In McDermott Will & Emery LLP v. Superior Court (4/18/2017 – No. G053623), the Fourth Appellate District, in a 2-1 decision, considered two distinct issues: 1. Whether the attorney-client privilege for a confidential e-mail communication between a client and his attorney had been waived by the client’s inadvertent disclosure of the communication to a third party; and 2. Whether the opposing counsel’s failure to respect the claimed privilege as to the inadvertently produced document or to follow the rules for handling such documents set forth in State Compensation Ins. Fund v WPS, Inc. (1999) 70 Cal.App.4th 644 (State Fund) supported the trial court’s disqualification of counsel and his law firm.
This case arose from an intra-family dispute over the deceased matriarch’s substantial investment holdings, a related probate matter, and two subsequent legal malpractice actions. The opinion sets forth in great detail the facts surrounding the claimed inadvertent disclosure by the client (i.e., the privilege holder) of the subject attorney-client e-mail communication, its subsequent dissemination to, and use by, the client’s family members, the ultimate receipt and review by an opposing family member’s counsel, the efforts by the client’s counsel to assert the privilege and “claw-back” the document, and in the face of this privilege claim, the opposing counsel’s extensive use of the document during discovery, including depositions, in the legal malpractice actions. The opposing counsel, who had received the subject document from his own client, had independently concluded that the clearly privileged document lost its privileged status, believing that the privilege had been waived either because of disclosure to third parties or that his obligation to return inadvertently disclosed documents only applied to those produced in litigation during discovery. As a result, the opposing counsel refused all demands for the return or destruction of the document and insisted upon continuing to use it. This dispute finally came to a head over two years after the client’s disclosure in the context of the client’s motion for a judicial determination that the document was privileged (which the trial court granted) and then a motion to disqualify the opposing counsel (which the trial court also granted); both decisions were eventually reviewed by the appellate court.
Applying “the State Fund rule,” the appellate court held that regardless of how the attorney obtained the subject document, whenever a reasonably competent attorney would have concluded that the document appeared to be privileged and it was reasonably apparent the document had been inadvertently disclosed, the attorney may review the document only so far as necessary to determine whether it is privileged, must immediately notify the privilege holder or his or her counsel that the attorney has come into possession of a document which appears to be privileged, and must refrain from using the document in any way until the resolution of any dispute regarding the privileged nature of the document. The court explained that even where the receiving attorney reasonably believes that the privilege holder has waived the privilege or that a statutory exception to the privilege applies, the attorney is not relieved from complying with the foregoing duties under State Fund. In effect, “an attorney’s State Fund duties are not limited to situations where the materials are indisputably privileged,” and “[t]he attorney receiving the material  is not permitted to act as judge and unilaterally make [the privilege] determination.” Otherwise, the attorney assumes the risk of disqualification when electing to use the document if it is ultimately found to be privileged.
In this case, the appellate court had no difficulty finding that the mistaken e-mail “forward” of the privileged communication by the 80-year-old client on his iPhone, of which he claimed to be unaware for at least one year, was inadvertent and that there had similarly been no consent to its dissemination. It explained that the privilege holder’s characterization of his or her intent in disclosing the subject communication is an important consideration but not dispositive of this issue. Instead, “a trial court must examine both the subjective intent of the privilege holder and any manifestation of the holder’s intent to disclose the information,” as well as precautions that the holder took to maintain the privilege and the promptness with which the holder sought return of the document. The fact that the subject document lacked prominent markings identifying it as privileged, while a relevant factor, is not conclusive on the issue of waiver. Ultimately, given the numerous disputed facts on this issue, the court applied the “substantial evidence” standard of review, which required deference to the trial court’s resolution of the competing inferences presented by such facts in favor of finding no waiver.
Moreover, the court found that the opposing counsel’s blatant disregard of the State Fund rule and his repeated, extensive efforts to use the document to his client’s advantage during discovery in the legal malpractice actions supported the trial court’s disqualification of the opposing counsel and his law firm. Citing the Fourth Appellate District’s decision in Clark v. Superior Court (2011) 196 Cal.App.4th 37, it concluded that there was a genuine likelihood that the opposing counsel’s improper use of the e-mail in question would affect the outcome of the lawsuit and the public’s trust in both the scrupulous administration of justice and the integrity of the bar. The appellate court, therefore, affirmed the trial court’s holding that the privilege applied and that opposing counsel should be disqualified.
This case establishes that when it comes to an attorney’s duties concerning the receipt of privileged documents, context is irrelevant. Regardless of the circumstances of disclosure, the manner of receipt or the stage of a dispute, such receipt triggers the State Fund rule, which any attorney would be wise to heed or otherwise face the prospect of disqualification. However, considering the vigorous dissent, and the even more vigorous and extensive discussion by the majority disputing the core of the dissent’s arguments, not to mention the presumably significant consequences to the disqualified law firm and its client, there appears to be a strong likelihood that review of by the California Supreme Court will be sought. The Supreme Court previously adopted and extended the State Fund rule in Rico v. Mitsubishi Motors Corp. (2007) 42 Cal.4th 807, which involved an attorney’s work product notes, mysteriously acquired by opposing counsel during a deposition. This case would give the Supreme Court another opportunity to comment on an attorney’s ethical duties upon receipt of privileged documents, this time when disclosed in a pre-litigation context, and confirm that attorneys act at their peril, and that of their client, if they do anything other than follow the simple State Fund rule.
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