Opinion
00 Civ. 7850 (RMB) (THK), 01 Civ. 6993(RMB)(THK)
March 16, 2004
MEMORANDUM OPINION AND ORDER
These consolidated actions were referred to this Court for general pretrial supervision, by the Honorable Richard M. Herman, United States District Judge. Presently before the Court is a discovery dispute about whether Plaintiffs have waived the attorney — client privilege with regard to certain communications with their attorneys. For the reasons discussed below, the Court concludes that the privilege has been waived.
BACKGROUND
This action arises out of the modification of the by — laws of a Liechtenstein foundation, which resulted in a change in the distribution of the assets of the foundation. Plaintiffs claim that the modification was the result of fraud and undue influence.
In 1985, Jacques and Natasha Gelman, who were wealthy philanthropists, established the Anturia Foundation ("Anturia" or the "Foundation") in Liechtenstein, into which they placed a substantial portion of their assets. Mr. Gelman predeceased his wife, and Anturia's by — laws provided that upon Mrs. Gelman's death the potential beneficiaries listed in the by — laws would receive specified percentages of Anturia's assets. Prior to their amendment in 1992, the Anturia by — laws had included the Weizmann Institute of Science ("Weizmann") and members of the Jung family, who were Mrs. Gelman's closest living relatives, as beneficiaries of the Foundation. The Anturia by — laws were amended in 1992 to eliminate the Weizmann Institute as a beneficiary, and to substantially reduce the Jung's allocation of the assets, while increasing asset distributions to Defendant Marilyn Diamond, Mrs. Gelman's former attorney, and Defendant Robert R. Littman, her friend and companion. The amended by — laws also provided for the distribution of most of the assets of Anturia to a New York inter vivos trust (the "Trust") which Mrs. Gelman had established with the assistance of Defendant Janet C. Neschis, her attorney, and Defendant Littman. The Trust is controlled by Neschis and Diamond, Neschis's former law partner, who serve as trustees. Neschis was also the executor of Mrs. Gelman's Will. In her capacity as executor and trustee she has earned substantial commissions. As a result of the amended by — laws of Anturia, Littman and Diamond received substantial bequests from the Foundation, and Littman was given custody of the Gelman's substantial collection of Mexican modern art. Plaintiffs contend that Neschis, Diamond, and Littman exercised undue influence over Mrs. Gelman at a time when she was suffering from Alzheimer's disease and was mentally incompetent, and caused her to make changes to the Foundation's by — laws, as well as her Will.
A more complete description of the facts is set forth in a decision by Judge Herman. See Weizmann Institute of Science v. Neschis, 229 F. Supp.2d 234 (S.D.N.Y. 2002).
Shortly after Mrs. Gelman's death, on May 2, 1998, counsel for the Jung Plaintiffs wrote to one of the Anturia board members, raising questions about the validity of the then — current by — laws, and demanding that Anturia refrain from making distributions to any beneficiaries while the Jungs further investigated. Anturia appears to have complied with the demand. By August 1998, the Jungs had retained Liechtenstein counsel in connection with their claims against Anturia. On January 21, 1999, the Lichtenstein lawyers for the Trust and Trustees Neschis and Diamond served a demand on Anturia for distributions to the Trust. When no distributions were forthcoming, on July 16, 1999, the Trust served Anturia with a notice of arbitration. In the period between the demand for distributions and the notice of arbitration, Weizmann had contacted both a Swiss attorney (on March 8, 1999), and Dr. Peter Monauni, a Liechtenstein attorney (on June 30, 1999), regarding Anturia. Dr. Monauni was formally retained on July 14, 1999.
