CHAPTER 2 AT ISSUE WAIVER OF ATTORNEY-CLIENT PRIVILEGE

• Jurisdiction: United States

Ethics And Professional Responsibility In The New Millennium
(2000)
CHAPTER 2
AT ISSUE WAIVER OF ATTORNEY-CLIENT PRIVILEGE
Alexander R. (Alec) Rothrock
Burns, Figa & Will, P.C.
Englewood, Colorado

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Plaza Tower One, Suite 1030

6400 South Fiddlers Green Circle

Englewood, Colorado 80111

(Introduction)

The attorney-client privilege is revered but not absolute. A party may waive the protection of the privilege, both expressly and by implication. The burden of proving waiver is on the party seeking to overcome the privilege.¹

One form of waiver is variously called the "at issue waiver," "implied waiver," or the "issue injection exception."² For at issue waiver to apply, the party asserting privilege must place in issue a confidential communication going directly to the claim or defense.³ The at issue waiver recognizes that it would be "inequitable to permit the party to use the attorney-client privilege as a sword by placing the advice of the attorney at issue while permitting the same party to use the attorney-client relationship as a shield to prevent inquiry into the asserted claim or defense."⁴

At issue waiver is controversial and often complex. The case law is not consistent. Colorado has adopted a standard that is widely followed in other jurisdictions yet criticized in other jurisdictions as insufficiently protective of the attorney-client privilege. This article discusses the state of the law on at issue waiver in Colorado and in the U.S. District Court for the District of Colorado. It then discusses the most difficult issue in the at issue waiver analysis, namely determining whether the party asserting privilege has indeed injected protected communications into the case. The article concludes by attempting to elicit some level of consistency from the case law arising from common at issue waiver situations.

(Mountain States v. DiFede)

The starting point for discussion of the at issue waiver in Colorado is the 1989 Colorado Supreme Court case of Mountain States Telephone and Telegraph Co. v. DiFede.⁵ Anthony DiFede was diagnosed with terminal cancer. His way of organizing his worldly affairs was to divorce and disinherit his wife, Susan. He had his lawyer, Raymond Wilder, draw up a separation agreement that allowed Anthony to change the beneficiary on his life insurance policy and caused his wife to relinquish her right to certain real property and to inherit under his will. Meeting at Mr. Wilder's office,

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Anthony and Susan DiFede signed the agreement and tore up Anthony's will. Anthony then conveyed the real estate to his parents and made them the beneficiaries of his life insurance policy and under a new will.

After Anthony DiFede's death, Susan DiFede challenged the separation agreement authorizing the property transfers. She claimed that Mr. Wilder fraudulently induced her to sign the agreement by incorrectly stating to her at the meeting that the agreement was unenforceable until approved by the court, which was at least ninety days away. She signed the agreement, she said, only because she knew her husband would not last the ninety days. She was right about her husband's time on earth but wrong about the legal requirement of court approval.

In the El Paso County District Court litigation, the parties disputed Susan DiFede's reliance on any such incorrect statement of law by Mr. Wilder, especially because ten days after the meeting with Mr. Wilder, Susan DiFede consulted another lawyer, Jack Foutch, about the separation agreement. At trial, Susan DiFede refused to answer questions about her consultation with Mr. Foutch, citing attorney-client privilege. The trial court sustained Susan's objections to that line of questioning. Finding Wilder's version of the meeting more credible than Susan's, the trial court entered judgment notwithstanding the verdict against Susan DiFede on this claim.⁶

Susan appealed. The Court of Appeals reversed and remanded for a new trial, holding that Susan's statements to Mr. Foutch were not privileged.⁷ The Colorado Supreme Court took certiorari on the privilege issue and another issue not relevant here.

