ALAN C. TORGERSON, Magistrate Judge.
The Court, having heard the argument of counsel, reviewed the submissions of the parties, considered the relevant law, and being fully advised in the premises, finds that Defendants' First Motion is well taken and will be GRANTED, the Motion for Leave to file a Surreply is DENIED as moot, and Defendants' Second Motion is well taken and will be GRANTED.
This legal malpractice action arose from legal services provided by Lewis and Roca and Thomas Gulley, Esq. ("Gulley" and collectively "Defendants") to Plaintiffs when they were sued in a contract dispute by Guidance Endodontics, LLC ("Guidance").
After the trial, Plaintiffs hired Morgan Lewis & Bockius, LLP ("Morgan") as counsel for purposes of post-trial matters and the appeal. [Doc. 50 at 1.] Defendants remained counsel of record to Plaintiffs until June of 2011. [UL Doc. 641.] In August 2011, with the assistance of Morgan, Plaintiffs settled the underlying litigation for $11,500,000.00, an amount exceeding the remittitur. [Doc. 47 at 2; UL Doc. 672 (Stipulation of Dismissal filed August 19, 2011.] At the May 8, 2013, hearing, counsel explained that while Defendants conducted post-trial motions practice through the Court's ruling on the remittitur, they were not included in any discussions with regard to the option to settle the underlying case. Plaintiffs additionally retained Goodell DeVries Leech & Dunn, LLP ("Goodell") to pursue this legal malpractice action. [Doc. 50 at 1-2.]
In the instant lawsuit, Plaintiffs assert that Defendants' alleged breach of the standard of care in the underlying litigation forced them to settle the matter. [Doc. 1 at 18, 20.] Plaintiffs seek damages of the full amount paid to settle the underlying litigation, attorney fees incurred in the underlying litigation, attorney fees incurred in post-trial and settlement proceedings, attorney fees for the instant malpractice action, and pre and post judgment interest all of which totals in excess of fifteen million dollars ($15,000,000.00). [Doc. 1 at 18, 20, and 21.]
Defendants served written discovery on Plaintiffs seeking documents generated during the underlying litigation, post-trial, and settlement proceedings. [Doc. 47 at 2; Doc. 47-1.] Plaintiffs objected to several discovery requests on the grounds the information sought is protected by the attorney-client privilege or work-product doctrine. [Doc. 47-1.] In January 2013, Defendants deposed Plaintiffs' in-house counsel, Brian Addison, in Baltimore, Maryland. [Doc. 75 at 1-2; Doc. 78 at 2, n. 2.] During the deposition, Mr. Addison was instructed not to answer three questions on the basis of attorney-client privilege. [Doc. 75 at 2.]
Defendants argue that Plaintiffs have failed to establish that any privilege is applicable, and have failed to produce a privilege log with respect to the written discovery [Doc. 47 at 3-4]; that Plaintiffs have implicitly waived the attorney-client privilege because they have put "at issue" the analysis and advice of counsel which led them to settle the case [Doc. 47 at 4-7; Doc. 75 at 2-3]; that Federal Rule of Civil Procedure 26(b)(3)(A)(i-iii) warrants production of any documents withheld under the work-product doctrine [Doc. 47 at 7-8]; that Rule 11-503(D)(3) NMRA provides a specific exception to the general rule of attorney-client privilege, which they claim is applicable in this case [Doc. 75 at 2]; and that designating Howard M. Radzely, Esq., a former attorney at Morgan involved in the underlying litigation, as a hybrid fact/expert witness, waives the attorney-client privilege [Doc. 75 at 3].
Plaintiffs argue that under the Federal Rules of Civil Procedure, they are not required to produce a privilege log, although they subsequently produced one; that there has not been any waiver of the privilege; and that Defendants have not met their burden to overcome the work-product doctrine. [Doc. 50.] Plaintiffs also argue that the exception to the attorney-client privilege under New Mexico Rule 11-505(D)(3) does not apply in this case; that the settlement of the underlying case does not waive the attorney-client privilege; and that designating Mr. Radzely as a witness does not waive the attorney-client privilege. [Doc. 78.]
