Underwriters of a municipal bond offering were sued by bondholders based on the offering. They, in turn, brought a malpractice claim against the transactional attorneys whom they had retained to prepare the offering. The transactional attorneys asserted, as affirmative defenses, that the costs incurred by litigation counsel during bondholders’ suit were unreasonable and that the damages were a result of the contributory negligence of other parties. The transactional attorneys requested discovery on litigation counsel’s billing during the suit, and the underwriters sought a protective order to prevent disclosure of materials protected by the attorney-client privilege. The superior court denied the motion for a protective order, finding that the underwriters had put their litigation counsel’s billing at issue by filing the malpractice case. The underwriters brought a special action to the Court of Appeals.
The Court of Appeals accepted jurisdiction and granted relief. Applying the three-part test adopted by the Arizona Supreme Court in State Farm Mutual Insurance Co. v. Lee, 199 Ariz. 52 (2000), the Court of Appeals found that the underwriters had not implicitly waived their attorney-client privilege with respect to the billing records. First, the Court of Appeals reasoned that the underwriters’ filing of the lawsuit was not an affirmative act that had resulted in the assertion of the privilege. Rather, the affirmative act was defendant’s assertion of the affirmative defenses. Second, the Court of Appeals found that the underwriters had not put the protected information at issue because it had not affirmatively interjected the advice of counsel into the litigation. Finally, the Court of Appeals held that the privileged information was not vital to the transactional attorneys’ defense. Because the transactional attorneys had failed to demonstrate that the underwriters had waived privilege, the underwriters were entitled to a protective order protecting privileged communication.
Judge Swann delivered the unanimous opinion, in which Judges Cattani and Thumma joined.
Posted by: Randy McDonald