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holding that corporations, unlike individuals, "have to make sure their attorneys are in fact attorneys," and therefore that FTI could not assert the attorney-client privilege as to its communications with its "secretary and legal counsel," who graduated from law school and passed the New York bar exam but never submitted the paperwork required for admission to the bar
Summary of this case from Charlestown Capital Advisors, LLC v. Acero Junction, Inc.Opinion
99 Civ. 9351 (GEL) (RLE).
December 18, 2000.
OPINION AND ORDER
Defendants Scott D. Smith and DataSmith Consulting, Inc. ("DataSmith"), object to the invocation of the attorney-client privilege and work-product doctrine by counsel for plaintiff Financial Technologies International, Inc. ("FTI"), during defendants' deposition of Peter Smith ("Smith"), FTI's secretary and legal counsel. The basis for the objection is that Peter Smith is not a licensed attorney; he has never been admitted to the bar of any state. Plaintiff argues that the attorney-client privilege should nonetheless apply in this situation because the available sources indicate that the New York Court of Appeals would recognize the privilege for communications between a putative attorney and her client. For the reasons discussed below, the Court finds that the attorney-client privilege may not be asserted by FTI at the re-deposition of Peter Smith, ordered by this Court on June 14, 2000. Moreover, as the deposition does not involve "documents and tangible things," the attorney work-product doctrine does not bar questions of the witness.
I. FACTS
On March 23, 1998, FTI and DataSmith, a corporation owned by Scott Smith and his wife, Heidi, entered into a consulting agreement. Defendants' Letter to the Court dated June 13, 2000 ("Def. June 13 Letter"), Exh. 5 ("Consulting Agreement"). Pursuant to the agreement, Scott Smith was to perform all duties assigned to DataSmith by FTI. Id. at ¶ 1. Under the contract, any work-product created as a result of the service rendered to FTI belonged to FTI. Id. at ¶ 7.1. DataSmith participated in the development of FTI's database models and computer software. Plaintiff's Letter to the Court dated April 28, 2000 ("P1. April 28 Letter"), at 2. During this period, defendants were privy to FTI's confidential information regarding trade secrets on the development and implementation of software and database structures. Id. On July 22, 1999, in a letter to FTI, defendants indicated their intent to sell to FTI work created pursuant to the agreement. Id. FTI alleges that the work is rightfully theirs. Id. While attempting to sell the work to FTI, defendants informed FTI that they also intended to either sell or license the work to FTI's clients and competitors. Compl. at ¶ 14. Upon learning this, FTI terminated defendants' employment. Id. at ¶ 15. On August 31, 1999, FTI filed the instant complaint against defendants, alleging breach of contract and misappropriation of trade secrets.Id. at ¶¶ 6-28.
"Compl." refers to the Complaint filed on August 31, 1999.
On May 12, 2000, defendants' counsel deposed Peter Smith, FTI's secretary and legal counsel. Defendants' Letter to the Court dated May 26, 2000 ("Def. May 26 Letter"). During the course of the deposition, FTI's counsel instructed Smith not to respond to certain questions on the grounds that the answers involved information protected under the attorney-client privilege and the work-product doctrine. See, e.g., Dep. Tr. at 17-30, 44, 50, 52-54, 62-67, 76, 85, 87, 96-97, 100, 103, 105, 107-08, 110. Also during the deposition, defendants' counsel asked Smith about his status before the bar. Id. at 15. Smith indicated that he had been admitted to the New York bar in 1978. Id. at 16. Following the deposition, defendants learned that Smith had not been admitted in New York. Def. May 26 Letter, Exh. 2. Plaintiff now concedes that Smith in fact is not a licensed attorney in New York or any other state. Plaintiffs Letter to the Court dated June 12, 2000 ("P1. June 12 Letter"), at 2. Smith admits that, although he graduated from Hofstra Law School in 1978 and passed the New York State Bar Examination later that year, he was never admitted to the bar because he failed to submit the paperwork necessary for admission. Def. June 13 Letter, Exh. 1.
"Dep. Tr." refers to the transcript of the deposition of Peter F. Smith taken on May 12, 2000, a copy of which is attached to Def. May 26 Letter as Exhibit 1.
Based on this concession, defendants challenge the invocation of the attorney-client privilege and work-product doctrine at various times during Smith's deposition. Def. May 26 Letter, at 3. Plaintiff opposes this challenge by claiming that, although the New York Court of Appeals has never addressed the issue of the putative lawyer, the evidence indicates that, were it faced with the question, it would support the application of the attorney-client privilege in situations where the client had a reasonable belief that the individual with whom she was communicating was an attorney, regardless of whether that belief was true. Plaintiffs Letter to the Court dated June 21 ("P1. June 21 Letter"), at 1-2.