On October 14, 1999, an arbitration complaint was filed in Liechtenstein, on behalf of the Trust, Neschis, and Diamond. On January 12, 2000, Anturia filed its answer to the arbitration complaint, and simultaneously provided formal notice of the dispute to Liechtenstein counsel for Weizmann and the Jungs, inviting them to join the arbitration as interveners. Both did so, with Weizmann filing its formal pleadings in March 2000, and the Jungs filing their pleadings in July 2000. The arbitrators ultimately concluded that the amendments to the by — laws were not procured by fraud or undue influence, and that the bequests in the by — laws could be effectuated.
Plaintiffs contend in this action, inter alia, that the arbitration should not be given collateral estoppel effect because they were not afforded a full and fair opportunity to have their rights adjudicated there. For example, they contend that they did not become parties in the arbitration until after the arbitrators had been selected by Anturia and the Trust. Plaintiffs also contend that the arbitration should not be given preclusive effect because they were compelled to participate, and they had diminished status and rights as third — party interveners. It is this last contention which has precipitated the instant dispute over attorney — client privilege.
The Court (Berman, J.) has already determined that the Jungs are precluded from relitigating the validity of Mrs. Gelman's 1993 Will, as well as her testamentary capacity to execute the Will, as a result of the admission of the Will to probate in New York. See Weizmann Institute. 229 F. Supp.2d at 248-49.
Plaintiffs have asserted as one of their defenses to the claim that they are collaterally estopped from relitigating issues determined in the Liechtenstein arbitration, that they "essentially had no choice but to join the arbitration." (Letter from Elise A. Yablonski, Esq. to Jane W. Parver, Esq., dated Nov. 26, 2003, at 2, attached to Letter from Jane W. Parver, Esq., dated Jan. 30, 2004 ("Parver Ltr."), as Ex. 2.) Moreover, in a letter to the Court (Berman, J.) in the context of motions to dismiss, Weizmann's counsel stated that Weizmann "has appeared as "third party' in [the Liechtenstein Arbitration] because it was advised by Liechtenstein counsel that if it did not, it might be precluded from contesting the validity of the Anturia by — laws in any Liechtenstein tribunal." (Letter from Leon Gold, Esq., dated Nov. 7, 2000 ("Gold Ltr."), at 2, attached to Parver Ltr. as Ex. 3.) Defendants contend that
[b]ecause Plaintiffs have put their lawyers' advice regarding Plaintiffs' decision to participate in the Liechtenstein arbitration directly at issue, Plaintiffs should be precluded from asserting this argument in opposition to Defendants' summary judgment motion unless they agree to waive the privilege and allow discovery with respect to the subject matter of their lawyers' advice.
(Parver Ltr. at 2.) Plaintiffs respond that Mr. Gold's statement did not reveal any client confidence and therefore did not give rise to a waiver of the attorney — client privilege. Alternatively, Plaintiffs argue that there has been no implied waiver of privilege because Plaintiffs have
not contended, nor do [they] plan to contend, that [they] relied on advice of counsel, or acted in good faith, or had a reasonable belief of some kind, in deciding whether to participate in the Liechtenstein arbitration. Rather, [Plaintiffs'] argument is that [they were] in fact compelled to take part in the Liechtenstein arbitration by defendants' machinations and the operation of Liechtenstein law.
(Letter from Elise A. Yablonski, dated Mar. 2, 2004 ("Yablonski Ltr."), at 3-4.)
Although the Yablonski letter was submitted on behalf of the Weizmann Institute, the Jungs take the same position. (See Letter from Oleg Rivkin, Esq., dated Mar. 8, 2004.)
