. Miller, to illustrate the distinction between professional conduct rules and evidentiary privilege rules, highlighting that ethical obligations may not align with evidentiary protections.
The court affirmed that conversations between the defendant and the psychiatrist were protected by evidentiary privilege, as outlined in OEC 504, which does not allow for exceptions based on a therapist's ethical duty to disclose patient information in the case at hand. The court clarified that the evidentiary privilege exists to prevent disclosure of confidential communications at trial, while a public health provider's authority or ethical obligations to report to authorities does not override this privilege. The court emphasized that the rules of professional conduct, while potentially leading to disciplinary action for breaches, do not affect the interpretation of evidentiary rules. Specifically, OEC 503(4) was interpreted as providing a complete list of exceptions to attorney-client privilege, and since it does not include a "fiduciary exception," such an exception does not exist in Oregon. Consequently, the trial court's order compelling the production of privileged communications was vacated, although the court could still mandate the production of three communications deemed outside the privilege as they were not made for the purpose of legal services for DWT. A peremptory writ was to be issued.