II. DISCUSSION
A. Choice of Law
Whether the attorney-client privilege applies in diversity cases is an issue to be resolved under state law. Ideal Mutual Ins. Co. v. Korean Reinsurance Corp., 1986 WL 2967, at * 1 (S.D.N.Y. Mar. 4, 1986) (citing Federal Rule of Evidence 501). Further, in diversity actions such as this, the choice of law rules of the forum state are controlling. See Hartford Fire Ins. Co. v. Orient Overseas Containers Lines (UK) Ltd., 230 F.3d 549, 556 (2d Cir. 2000); Ferens v. John Deere Co., 494 U.S. 516, 519 (1990); Int'l Paper Co. v. Harmel Ouellette, 479 U.S. 481, 501 (1987). Accordingly, New York choice of law rules apply to the instant case. Under New York's rules, a contractual choice of law provision will be honored as long as the chosen jurisdiction has a substantial relationship to the parties or their performance, and policy considerations of New York law are not violated. Hamilton v. Accu-Tek, 47 F. Supp.2d 330, 343 (E.D.N.Y. 1999); Krock v. Lipsay, 97 F.3d 640, 645 (2d Cir. 1996); CargilL Inc. v. Charles Kowsky Resources, Inc., 949 F.2d 51, 55 (2d Cir. 1991). Further, the parties' choice is controlling as to matters of substance not procedure. Woodling v. Garrett Corp., 813 F.2d 543, 551 (2d Cir. 1987).
The consulting agreement between FTI and defendants contains a choice of law clause stating that New York law will apply to any disputes arising from the contract. Consulting Agreement at ¶ 12. Further, FTI's principal place of business is in New York City. See Compl. at ¶ 1. Defendants have transacted business within the state of New York and have contracted to supply services in the state. Id. at ¶ 4. As a result, because the parties have designated New York law as controlling and demonstrated a substantial relationship with New York, the law of New York governs the resolution of the issues of privilege in this case. See also Dixon v. 80 Pine St. Corp., 516 F.2d 1278, 1280 (2d Cir. 1975); Bowne of New York City. Inc. v. AmBase Corp., 161 F.R.D. 258, 264 (S.D.N.Y. 1995) (barring federal claims or defenses, federal courts sitting in diversity apply state law to issues regarding the attorney-client privilege). The party asserting the attorney-client privilege or work-product doctrine carries the burden of demonstrating their applicability. In re Pfohl Bros. Landfill Litig., 175 F.R.D. 13, 20 (W.D.N.Y. 1997).
B. Attorney-Client Privilege
In New York, the attorney-client privilege is a statutorily created protection. Under McKinney's Civil Practice Law and Rules § 4503, a client's communications to his attorney or attorney's employee are protected from disclosure. The purpose of the privilege is "to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration ofjustice." Upjohn Co. V. United States, 449 U.S. 383, 389 (1981). "It exists to ensure that one seeking legal advice will be able to confide fi.illy and freely in his attorney, secure in the knowledge that his confidences will not later be exposed to public view to his embarrassment or legal detriment." Priest V. Hennessy, 51 N.Y.2d 62, 67-68, 431 N.Y.S.2d 511 (1980).
However, because the privilege obstructs the discovery process, it should not be broadly construed. Allen v. West Point-Pepperell Inc., 848 F. Supp. 423, 426 (S.D.N.Y. 1994) ( citing United States v. Nixon, 418 U.S. 683, 710 (1974)). "The court must . . . weigh the general purpose of the privilege — to protect the confidentiality of the attorney-client relationship — against the truth seeking role of discovery." Well Ceramics Glass, Inc. v. Work, 110 F.R.D. 500, 504 (E.D.N.Y. 1986). Moreover, issues surrounding the attorney-client privilege should be determined on a "case-by-case" basis. Upjohn, 449 U.S. at 396-97.
In People v. Belge, the court held that the attorney-client "privilege applies only if(1) the asserted holder of the privilege is or sought to become a client; (2) the person to whom the communication was made (a) is a member of the bar of a court, or his subordinate and (b) in connection with this communication is acting as a lawyer; (3) the communication relates to a fact of which the attorney was informed (a) by his client (b) without the presence of strangers (c) for the purpose of securing primarily either (i) an opinion on law or (ii) legal services or (iii) assistance in some legal proceeding, and not (d) for the purpose of committing a crime or tort; and (4) the privilege has been (a) claimed and (b) not waived by the client." 59 A.D.2d 307, 309 (4th Dep't 1977) ( quoting United States v. United Shoe Mach. Corp., 89 F. Supp. 357, 358-59 (D.Mass. 1950); Fodelmesi v. Schepperly, 1990 WL 89320, at *4 (S.D.N.Y. June 20, 1990).