DISCUSSION
I. Legal PrinciplesThe attorney — client privilege affords confidentiality to communications among clients and their attorneys, for the purpose of seeking and rendering an opinion on law or legal services, or assistance in some legal proceeding, so long as the communications were intended to be, and were in fact, kept confidential. See United States v. International Brotherhood of Teamsters, 119 F.3d 210, 214 (2d Cir. 1997); In re Six Grand Jury Witnesses, 979 F.2d 939, 944 (2d Cir. 1992), cert. denied, 509 U.S. 905, 113 S.Ct. 2997 (1993);In re John Doe Corp., 675 F.2d 482, 487-88 (2d Cir. 1982);Bank Brussels Lambert v. Credit Lyonnais (Suisse) S.A., 160 F.R.D. 437, 441 (S.D.N.Y. 1995) (citing United States v. United Shoe Machinery Corp., 89 F. Supp. 357, 358-59 (D. Mass. 1950)). The privilege is among the oldest of the common law privileges and "exists for the purpose of encouraging full and truthful communication between an attorney and his client. . . ." In re von Bulow, 828 F.2d 94, 100 (2d Cir. 1987); accord United States v. Bilzerian, 926 F.2d 1285, 1292 (2d Cir.), cert. denied, 502 U.S. 813, 112 So. Ct. 63 (1991). Thus, the burden of breaching the privilege is particularly onerous.
The attorney — client privilege will be waived if the holder of the privilege discloses or consents to disclosure of any significant part of a privileged communication to a third party or stranger to the attorney — client relationship. See In re Grand Jury Proceedings, No. M-ll-189 (LAP), 2001 WL 1167497, at *7 (S.D.N.Y. Oct. 3, 2001); In re Kidder Peabody Sec. Litig., 168 F.R.D. 459, 468 (S.D.N.Y. 1996). Moreover, " [a] defendant may not use the privilege to prejudice his opponent's case or to disclose some selected communications for self — serving purposes."Bilzerian, 926 F.2d at 1292. To selectively disclose privileged communications would cause the attorney — client privilege to be used as both a sword and a shield, resulting in fundamental unfairness.See id. Accordingly, where there has been a prejudicial disclosure of some attorney — client communications, there may be a waiver of all communications on the same subject. See Bank Brussels Lambert v. Credit Lyonnais (Suisse) S.A., No. 93 Civ. 6876 (KMW) (JCF), 1995 WL 598971, at **5-6 (S.D.N.Y. Oct. 11, 1995).
Attorney — client privilege may also be impliedly waived or forfeited where a party makes assertions in the litigation or "asserts a claim that in fairness requires examination of protected communications."Bilzerian, 926 F.2d at 1292; accord John Doe Co. v. United States, 350 F.3d 299, 302 (2d Cir. 2003) (a party may forfeit its privilege because of "considerations of fairness to the adversary"). As the Second Circuit recently reiterated, "[i]n some circumstances, courts have ruled that it would be unfair for a party asserting contentions to an adjudicating authority to then rely on its privileges to deprive its adversary of access to material that might disprove or undermine the party's contentions." John Doe Co., 350 F.3d at 302. Common examples of such waivers are when a defendant asserts an advice — of — counsel defense or a good — faith defense which places in issue whether his attorney made him aware that his acts were illegal or otherwise improper.
