(Reuters) - On Tuesday, a divided California state appeals court refused to reverse a trial court decision to disqualify Gibson Dunn & Crutcher from defending McDermott Will & Emery in a malpractice suit brought by the patriarch of a family investment business. Gibson Dunn’s fatal mistake, according to the Fourth Appellate District of the California Court of Appeal, was relying on an email distributed by the patriarch, which Gibson Dunn found in McDermott’s own files and produced to the other side.
If that strikes you as a strange rationale for disqualification, you are not alone. In a strongly worded dissent from the majority opinion by Judge Richard Aronson, Judge David Thompson said the majority had twisted California’s rules for handling disputed discovery material beyond recognition and reason. The majority opinion “upsets the delicate balance,” Judge Thompson wrote. “It imposes on Gibson Dunn an obligation to respect their opponent’s interests which is greater than and in direct conflict with their primary obligation to zealously represent their own client’s interests.”
Judge Aronson and his colleague in the majority, Judge Kathleen O’Leary, obviously want to promote California’s protocols for protecting privileged documents, established in the 1999 case State Compensation Insurance Fund v. WPS Inc and expanded in 2007’s Rico v. Mitsubishi Motors. Those protocols call for lawyers who have received apparently privileged materials to read only far enough to confirm the documents may be privileged and to inform the other side.
But among the new wrinkles in the Gibson Dunn case, as you will see, are that the disputed email ended up in McDermott’s files before McDermott was in litigation with its former client. Gibson Dunn didn’t trick anyone to get hold of the email to gain a litigation advantage. Nor did McDermott’s former client mistakenly produce the email in discovery in the malpractice case. The email was already sitting in the files of Gibson Dunn’s client when the malpractice case began.
The backstory on the disputed email is so uniquely convoluted that I doubt any other lawyers will find themselves in precisely the same circumstances as Gibson Dunn in the McDermott case. But as Judge Thompson warned in his dissent, the ruling puts all California lawyers on notice that their own clients’ records may contain privilege pitfalls.
The email in the Gibson case was written in 2013, when members of the Hausman family were trying to resolve a fight over control of the family’s $50 million investment business. (This account comes from the California appellate opinion.) McDermott had advised Dick and Marilyn Hausman on estate planning, including the establishment of trusts that held shares of the business. The firm also acted as corporate counsel to the business. But after Marilyn died and Dick and his son Rick split over management of the family funds, Dick hired his own lawyer, Mark Blaskey.
Blaskey sent Dick a long email in August 2013, summarizing a meeting he and Dick had held with Rick, McDermott partner Jonathan Lurie and another director of the family business. That email, which contained strategy advice as well as the meeting summary, also went to Blaskey’s partner and to a bookkeeper at the family business who handled Dick’s correspondence.
Dick forwarded the email to his sister-in-law, who passed it to her husband. The husband, who was trying to mediate reconciliation between Dick and his son, printed out and distributed the email to Rick and other people at the family company. He also forwarded it to Lurie, the McDermott lawyer, who kept it in his files.
Dick ended up taking his dispute with Rick to probate court, where the fateful Blaskey email first surfaced. Rick’s probate lawyer found the email among Rick’s documents. He contacted Dick’s probate lawyer and said the email appeared to be privileged but that Dick had waived the privilege when he forwarded the document to his sister-in-law.
Dick’s lawyer said that under those California cases I mentioned above, State Fund and Rico, Rick’s lawyer was obliged to destroy the email – which Dick said he never meant to send to his sister-in-law. (He said he has multiple sclerosis and must have sent it by accident.) Rick’s lawyer agreed to preserve just one copy of the email while the two sides resolved the waiver issue and not to ask deposition questions based on the email’s contents.
McDermott, meanwhile, brought in Gibson Dunn as its counsel in Dick’s probate case. In 2015, Gibson produced thousands of pages of McDermott documents in response to a subpoena from Dick. Among them was the Blaskey email.
When Dick’s lawyers realized McDermott had the email, they asked Gibson Dunn to return all copies. Gibson partner James Fogelman refused, asserting that the document was not privileged because Dick had disclosed it to non-lawyers. Fogelman also said State Fund and Rico precedent didn’t apply because the email had not been inadvertently produced to Gibson Dunn in discovery.
Dick eventually settled his dispute with Rick without any resolution on whether the email was privileged. But the issue came back when he sued McDermott for malpractice, claiming the firm was conflicted in representing various members of the Hausman family. Dick first moved for a ruling that the email was privileged. After the trial judge overseeing Dick’s malpractice actions, Orange County Superior Court Judge Sheila Fell, agreed that it was, Dick asked her to disqualify Gibson Dunn for using the document. The judge did so in a minute order.
On appeal, Gibson Dunn once again argued that the document was not privileged because it had been shared with non-lawyers, that Dick waived privilege when he sent the email to his sister-in-law and that the State Fund and Rico protocols didn’t apply to the highly unusual facts in the McDermott case. On the factual questions, the appeals court majority said Judge Fell hadn’t abused her discretion when she determined Gibson Dunn should have known the email was privileged.
More broadly, the opinion said lawyers don’t have discretion to consider whether the facts strip privilege from presumptively privileged documents. Once the protocol for presumptively privileged material is triggered, the majority said, lawyers don’t have discretion.
“That is a logical application of the State Fund rule,” the majority wrote. “Allowing opposing counsel to avoid their State Fund obligations any time they can fashion a colorable argument for overcoming the privilege would create an exception that would swallow the State Fund rule. As State Fund and the other cases explain, an attorney’s obligation is to review the materials no more than necessary to determine whether they are privileged, and then notify the privilege holder’s counsel. At that point, the parties may confer about whether the material is privileged and whether there has been a waiver. If the parties are unable to reach an agreement either side may seek guidance from the trial court. The attorney receiving the material, however, is not permitted to act as judge and unilaterally make that determination.”
Judge Thompson said in dissent that the majority has turned the State Fund rule inside out. The State Fund protocols, he said, were supposed to protect against “a ‘gotcha’ theory of waiver, in which an underling’s slip-up in a document production becomes the equivalent of actual consent.” By extending the rule to materials that weren’t produced in discovery in active litigation - and were disclosed when they were uncovered – the majority created a “reverse gotcha,” Judge Thompson said, that even might allow a “devious” adversary to set a trap for opposing counsel by secretly revealing confidential material.
“The majority is not just trying to put a square peg in a round hole. They are trying to put a square peg in no hole at all,” he wrote.
This was not an easy case for the state Court of Appeal. Gibson Dunn filed for a writ of mandamus to overturn its disqualification last June. The appellate court almost immediately granted the firm’s request to stay the case below. Oral arguments were in September, and, a month later, called for additional letter briefs on an apparent conflict in the language of the State Fund decision about the standard that triggers the duty to notify the other side. (The majority opinion didn’t ultimately decide that issue.) The appeals court missed its own January deadline to file an opinion and had to resubmit the case, presumably to allow the majority and dissent to respond to one another’s arguments.
Gibson Dunn was more candid about its view of the ruling than law firms usually are when they’re dinged by courts. In a statement, Gibson partner Fogelman said, “If you read Justice Thompson’s incredibly well-reasoned dissent, you will understand why the majority just got this one wrong.”
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