Here, the facts demonstrate that Peter Smith was not an attorney admitted to the bar of any state at the time the communications were made, and thus an essential element necessary for invocation of the privilege is absent. FTI nevertheless argues that the privilege should apply under the doctrine of reasonable belief — that is, where the client reasonably believed the person with whom she was communicating was an attorney, the privilege protects those communications. P1. June 21 Letter, at 1-2.
FTI acknowledges that the New York State Court of Appeals has not ruled on the availability of the attorney-client privilege when the recipient of the communication is not duly admitted to the bar. Id . When a federal court is faced with this situation, that is, a question on which the state's highest court has not spoken, it is "required to determine how it believe[s] that court would rule if the issue were before it." See Leon's Bakery, Inc. v. Grinnell Corp., 990 F.2d 44, 47-48 (2d Cir. 1993) ( citing Plummer v. Lederle, 819 F.2d 349, 353, cert. denied, 484 U.S. 898 (1987)). In making this determination, the federal court should consider any sources the highest state court would reference, including decisions in other jurisdictions on similar topics. Id . at 48.
1. Federal Sources
FTI asserts that "it is clear that federal courts apply a reasonable belief test in questions involving the applicability of the attorney client privilege;" in support of this proposition, it cites two cases, Georgia-Pacific Plywood Co. v. United States Plywood Corp., 18 F.R.D. 463 (S.D.N.Y. 1956), and United States v. Ostrer, 422 F. Supp. 93 (S.D.N.Y. 1976). P1. June 21 Letter at 2. While it is true that language in these cases suggests a liberal approach to the issue, the facts in those cases are distinguishable from the instant case.
The question before the court in Georgia-Pacific was "whether one who is resident and practicing law by acting as house counsel for a corporation in a state in which he has not been admitted to the bar, may nevertheless qualify as an attorney for purposes of the privilege if he has been licensed elsewhere." 18 F.R.D. at 465. In fact, the court expressly declined to reach the broader proposition that the privilege should apply to communications between a party and an individual whom that party had a bona fide belief was his attorney regardless of whether the attorney has been licensed anywhere. Id . at 466. In contrast to the facts of this case, the attorney in Georgia-Pacific was a member of the bars of Pennsylvania and the District of Columbia. Id. at 464. The case thus raised no question concerning the individual's status as an attorney. Similarly, the facts in United States v. Ostrer, 422 F. Supp. 93 (S.D.N.Y. 1976), do not support FTI's position, as the individual in question was in fact an attorney admitted to practice. The issue before the court was whether he was acting as defendant's attorney. Id . at 97.
In general, however, the plaintiff's position has merit. The few reported cases addressing application of the concept of the putative attorney to the attorney-client privilege indicate that there may be sound policy reasons for using this approach. See, e.g., United States v. Boffa, 513 F. Supp. 517, 523 (D. Del. 1981) ("[T]he rationale behind the privilege equally supports the theory that the privilege should be extended to those who make confidential communications to an individual in the genuine, but mistaken, belief that he is an attorney."); United States v. Mullen Co., 776 F. Supp. 620, 621 (D. Mass. 1991) ("More specifically, the attorney-client privilege may apply to confidential communications made to an accountant when the client is under the mistaken, but reasonable, belief that the professional from whom legal advice is sought is in fact an attorney."); United States v. Tyler, 745 F. Supp. 423, 425 (W.D. Mich. 1990) ("Where such a belief is proved, however, the client should not be compelled to bear the risk of his 'attorney's' deception and he should be entitled to the benefits of the privilege as long as his bona fide belief in his counsel's status is maintained."); see also United States v. Rivera, 837 F. Supp. 565, 568 n. 1 (S.D.N.Y. 1993); In re Grand Jury Subpoena Duces Tecum, 112 F.3d 910, 923 (8th Cir. 1997).
2. New York Law
Not only has the issue presented by plaintiff not been addressed by the New York Court of Appeals, but there is little case law on the subject, and the language in those cases favor a more restrictive application of the term "attorney." See, e.g., People v. John Doe, 99 Misc.2d 411, 414 (N.Y.Sup.Ct. 1979) ("Both common law and our present day statutes have restricted the confidentiality privilege to "a member of the bar of a court' who is 'licensed by the state to practice law.'") (internal citations omitted); Kent Jewelry Corp. v. Kiefer, 202 Misc. 778, 783, 113 N.Y.S.2d 12, 18 (1952) ("So far as communications between attorney and client are concerned, the person consulted must be an attorney duly licensed by the state to practice law and the communication must be made for the purpose of professional advice.") In Doe, the court held that information concerning a nursing home acquired by an attorney, working at the nursing home as an assistant administrator, while he was a law student, before he was admitted to the bar, did not come under the protection of the attorney-client privilege. 99 Misc.2d at 414.