In this Circuit, the test often applied to determine whether there has been an implied or "at issue" waiver was set forth in Hearn v. Rhay, 68 F.R.D. 574 (E.D. Wash. 1975). In that case a prisoner — plaintiff challenged his confinement in a prison's mental health unit, pursuant to 42 U.S.C. § 1983. The defendant prison officials raised the affirmative defense of qualified immunity, thus placing in issue their objective and subjective good faith. Of obvious relevance to their good faith defense was their knowledge or disregard of plaintiff's clearly established constitutional rights. The court found that this placed directly in issue the defendants' communications with their attorneys that related to issues of malice toward the plaintiffs or knowledge of the plaintiff's constitutional rights, and that the need for this information outweighed the policy behind the attorney — client privilege. The waiver test enunciated in Hearn, which has been cited by courts in this Circuit, has three primary elements:
(1) assertion of the privilege was a result of some affirmative act, such as filing suit, by the asserting party; (2) through the 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.Hearn, 68 F.R.D. at 581. See also Bilzerian, 926 F.2d at 1292 (defendant's invocation of "good — faith" defense to securities fraud placed his knowledge of the law in issue, thus waiving the attorney — client privilege); Sanofi-Synthelabo v. Apotex Inc.. 299 F. Supp.2d 303, 2004 WL 113485, at **3-4 (S.D.N.Y. Jan. 26, 2004) (finding forfeiture of the attorney — client privilege where, in the context of patent litigation, a party gave a partial explanation for its conduct before the Patent Office, when a complete explanation was relevant to the validity of the patent and was likely to be contained in privileged communications); Johnson Matthey, Inc. v. Research Corp.. No. 01 Civ. 8115 (MBM)(FM), 2002 WL 1728566, at **2-4 (S.D.N.Y. July 24, 2002) (claim of fraudulent concealment placed in issue facts learned from counsel); In re Kidder Peabodv, 168 F.R.D. at 470-72 (affirmative use of report to demonstrate "good faith" waives attorney — client privilege as to client statements given to attorney in preparation of report); Bank Brussels Lambert, 1995 WL 598971, at *3 (assertion of defense of reliance on advice of counsel results in "at issue" waiver, which may not be limited temporally). As the court in Bank Brussels Lambert observed:
Cases where courts have found a waiver of privilege based on the "at issue" doctrine exhibit several common factors: (1) the very subject of privileged communications [is] critically relevant to the issue to be litigated, (2) there [is] a good faith basis for believing such essential privileged communications exist, and (3) there [is] no other source of direct proof on the issue.
1995 WL 598971, at *5 (quoting Standard Chartered Bank PLC v. Avala Int'l Holdings. 111 F.R.D. 76, 83 (S.D.N.Y. 1986)) (internal quotation marks omitted).
By contrast, in a case where a party merely claimed that it relied on information provided by its adversary, the court did not permit the adversary to gain access to privileged communications in an effort to show that the party claiming reliance received advice from its attorney which affected its course of conduct. See Paramount Communications v. Dinghy, 858 F. Supp. 391, 395-97 (S.D.N.Y. 1994); accord Chase Manhattan Bank, N.A. v. Drysdale Sec. Corp., 587 F. Supp. 57, 58 (S.D.N.Y. 1984) (where plaintiff alleged reliance on fraudulent opinion issued by adversary, no disclosure of its attorney's advice is justified simply to undermine the prudence of its behavior). In these cases, the courts noted that while it would have been useful to discover the privileged communications, privilege was not waived because the attorney — client relationship was not affirmatively placed in issue, and "there was [no] evidence that the attorneys themselves independently took actions or made decisions relevant to the case."Paramount Communications, 858 F. Supp. at 397.
The Second Circuit has advised that "because the [forfeiture] doctrine is rooted in fairness we have also cautioned against broad generalizations, stressing that `[w]hether fairness requires disclosure . . . is best decided on a case by case basis, and depends primarily on the specific context in which the privilege is asserted.'" John Doe Co., 350 F.3d at 302 (quotingIn re Grand Jury Proceedings, 219 F.3d 175, 183 (2d Cir. 2000)).
II. Application to Plaintiffs' Conduct
Based upon these principles, it is the Court's conclusion that Plaintiffs have placed the advice of their counsel in issue, and that fairness compels a waiver of the attorney — client privilege. Plaintiffs are seeking to avoid the preclusive effect of the Liechtenstein arbitration by arguing that they had no choice but to participate. To some degree, Plaintiffs have explicitly invoked their attorneys' advice on that subject. Weizmann affirmatively represented to the Court, through its counsel, that it "appeared as a "third party' in [the Liechtenstein arbitration] because it was advised by Liechtenstein counsel that if it did not, it might be precluded from contesting the validity of the Anturia by — laws in any Liechtenstein tribunal." (Gold Ltr. at 2.) Weizmann argues that this statement was merely an explanation of Liechtenstein law, rather than a confidential communication of advice, and therefore there was not an express waiver of attorney — client privilege. The Court disagrees. Privileged communications typically involve explanations of the law. However, the Court does not rest its decision simply on an express waiver of privilege, since there has also been an implied waiver of the attorney — client privilege.
