SNR Denton on In re County of Erie: Second Circuit Adopts Narrow Rule on At-Issue Waiver of Attorney-Client Privilege

SNR Denton on In re County of Erie: Second Circuit Adopts Narrow Rule on At-Issue Waiver of Attorney-Client Privilege

Attorney-client privilege plays a particularly important role in insurance bad faith cases. Those with bad faith claims against insurers commonly view the insurer’s communications with its lawyers and the lawyers’ work product as valuable evidence for proving bad faith. Indeed, when trying to compel production, they commonly describe this information as essential to proof of their claims. Yet attorney-client communications and attorney work product are generally protected from discovery. While bad faith plaintiffs have made substantial -- and sometimes successful -- efforts to pierce these protections, insurers continue to resist discovery of privileged and work product materials, also with considerable success.

We have reviewed the law on this subject in William T. Barker & Ronald D. Kent, Attorney-Client Privilege and Opinion Work Product Protection in Insurance Bad Faith Litigation.

The primary tool used to try to pierce an insurer’s privilege is the argument that the insurer has waived the privilege by putting the privileged communications “at issue” in the bad faith case. The article describes a narrow rule followed by a majority of courts, including almost all state courts that have addressed the issue, and a minority rule, followed most notably by federal district courts. The Second Circuit has now joined to the strong majority favoring the narrow rule.

In re County of Erie, 546 F.3d 222 (2nd Cir. 2008), dealt with a discovery dispute in a class action that challenged the constitutionality of the county’s purported strip search policy. The plaintiffs sought communications between the offices of the sheriff and the county attorney. These communications “’reviewed the law concerning strip searches of detainees, assessed the County's current search policy, recommended alternative policies, and monitored the implementation of these policy changes.’” Id. at 225. On a prior appeal, the court had determined that these communications were privileged and remanded for determination whether the privilege had been waived. The district court concluded that the privilege had been waived by the county putting them at issue. The Second Circuit found sufficient need for clarification of the law on that subject to review that order on petition for mandamus. It granted the writ and directed the district court to enter an order protecting the confidentiality of the communications unless the county thereafter relied on them in defending the litigation.

[Editor’s Note: To access a pdf. copy of In re County of Erie register and/or log on to this site, and click on the above free download link.]

The district court had relied on Hearn v. Rhay, 68 F.R.D. 574 (E.D. Wash. 1975), the leading case adopting the broad view of at-issue waiver. Hearn articulated the following requirements for finding waiver: (1) the assertion of the privilege was the result of some affirmative act, such as filing suit, by the asserting party; (2) through this affirmative act, the asserting party put the protected information at issue by making it relevant to the case; and (3) application of the privilege would have denied the opposing party access to information vital to his defense. [Id. at 581.]

The plaintiffs contended that the county had had a policy of routinely conducting invasive strip searches, without regard to the nature of the crime. The county denied this, and claimed that there was no such policy or that any policy comported with constitutional requirements. County officials also asserted a defense of qualified immunity.

One jail supervisor had prepared a memo directing jail personnel to discontinue routine strip searches and noted that he did so in the context of ongoing discussions with the county attorney’s office. The employee who sent that memo testified that the county attorney was involved in rewriting the strip search policy. The district court held that this testimony showed reliance on the privileged communications. Moreover, according to the district court, “’pleading conduct in conformity with the law, and then asserting privilege to protect from disclosure facts that might disprove this contention ... has placed the advice rendered by [Defendants-Petitioners'] counsel about the legality of the strip search policy directly in issue in the case.’” Id. at 227.
The Second Circuit noted that it had cited Hearn on various points in the past, but had never addressed its holding on the scope of at-issue waiver. It acknowledged that both courts and commentators had criticized Hearn, and that courts had applied its tests unevenly. Accordingly, there was a need for clarification by mandamus review.

The attorney-client privilege is one of the oldest privileges and seeks to “’encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and the administration of justice.’” Id. at 228. Accordingly, “rules which result in the waiver of this privilege and thus possess the potential to weaken attorney-client trust, should be formulated with caution.” Id. Implied waiver has been found “’when a client testifies concerning portions of the attorney-client communication, ... when a client places the attorney-client relationship directly at issue, ... and when a client asserts reliance on an attorney's advice as an element of a claim or defense....’” Id.

The Second Circuit relied on United States v. Bilzerian, 926 F.2d 1285 (2nd Cir. 1991), where the defendant argued that he did not intend to violate the securities laws that he was charged with violating and contended that the testimony he sought to introduce regarding his good faith efforts to comply with the laws did not implicate any reliance on privileged communications. We agreed with the District Court in that case that if Bilzerian testified as to good faith, the door would be opened to cross-examination that might require him to divulge otherwise privileged communications with his attorney. We opined that “[t]he trial court's ruling left defendant free to testify without getting into his state of mind, but correctly held that if he asserted his good faith, the jury would be entitled to know the basis of his understanding that his actions were legal.” [County of Erie, 546 F.3d at 228 (citations omitted).]

On the other hand, no waiver would be imposed if Bilzerian “merely denied criminal intent but did not assert good faith or if he argued good faith only through defense counsel and the examination of witnesses.” Id. Only if Bilzerian offered testimony that could not be fully cross-examined without access to the privileged communications would the privilege be forfeited. Bilzerian, 926 F.2d at 1293.

In County of Erie, the Second Circuit agreed with Hearn’s critics that Hearn “cuts too broadly.” County of Erie, 546 F.3d at 229. Mere relevance of privileged communications to the privilege holder’s claim or defense is not enough to place the communications at issue, because that would open too many privileged communications to at-issue waiver. The Hearn test omits “the essential element of reliance on privileged advice in the assertion of the claim or defense in order to effect a waiver.” Id. Only if a party must rely on privileged advice to make his claim or defense is there waiver. Id. (The court’s statement of its holding may be slightly too narrow, because it might be read to find no waiver in Bilzerian--Bilzerian did not rely in court on the advice he received from his lawyer, but he did seek to unfairly preclude cross-examination on that subject. Obviously, the two cases must be read together.)

Assertion of a qualified immunity defense did not waive the privilege, because that defense does not implicate the defendant’s state of mind. Rather, it depends on whether the state of the law at the time of the relevant conduct was such that the rights violated were “clearly established.” Id.

Deposition testimony that the county attorney was consulted did not waive the privilege, because there was no disclosure of the content of any advice received and because that testimony was not presented “’to influence the decisionmaker.’” Id. at 230.

The Third Circuit previously ringingly rejected Hearn in Rhone-Poulenc Rorer, Inc. v. Home Indemnity Co., 32 F.3d 851, 863 (3d Cir. 1994). Now that it is joined by the Second Circuit, courts that have followed Hearn should reconsider, and other courts should join the strong majority that already have rejected Hearn. Insurers faced with waiver arguments now have additional ammunition to fight those arguments.

William T. Barker
Ronald D. Kent
SNR Denton