More recently, however, New York law, as embodied in CPLR § 4503, has been interpreted broadly to give effect to the client's need to obtain confidential legal advice. The privilege has thus been extended "to those necessary intermediaries and agents through whom confidential communications are made." People v. Hairston, 111 Misc.2d 691, 693 (N.Y.Sup.Ct. 1981). "As a general rule, a communication by a client to his attorney by any form of agency employed or set in motion by the client is within the privilege. Accordingly, communications to any person whose intervention is necessary to secure and facilitate the communication between attorney and client are privileged, [such] as communications through an interpreter, a messenger or any other intermediary." Mileski v. Locker, 14 Misc.2d 252, 255-56, 178 N.Y.S.2d 911 (N.Y.Sup.Ct. 1958). See, e.g., United States v. Schwimmer, 892 F.2d 237, 243 (2d Cir. 1989) (accountant used by attorney); Hendrick v. Avis Rent A Car Sys., Inc., 944 F. Supp. 187 (W.D.N.Y. 1996) (father of injured plaintiff); Stroh v. Gen. Motors Corp., 213 A.D.2d 267, 623 N.Y.S.2d 873 (1st Dept. 1995) (daughter of client); Matter of Putnam, 257 N.Y. 140, 177 N.E. 399 (1931) (attorney's clerk); Sibley v. Waffle, 16 N.Y. 180 (1857) (attorney's clerk).
A special group of non-lawyers entitled to invoke the privilege consists of the students participating in the various clinical programs at accredited law schools and authorized to practice by statute. See, e.g., Judiciary Law §§ 478, 484.
Plaintiff's position also finds support in relevant treatises. For example, a leading New York civil practice commentator maintains that "the privilege should attach to communications made to a 'person authorized, or reasonably believed by the client to be authorized to practice law in any state or nation the law of which recognizes a privilege against disclosure of confidential communications between client and lawyer.'" 9 Weinstein, Korn Miller, New York Civil Practice § 4503.03, at 45-129. So long as "the client has a bona fide believe that is consultant is in fact an attorney," her communications should be protected by the privilege. Id . This is also the view espoused by Wigmore in his treatise on evidence:
The theory of the privilege clearly requires that the client's bona fide belief in the status of his adviser as an admitted attorney should entitle him to the privilege. No doubt an intention to employ only such a person is necessary, as well as a respectable degree of precaution in seeking one. But from that point onward he is entitled to peace of mind, and need not take the risk of deception or of the defective professional title.
8 Wigmore on Evidence, § 2302, at 584.
3. Summary
On balance, the Court finds these sources compelling and is of the opinion that an individual who reasonably believed that the person consulted was a duly admitted attorney should be afforded a measure of protection. The alternative would require individuals to check the background of a prospective attorney to insure that they were confiding with a "real" attorney. The inherent delay in such a process might well deprive the person of effective counsel at a time when advice is most valuable. Having said that, however, the Court is faced with a slightly different question: Would, and should, such an exception apply to the corporate client?
In applying the exception in Boffa the court held that, in order to avail himself of the exception, the defendant had to demonstrate: "(1) that [the putative lawyer] fraudulently held himself out to the defendant as an attorney; (2) that the defendant genuinely and reasonably believed that [he] was an attorney; and (3) that pursuant to this belief, the defendant made confidential communications to [the putative lawyer] in accordance with the criteria outlined in United States v. United Shoe Machinery Corp., supra." 513 F. Supp. at 523. Here, FTI employed Smith as their general counsel. This is strong evidence that they believed him to be an attorney. There is, however, no indication that FTI checked Smith's background to ascertain whether or not he was a duly licensed attorney or even asked Smith for credentials proving admission to the bar. Such an investigation would undoubtedly have revealed, as it did to defendants, that Smith was not admitted to the bar of New York, or of any other state.
While an investigation of this magnitude, though not time consuming, could prove onerous for an individual seeking legal advice, it is not unduly burdensome for a corporation, familiar with these types of employment practices, to conduct investigations to determine whether a potential employee's credentials are commensurate with the corporation's needs. It is not unduly burdensome to require a corporation to determine whether their general counsel, or other individuals in their employ, are licensed to perform the functions for which they have been hired.