The parties do not discuss the applicability of a particular privilege or work product protection to any specific document; instead, they argue the general validity and effect of the privileges to the discovery requested and deposition questions asked under the facts and circumstances of this case. Accordingly, the Court will address the applicability of the attorney-client privilege and work-product doctrine as they pertain to the particular facts of this case.
While discovery in federal court is very broad, the attorney-client privilege and the attorney work-product doctrine set boundaries on what litigants can obtain. In a diversity case, state law governs the scope of the attorney-client privilege, whether there has been a waiver, and the scope of any waiver. Federal law, however, continues to govern all issues related to the work-product doctrine. Anaya v. CBS Broad., Inc., 251 F.R.D. 645, 649 (D.N.M. 2007).
Rule 26(b)(1) of the Federal Rules of Civil Procedure provides:
Fed.R.Civ.P. 26(b)(1). The scope of discovery under the federal rules is broad and "discovery is not limited to issues raised by the pleadings, for discovery itself is designed to help define and clarify the issues." Gomez v. Martin Marietta Corp., 50 F.3d 1511, 1520 (10th Cir. 1995)(citation omitted). The attorney-client privilege and work-product protection, however, limit the broad scope of permissible discovery. Anaya, 251 F.R.D. at 650 (D.N.M. 2007).
"The lawyer-client privilege rests on the need for the advocate and counselor to know all that relates to the client's reasons for seeking representation if the professional mission is to be carried out." Trammel v. United States, 445 U.S. 40, 51, 100 S.Ct. 906, 63 L.Ed.2d 186 (1980). The privilege's purpose is "to encourage clients to make full disclosure to their attorneys." Fisher v. United States, 425 U.S. 391, 403, 96 S.Ct. 1569, 48 L.Ed.2d 39 (1976). Pursuant to rule 501 of the Federal Rules of Evidence, state law supplies the rules concerning attorney-client privilege in diversity cases. Frontier Refining, Inc. v. Gorman-Rupp Co., Inc., 136 F.3d 695, 699 (10th Cir.1998).
Under New Mexico law, the attorney-client privilege applies to "confidential communications made for the purpose of facilitating the rendition of professional legal services to the client." S.F. Pac. Gold Corp. v. United Nuclear Corp., 2007-NMCA-133, 143 N.M. 215, 221, 175 P.3d 309, 315; N.M.R.A. 11-503(B). The party asserting the attorney-client privilege bears the burden of demonstrating that it applies and that it has not been waived. Pina v. Espinoza, 2001-NMCA-055, ¶ 24, 130 N.M. 661, 29 P.3d 1062, 1069. "The bald assertion that production of the requested information would violate a privilege [provided by law] is not enough. The party resisting discovery has the burden to clarify and explain its objections and to provide support therefor. General objections without specific support may result in waiver of the objections." United Nuclear Corp. v. Gen. Atomic Co., 96 N.M. 155, 629 P.2d 231, 293 (1980) (internal quotations and citation omitted).
The attorney-client privilege in New Mexico is expressly provided for and governed by New Mexico's Rules of Evidence. Allen v. LeMaster, 2012-NMSC-001, 267 P.3d 806, 813 (citing Rule 11-503; Pub. Serv. Co. of N.M. v. Lyons, 2000-NMCA-077, ¶¶ 11-13, 129 N.M. 487, 10 P.3d 166)). Although New Mexico's attorney-client privilege generally applies to "confidential communications made for the purpose of facilitating the rendition of professional legal services to the client," Rule 11-503(B), "[t]here is no privilege . . . [a]s to a communication relevant to an issue of breach of duty by the lawyer to the lawyer's client," Allen, 267 P.3d at 813 (citing Rule 11-503(D)(3)). Rule 11-511 NMRA and its general waiver provisions provide that any of New Mexico's evidentiary privileges can be waived by the holder of the privilege if he or she "voluntarily discloses or consents to disclosure of any significant part of the matter or communication." Id. (quoting Rule 11-511 NMRA.)
