Montgomery County v. Microvote Corporation Carson Manufacturing Company, Inc. Westchester Fire Insurance Co., Inc
Docket: 98-1923
Court: Court of Appeals for the Third Circuit; April 30, 1999; Federal Appellate Court
The case involves Montgomery County appealing a decision regarding the attorney-client privilege concerning documents generated by Michael I. Shamos, a consultant with a law background. Carson Manufacturing Company seeks these documents, arguing that Shamos was acting solely as a consultant, not as an attorney. The United States District Court for the Eastern District of Pennsylvania ruled that the documents were not protected by attorney-client privilege. However, upon review, the Third Circuit determined that Shamos was retained through his law firm and participated in contract negotiations, thus acting in his capacity as the County's attorney. Consequently, the appellate court vacated part of the district court's order, affirming the protection of five documents under attorney-client privilege while allowing discovery of one document.
The background of the case includes Montgomery County's purchase of electronic voting machines from MicroVote Corporation, which malfunctioned during elections in 1995, leading to long voter lines and incorrect election results. Following these issues, the County sought expert analysis on the machines' performance, with Shamos being the only attorney among the selected experts.
The County Commissioners decided to retain the Webb Law Firm, with Shamos as a partner, on January 30, 1996, to provide legal counsel regarding contractual relations with the county's vendor for electronic voting systems. The County formally engaged the firm two days later during a Board of Elections meeting. Shamos attended a critical meeting on February 1, 1996, with Montgomery County and MicroVote officials to address issues with malfunctioning voting machines, emphasizing that he would only recommend MicroVote's machines if they provided a performance bond or letter of credit. Following negotiations, an addendum to the contract was executed on March 13, 1996, where MicroVote agreed to supply an additional 390 voting machines for the upcoming primary elections.
Shamos was the only attorney from the firm billing the County for his services, which were paid through the Webb Law Firm. Despite being referred to as a consultant by County officials during meetings, Shamos's role was also recognized as that of counsel, with testimony indicating that he was retained to explore all options, including litigation. The County's engagement letter explicitly identified the Webb Law Firm as counsel, and various communications and minutes from meetings consistently referred to Shamos in both capacities.
Problems with the MicroVote voting machines continued during the April 1996 primary elections, leading to strained relations between the parties. On July 1, 1996, MicroVote sued the County for breach of an oral contract, which was subsequently dismissed. On October 10, 1997, Montgomery County initiated a diversity action in the U.S. District Court for the Eastern District of Pennsylvania, alleging negligence, breach of warranty, breach of contract, and fraud.
Carson requested documents related to Dr. Shamos's report on the 1995 election and the voting machines' performance. The County claimed these documents were protected by attorney-client and work-product privileges, despite neither Shamos nor the Webb Law Firm representing the County in either lawsuit. On July 2, 1998, Carson filed a motion to compel discovery, leading to a court hearing on August 21, 1998. The district court ordered the County to produce six documents referred to as the "Shamos Report," which included various letters and billing statements.
The district court determined that Shamos was hired as an election consultant, not as an attorney, thereby ruling that the documents were not protected by the attorney-client privilege or the work-product privilege. The County subsequently appealed the discovery order. The appellate court confirmed its jurisdiction under 28 U.S.C. § 1291, citing the collateral order doctrine, which allows appeals from certain nonfinal orders, particularly those involving claims of privilege.
Carson contends that the Shamos documents are not privileged as Shamos acted solely in a consulting capacity. The central issue on appeal revolves around whether the attorney-client privilege applies to the Shamos documents.
The district court found that the County did not prove that Shamos and the Webb Law Firm were retained for legal advice regarding voting machines. Instead, Shamos was hired as an election consultant, and his negotiations regarding the contract with MicroVote were in that capacity, not as an attorney. The court noted that Shamos's private meetings with MicroVote and Carson officials contradicted typical attorney conduct and may have breached Rule 4.2 of the Pennsylvania Rules of Professional Conduct. As a result, the court ruled that the attorney-client privilege did not apply to Shamos's documents.
The reviewing court has plenary authority over the district court's discovery order concerning attorney-client privilege, with factual findings reviewed for clear error and mixed questions of fact and law reviewed de novo. Under Pennsylvania law, the attorney-client privilege is codified, and its elements include the existence of a client-lawyer relationship, the communication being made for the purpose of obtaining legal advice, and the privilege being claimed by the client without waiver.
The key issues are whether Shamos acted as a lawyer in his communications and whether the County sought legal services from him. The attorney-client privilege can only apply if the relationship involved Shamos acting in his professional capacity as a lawyer. The determination of whether the crime-fraud exception to this privilege is applicable also represents a mixed question of fact and law, which impacts the privilege's validity.
The term 'consultant' remains undefined by the district court or the parties involved. According to Webster's definitions, a consultant provides professional advice based on specialized knowledge. Lawyers, who possess such knowledge of the law, are often engaged for consulting purposes, and their legal expertise enhances their professional capacity without diminishing their legal status.
The engagement of the Webb Law Firm by Montgomery County, as documented in a January 30, 1996 letter, highlights that the firm—not Shamos, a law partner—was hired to perform legal services at a rate of $175 per hour, typical for legal professionals. This engagement included specific tasks such as advising on contractual relations with the County's voting systems vendor, utilizing various legal personnel.