Corporations have in-house counsel because they anticipate the need for legal advice. The typical lay individual seeks legal counsel when a specific problem arises. As a result, corporations do not have to suffer the potential prejudice of investigating one, and possibly more, attorneys on short notice. The Court notes, for example, that the "liberal" view expressed by the treatises is premised on the lack of knowledge or sophistication of the general public and not the distinctly different vantage point of a corporation. "A layman cannot be expected to understand the complexities of the law regulating the practice of law; the sanction for illegal practice is more appropriately applied against the 'lawyer' . . ." Weinstein, at 45-130.
The Court notes that there may be somewhat different considerations when hiring outside counsel, but that situation is not presented here.
For theses reasons, the Court concludes that, even if New York would apply the reasonable belief exception to individuals, corporations would have to make sure their attorneys are in fact attorneys.
C. Application of Attorney-Client Privilege to the Facts of This Case
Finally, even if a putative attorney exception were theoretically applicable to this case, it would not support most of the objections during the course of Smith's deposition. Some of the objections are to the form not the substance of the question. Others are objections to questions demanding answers that are not privileged communications but rather involve factual information. "'[T]he protection of the privilege extends only to communications and not to facts. A fact is one thing and a communication concerning that fact is an entirely different thing. The client cannot be compelled to answer the question, 'What did you say or write to the attorney?' but may not refuse to disclose any relevant fact within his knowledge merely because he incorporated a statement of such fact into his communication to his attorney.'" Upjohn, 449 U.S. at 383, 395-96. Similarly, the attorney-client privilege does not apply to information an attorney learns from independent sources and later shares with his client. Allen v. West Point-Pepperell Inc., 848 F. Supp. 423, 427-28 (S.D.N.Y. 1994) ( citing Hickman v. Taylor, 329 U.S. 495, 508 (1947)). As a result, the bulk of the objections asserted during Smith's deposition are meritless.
D. Work Product
"While state law should be applied in determining whether the attorney-client privilege is applicable in a diversity action, federal law is applied to determine whether a document constitutes attorney work product." Ideal Mutual Ins. Co. v. Korean Reinsurance Corp., 1986 WL 2967, at *1 (S.D.N.Y. 1986) (internal citations omitted). See also Condon v. Stephan Machinery Corp., 1990 WL 311599, at *3 n. 1 (S.D.N.Y. 1990); Railroad Salvage v. Japan Freight Consolidators, 97 F.R.D. 37, 39-40 (E.D.N.Y. 1983). Therefore, the attorney work product issue is governed solely by Rule 26(b)(3) of the Federal Rules of Civil Procedure.
In order to come within the qualified immunity from discovery created by Rule 26(b)(3) three tests must be satisfied. The material must be:
1. "documents and tangible things;"
2. "prepared in anticipation of litigation or for trial;"
3. "by or for another party or by or for that other party's representative."
The rule itself provides protection only for "documents and tangible things" and does not bar discovery of facts a party may have discovered from documents. Rule 26(b)(3) was amended in 1970 to give equal protection to the work product of non-attorneys, expressly including the work product of the party herself. The Rule also protects "[t]he files and the mental impressions of an attorney . . . reflected . . . in interviews, statements, memoranda, correspondence, briefs . . ."
Here, work-product was incorrectly asserted in response to questions seeking a "yes" or "no" response. See, e.g., Dep. Tr. at 40. None of the questions were demands to see documents in the witness' possession nor did they ask him to reveal his mental impressions. The witness claimed work-product when asked questions relating to the factual allegations in the complaint, Dep. Tr. at 29, and when asked about the intent behind certain clauses in the written agreement between FTI and Scott Smith — an agreement which the witness drafted. Dep. Tr. at 45-48. Work-product was also asserted in response to a question asking the witness to explain his understanding of the term "work for hire." Dep. Tr. at 66-67. In addition to functioning as an attorney, the witness possessed factual information relevant to the subject matter of the lawsuit. Directions not to answer questions directed toward those facts were inappropriate.
Finally, the Court finds that work product is not generally applicable in the context of a deposition restricted to questions and answers and that the doctrine was specifically inappropriate for this witness.
III. CONCLUSION
For the foregoing reasons, at the re-deposition of Peter Smith, ordered by this Court on June 14, 2000, neither the attorney-client privilege nor the work-product doctrine may be asserted premised on Peter Smith's status as a putative attorney. Plaintiff shall bear the cost of the re-deposition and IS ORDERED to make Smith immediately available for deposition and both parties are ORDERED to make reasonable efforts to schedule a time and place for such deposition and to report same to the Court by December 22, 2000.