Rule 26(b)(5) of the Federal Rules of Civil Procedure governs privilege logs. Anaya, 251 F.R.D. at 651. Rule 26(b)(5) states:
Id. (quoting Fed.R.Civ.P. 26(7)). "The law is well settled that failure to produce a privilege log or production of an inadequate privilege log may be deemed waiver of the privilege." Id. citations omitted).
A person who places privileged matters "at-issue" in the litigation can be said to have implicitly consented to disclosure. Pub. Serv. Co. of New Mexico v. Lyons, 2000-NMCA-077, 129 N.M. 487, 492, 10 P.3d 166, 171 (citation omitted). In Lyons, the New Mexico Court of Appeals explained that "we believe the issue of waiver should be governed by, and limited to, Rule 11-511 (waiver of privilege by voluntary disclosure), in the absence of any other provision specifically addressing the issue." Id., 129 N.M. at 494. To support a finding of waiver, New Mexico requires an offensive or direct use of privileged materials. S.F. Pac. Gold Corp, 143 N.M. at 226.
The New Mexico Court of Appeals construes the Rhone-Poulenc approach to waiver to include finding waiver "where direct use [of the privileged materials] is anticipated because the holder of the privilege must use the materials at some point in order to prevail." S.F. Pac. Gold Corp., 143 N.M. at 226 (quoting Lyons, 2000-NMCA-077, ¶¶ 22, 28, (stating that waiver depends on "the way in which the client will likely prove the assertion" and that the privilege is not waived if the client plans to prove its assertion in ways that do not include the privileged communication (internal quotation marks and citation omitted)(emphasis added)). Under Lyons, where a party relies on an attorney's advice to advance a claim or defense, that party has implicitly "consented to disclosure" of those communications within the meaning of Rule 11-511. Gingrich, 142 N.M. at 364.
In diversity cases, Rule 26(b)(3) of the Federal Rules of Civil Procedure governs work-product issues. Frontier Refining, 136 F.3d at 702 n. 10. Rule 26(b)(3) states:
Fed.R.Civ.P. 26(b)(3). "[T]he work-product doctrine shelters the mental processes of the attorney, providing a privileged area within which he can analyze and prepare his client's case." Citizens Progressive Alliance v. U.S. Bureau of Indian Affairs, 241 F.Supp.2d 1342, 1358 (D.N.M.2002)(Smith, Magistrate J.)(citing United States v. Nobles, 422 U.S. 225, 238, 95 S.Ct. 2160, 45 L.Ed.2d 141 (1975)). The attorney work-product doctrine "is intended only to guard against divulging the attorney's strategies and legal impressions." Resolution Trust Corp. v. Dabney, 73 F.3d 262, 266 (10th Cir.1995). Documents or other items that do not reflect the attorney's mental impressions are not protected by the work product doctrine. United States v. Nobles, 422 U.S. at 238, 95 S.Ct. 2160 ("At its core, the work-product doctrine shelters the mental processes of the attorney, providing a privileged area within which he can analyze and prepare his client's case."); In re Grand Jury Proceedings, 658 F.2d 782, 784-85 (10th Cir.1981)("Such mental impressions are a prerequisite to the invocation of the work product doctrine."). The party asserting the work-product protection has the burden of demonstrating that it applies and that it has not been waived. Kovacs v. Hershey Co., No. 04-cv-01881, 2006 WL 2781591, at * 10 (D.Colo. 2006). A blanket assertion that the work-product doctrine applies is insufficient to meet that burden. Resolution Trust Corp. v. Dabney, 73 F.3d 262, 266 (10th Cir.1995). For the work-product doctrine to apply, the asserting party must show that the documents or materials were prepared in anticipation of litigation by or for a party or that party's representative. Fed.R.Civ.P. 26(b)(3).