Shamos's services were billed to the County, which paid the firm. Notably, attorney Richards stated that Shamos represented the County, and two witnesses confirmed his role as counsel. Following the firm’s hiring, Shamos participated in settlement discussions with MicroVote and later sent a letter outlining the County's legal requirements for a settlement, omitting any mention of technical issues with the voting systems.
Shamos's significant contribution involved negotiating and drafting an addendum agreement with MicroVote, which included legal considerations and terms for settling disputes. This addendum explicitly stated that no additional agreements would be binding unless documented in the original contract or the addendum itself. The addendum affirmed MicroVote's compliance with its prior memorandum, and Shamos's actions reflect typical legal tasks—focused on resolving disputes to avoid costly litigation, rather than engineering or technical issues.
The County successfully demonstrated that it engaged the Webb Law Firm for essential legal services related to its issues with the election machines, establishing that these services were legitimate and within the expertise of a qualified attorney familiar with Pennsylvania election laws. The terminology used to label the Webb Law Firm as a 'consultant' does not diminish its legal role; consulting with a lawyer for legal issues retains the lawyer's professional attributes, similar to how consulting a doctor does not negate their medical qualifications. It is common for public entities to seek external legal counsel for complex problems, and maintaining the attorney-client privilege is crucial for candid consultations, regardless of whether litigation is involved.
The argument that Shamos acted solely as a lay consultant was dismissed due to a lack of evidence; typically, non-lawyers do not draft or negotiate contracts for governmental entities, as that would violate legal practice regulations. Although the County initially considered non-attorney consultants, it ultimately hired Shamos, who provided legal services, including contract negotiation and legal advice, despite some officials referring to him as a consultant.
Shamos's private meetings with MicroVote and Carson do not indicate he was not performing legal duties while preparing relevant documents, and there is no evidence of ethical breaches regarding communication with these parties. The district court erred by concluding that the County did not prove Shamos and the Webb Law Firm were retained for legal services concerning the voting machine dispute. Consequently, Shamos's communications with Passarella are protected by attorney-client privilege, which is particularly vital for government entities seeking legal advice to safeguard constituents’ rights to an efficient voting system.
The Webb Law Firm's billing records are deemed privileged as they disclose the nature of legal services provided, aligning with the precedent set in Fidelity Deposit Co. of Maryland v. McCulloch, which upholds the attorney-client privilege for such records. The County's claims regarding work-product privilege and non-testifying expert opinions do not need further consideration. However, the fee agreement letter lacks privilege protection, as established in In re Grand Jury Investigation, which stipulates that fee arrangements are not shielded unless disclosure would likely implicate the client in criminal activities related to the legal advice sought. Additionally, the fee agreement does not qualify for work-product protection according to Murray v. Stuckey's Inc.
Carson argues that the County waived attorney-client privilege by disclosing Shamos's thought processes during meetings with MicroVote and at a County Election Board meeting. Generally, voluntary disclosure of privileged communications to third parties results in a waiver of that privilege, as indicated in Westinghouse v. Republic of the Philippines. However, since Carson does not claim that any privileged documents were disclosed, the attorney-client privilege remains intact for the Shamos documents.
The district court's order mandating the production of Shamos documents is vacated, except for the fee agreement letter, and the case is remanded for further proceedings. Costs are to be borne by the appellees. Judge Greenberg concurs but emphasizes the applicability of the work product doctrine, asserting that the documents in question are protected as they were prepared in anticipation of litigation. The work product doctrine allows for discovery of such materials only if the requesting party demonstrates substantial need and inability to obtain equivalent materials elsewhere without significant hardship. The burden lies on the party claiming work product protection to prove that the documents were prepared with litigation in mind.
Documents prepared in anticipation of litigation can be deemed privileged work product, regardless of whether they contain legal advice, as established in In re Ford Motor Co., 110 F.3d 954, 968 (3d Cir. 1997). A February 20, 1996 letter from Shamos to Passarella, along with other communications, may qualify for this privilege. The district court noted that while litigation was a possibility, Shamos was hired primarily to avoid litigation by advising the County on voting machine issues. The distinction between 'anticipating' and 'avoiding' litigation raises questions about when avoidance strategies also indicate anticipation. The determination of whether a document was prepared in anticipation of litigation is fact-specific, requiring a reasonable objective basis for the anticipation. A party must demonstrate an identifiable claim or impending litigation at the time the documents were created; mere consultation of attorneys or general negotiations do not suffice to prove reasonable anticipation under Rule 26(b)(3). Although the County engaged Shamos with the intent to avoid litigation initially, it later expressed concerns about MicroVote's potential breach of agreement, indicating that litigation was increasingly anticipated. The County's unique engagement of Shamos, prompted by previous election issues, further supports the argument that the documents were not generated in the ordinary course of business but were instead prepared with litigation in mind.
Shamos met with MicroVote and Carson without their legal representation, raising concerns. However, the critical issue is whether the County perceived Shamos' work as primarily aimed at facilitating or preparing for future litigation, which it has demonstrated. The County argues that the main purpose of the Shamos Report was to assist in potential litigation, supported by precedent from United States v. Rockwell Int'l and In re Ford Motor, where similar reports were deemed protected under work product privilege. The Shamos communications, especially a letter dated February 20, were created in anticipation of litigation, fulfilling the County's burden of proof. Consequently, Carson must demonstrate substantial need to overcome this protection, as stipulated by Rule 26(b)(3). Since Carson has not shown such need, the work product privilege remains intact. The concurrence agrees that the documents are protected as work product rather than under attorney-client privilege, with Judges Roth and Rosenn supporting this view.