The issue of whether Plaintiffs were compelled to participate in the Liechtenstein arbitration may be, but is not necessarily, an unambiguous matter of Liechtenstein law. Throughout their defense to the motion to dismiss, Plaintiffs made assertions about what they understood their limited rights to be in the arbitration, their lack of any alternatives to participation in the arbitration, their inability to commence their own arbitration or legal proceeding, and their inability to independently assert claims on their behalf. (See, e.g., Joint Brief of Plaintiffs in Opposition to Motion to Dismiss, Parver Ltr. Ex. 7 at 9 ("Weizmann and the Jungs were forced to accept the diminished status of third — party interveners in the arbitration proceedings.") 11 ("Plaintiffs would have been precluded from raising any claims against Anturia in any Liechtenstein court if they failed to appear in the arbitration as third — party interveners. Thus to assert any claim against Anturia, they were compelled to participate and accept a diminished role." (internal citation omitted).) Plaintiffs' "compulsion" defense is one which places their attorneys' opinions, advice, and decision — making directly in issue, yet Plaintiffs seek to preclude discovery into their Liechtenstein and Swiss attorneys' advice to them regarding Liechtenstein law and the other options available to them. Indeed, although Plaintiffs' counsel asserts that Defendants "will have an opportunity to ask Weizmann about the reasons for its decision to participate" (Yablonski Ltr. at 4), it is readily apparent that this is not a subject which Plaintiffs themselves can address in a meaningful way in discovery without reference to the communications, opinions, and advice of their attorneys.
Moreover, the discovery sought may reveal that Plaintiffs were aware of other legal options, but chose to forego them for various reasons. As Defendants' counsel has aptly argued:
Discovery here is likely to produce evidence that, in the many months preceding Anturia's January 12, 2000 notice of and invitation to intervene in the Arbitration, Plaintiffs' Swiss and Liechtenstein attorneys advised them of the opportunities available to them under Liechtenstein law, including bringing their own legal action against Anturia in the Liechtenstein courts, and/or commencing their own arbitrations against Anturia, affording them full party status at the outset and participation in selecting arbitrators. Presumably, Plaintiffs were also advised, even when they received notice of the Arbitration, that they could still commence their own arbitration(s) and seek to consolidate them with the Arbitration brought by the Inter Vivos Trust, Neschis and Diamond. Thus, the discovery Defendants seek goes directly to the relevant issue of whether Plaintiffs consciously elected to forgo other means of challenging changes to their status as Anturia beneficiaries, such as bringing their own arbitration or other proceeding, and/or whether Plaintiffs deliberately elected to take a purportedly "diminished" role in the Liechtenstein Arbitration, and/or whether Plaintiffs deliberately forwent an opportunity to participate in the selection of the arbitrators.
In response to the hypotheticals which Defendants have posited, Plaintiffs assert various factual reasons why they could not have proceeded in any other way, e.g., that they did not have a copy of the Anturia by — laws and thus could not undertake a legal proceeding. However, these assertions need not be taken at face value at the discovery stage, and do not shield them from discovery about why they proceeded as they did.
In invoking "compulsion" as a defense to collateral estoppel, Plaintiffs have made "factual assertions the truth of which can only be assessed by examination of . . . privileged communication [s]."In re Kidder Peabody, 168 F.R.D. at 470. Put another way, Plaintiffs' understanding of the legal alternatives to the arbitration, or of the need to participate in the arbitration, clearly implicates privileged communications. Accordingly, unless they agree to forego the defense, fairness dictates that Plaintiffs must waive attorney — client privilege and be subject to discovery with respect to the subject matter of their Swiss and Liechtenstein attorneys' advice concerning the decision to participate in the arbitration and/or other options to the arbitration. So Ordered.