If the party asserting work-product protection establishes entitlement to the protection, rule 26(b)(3) allows production of attorney work-product materials "only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of the party's case and that the party is unable without undue hardship to obtain the substantial equivalent of the materials by other means." Fed.R.Civ.P. 26(b)(3).
As an initial matter, Defendants argue that Plaintiffs have not established that the attorney-client privilege is applicable primarily because Plaintiffs have not provided a privilege log. [Doc. 47 at 3.] Plaintiffs counter that because Fed. R. Civ. P. 26(b)(5) does not require them to produce a privilege log, they complied with Rule 26(b)(5) in other ways. [Doc. 50 at 5-8.] Nonetheless, after Defendants filed their Motion, Plaintiffs produced a privilege log. [Doc. 61-1.] Plaintiffs also produced a supplemental privilege log on January 29, 2013. [Doc. 66 and 66-1.]
While Rule 26(b)(5)(A) does not specifically require a privilege log, the law in the Tenth Circuit "is well settled that failure to produce a privilege log or production of an inadequate privilege log may be deemed waiver of the privilege." Anaya, 251 F.R.D. at 651. Plaintiffs are required to produce a privilege log for all responsive documents for which they are claiming a privilege exists and it appears that they have now done so.
Since Plaintiffs have produced a privilege log and since the Court finds waiver based on other grounds, the Court does not find waiver based on Plaintiffs' untimely and incomplete privilege log. However, Plaintiffs are cautioned that waiver may be based on their failure to produce a privilege log in the future.
Defendants argue that the documents requested are not privileged. The Court disagrees. Citing Allen, Defendants correctly state that under New Mexico law, there is no attorney-client privilege when the communication is relevant to an issue of breach of duty by the lawyer to the lawyer's client. [Doc. 47 at 5.] In the Allen case, the privilege being discussed was between the client and his former attorney who the client claimed provided "ineffective assistance" during his criminal trial. Allen, 267 P.3d at 807.
Further, communications with regard to post-trial matters and settlement, as opposed to the alleged malpractice during trial, are not communications relevant to an issue of breach of duty by the lawyer to the lawyer's client. Rather, those communications are relevant to Plaintiffs' claim for damages and Defendants' defenses. Plaintiffs' attorneys point out that they are not alleging that Defendants committed any malpractice after the verdict. [Doc. 50, p. 2; Doc. 78, p. 4.] Accordingly, the communications sought by Defendants between Plaintiffs and their successor counsel regarding malpractice matters are privileged.
While the Court finds that the communications regarding post-trial decisions and settlement are privileged, the privilege has been waived because Plaintiffs have put their attorney's advice with regard to settling this matter at issue in this case. Defendants argue that the "at-issue" wavier doctrine constitutes the implicit waiver of the privilege in this case. [Doc. 47 at 4-7.] Specifically, Defendants argue that by claiming damages that include the full amount of the settlement and attorney-fees for work performed after the verdict, Plaintiffs have necessarily put "in issue" the analysis and advice surrounding Plaintiffs' decision to settle the underlying lawsuit for more than the remittitur. [Id. at 6] Plaintiffs argue that under the Rhone test, adopted by the New Mexico courts, there has not been a voluntary waiver of the privilege. [Doc. 50 at 9-15.]
As discussed above, the New Mexico courts have adopted the restrictive rule that there is a voluntary waiver of the attorney-client privilege where the client directly uses privileged materials to prove a claim. Lyons, 129 N.M. at 495. There is also a voluntary waiver where the direct use of the privileged materials is anticipated because the holder of the privilege must use the privileged materials at some point in order to prevail. S.F. Pac. Gold Corp., 143 N.M. at 226.
In this case, Plaintiffs claim that the alleged malpractice forced them to settle the underlying litigation for more than the remitted amount. [Doc. 1 at 18, 20.] In response, Defendants ask "why did Plaintiffs pay $11.5 million to settle when they could have forced Guidance to choose an $8.1 million remittitur or a new trial, which new trial Plaintiffs now assert would have produced . . . a judgment entirely in their favor . . .?" [Doc. 61 at 5-6]. Defense counsel pointed out at the hearing that Plaintiffs "were in the cat-bird seat." Plaintiffs could have told Guidance that they would pay the remitted amount and no more. If Guidance did not accept the remitted amount, a new trial would be conducted in which Plaintiffs could have cured most, if not all, of the deficiencies they currently allege were committed by Defendants.
If Plaintiffs wish to hold Defendants responsible for the settlement amount, plus fees and costs, they cannot simply ask Defendants take them on their word that settling the lawsuit for over $3 million more than the remittitur was their best course of action. Plaintiffs must establish that this element of their damages was proximately caused by Defendants' actions.
Plaintiffs argue that Defendants have not identified a single instance when they have directly used privileged materials in this case or asserted they would use such information in the future. [Doc. 50 at 11.] Indeed, Plaintiffs have specifically advised Defendants that they have no intention of using privileged information to prove their case and reiterated this position at the hearing. [Doc. 50 at 11-12.] While Plaintiffs explain they will use "documents and testimony from the Underlying Case, as well as the court's opinions and rulings, information gathered from discovery in this case, and witness and expert testimony" to prove their claims, they offer no explanation of how this evidence will establish their claim for damages beyond the amount of the remittitur. [Doc. 50 at 12.] As explained above, it is anticipated that the only way Plaintiffs are able to prove their damages claims would be to use privileged materials that led them to the conclusion that settlement was their best course of action and was, therefore, proximately caused by Defendants' malpractice. Consequently, Plaintiffs will be ordered to produce the documents requested.
As noted above, the attorney work-product doctrine "is intended only to guard against divulging the attorney's strategies and legal impressions." Resolution Trust Corp., 73 F.3d at 266. If the party asserting work-product protection establishes entitlement to the protection, Fed. R. Civ. P. 26 (b)(3) allows production of attorney work-product materials "only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of the party's case and that the party is unable without undue hardship to obtain the substantial equivalent of the materials by other means." In this case Defendants have made this showing.
Defendants argue that the only mechanism that they have to ascertain the reasoning and analysis employed by Plaintiffs in deciding to settle the underlying litigation is to obtain the documents requested. [Doc. 47 at 7.] The Court agrees. There is substantial need for documents prepared by Successor Counsel in the preparation of the Defendants' case. Defendants need the materials in order to evaluate and defend against the amount of damages claimed, as well as to prosecute their "comparative negligence" and "superseding and intervening cause" affirmative defenses. Defendants are unable to obtain the substantial equivalent of the materials by other means as they are completely in the possession and control of Plaintiffs' counsel. Accordingly, Plaintiffs will be ordered to produce the materials requested.
The Court finds that by extending their damages claim to include post-trial costs, attorney fees, and the amount of settlement, Plaintiffs have placed "at issue" the analysis and advice of their attorneys which led them to choose settlement over other options available to them in post-trial proceedings. Therefore, Plaintiffs' implicitly waived the attorney-client privilege. Further, Defendants have shown a substantial need for the documents protected by the attorney work-product doctrine. Therefore,
1. Lewis and Roca, LLP's Motion to Compel [Doc. 47] is GRANTED. Plaintiffs will have 20 (twenty) days from the entry of this order to produce the requested materials;
2. Defendants' Motion to File Surreply in Support of Motion to Compel (Doc. 47) [Doc. 74] is DENIED as moot; and
3. Lewis and Roca, LLP's Motion to Compel Answers to Deposition Questions [Doc. 75] is GRANTED. Defendants are to provide written answers to the questions at issue from Mr. Addison under oath or by Affidavit within ten (10) days of the entry of this Order.
Were you advised by Morgan Lewis if the case were retried that the decision would not yield an award of future damages to Guidance?
Did you receive advice from Morgan Lewis that retrial of the case would yield a decision that there would be no punitive damages award?
Did you receive advice from Morgan Lewis that retrial of the case would yield an award to Dentsply on its counterclaim?
[Doc. 75 at 2; Doc. 75-1 at 2.]