The Colorado Supreme Court reversed the Court of Appeals, holding that Susan's statements were privileged. The Court went on to address whether Susan impliedly waived the privilege by placing in issue a confidential communication going directly to a claim or defense. To analyze the issue, the Court adopted a three-part test originally formulated in a 1975 decision from the U.S. District Court for the Eastern District of Washington, Hearn v. Rhay.⁸ Under the Hearn test, implied waiver is appropriate where the following factors are present:

(1) assertion of the privilege was a 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.⁹

Applying the Hearn test, the Court found that Susan DiFede waived the privilege. The Court explained that "[w]hen she alleged that she reasonably relied on Raymond Wilder's incorrect statement of the law, Susan injected her knowledge or lack of knowledge of the correct statement of the law as a crucial issue relevant to her claim of fraud-in-the inducement. Only Jack Foutch and Susan know whether Jack Foutch

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disabused her of the incorrect notion that the separation agreement was not immediately enforceable."¹⁰ The Court further reasoned that it would be unfair to allow Susan to "thrust her lack of knowledge of the correct state of the law" into the case then deny the opposing parties' ability to negate that lack of knowledge.¹¹ The Court directed the Court of Appeals to reinstate the trial court's judgment against Susan.

(Subsequent Colorado Authority)

The Colorado Court of Appeals applied DiFede in the 1996 case of People v. Sickich.¹² In Sickich, the defendant appealed the trial court's refusal to permit him to withdraw his plea of guilty to first-degree murder of a deputy sheriff. The defendant requested withdrawal of the plea on the grounds that the judge failed to explain the elements of the charge, and the defendant's cognitive abilities were so impaired by pain, medication, stress, and depression that his plea was not knowing or voluntary. The defendant claimed that the trial court erred in admitting the testimony of his former counsel notwithstanding the attorney-client privilege.

The Court of Appeals held that the defendant impliedly waived the privilege because these claims directly contradicted statements made in the written plea agreement signed by defense counsel. "Hence, because defendant put in issue what advice he did or did not receive from counsel, as well as his own understanding of the proceedings, he waived the attorney-client privilege with respect to his discussions with counsel on these topics."¹³ Further, "defense counsel's testimony was limited to his observations of defendant's condition at the time of his guilty plea and to confirm what was stated in the written agreement,"¹⁴ thereby staying within the limits of the waiver.

Four decisions of the U.S. District Court for the District of Colorado apply the Hearn test. In FDIC v. Wise,¹⁵ Chief Judge Sherman G. Finesilver adopted Hearn in the course of ordering the FDIC to produce privileged documents reflecting communications between regulators and their counsel. Chief Judge Finesilver reasoned that the FDIC placed those communications in issue by alleging Silverado Banking, Savings and Loan Association misled the regulators, thereby injecting into the case the "actions, knowledge, and beliefs of the regulators."¹⁶ In addition, the court found that the defendants' review of the documents was vital to their defense of the allegations, and that allowing the FDIC to assert privilege to protect disclosure would be manifestly unfair.¹⁷

Metro Wastewater Reclamation District v. Continental Casualty Co.¹⁸ was an insurance coverage dispute. The defendant-insurers moved to compel production of the plaintiff's correspondence with its counsel in underlying proceedings commenced against the plaintiff by the United States Environmental Protection Agency. Magistrate Judge Bruce D. Pringle first determined that Colorado privilege law applied because federal jurisdiction was premised on diversity of citizenship.¹⁹ The court ultimately ordered production of the documents, reasoning that they "may well have a significant bearing"²⁰ on coverage issues such as whether and when the plaintiff-insured knew that its sludge

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contained hazardous substances. In addition, if the plaintiff succeeded on the coverage issues, the documents may be necessary to determine the reasonableness of cost and fees incurred in the underlying proceedings and the proper allocation of expenditures between defense costs and indemnity.²¹

Ryall v. Appleton Electric Co.²² was an employment discrimination case in which the plaintiff sought to compel production of interview notes taken by the defendant's chief employment counsel during a prelitigation internal investigation of the allegations. The defendant asserted an affirmative defense of good faith investigation.²³ Judge John L. Kane, Jr. reviewed the magistrate judge's order, applying Hearn, compelling production of the notes over the defendant's privilege and work product objections.

Judge Kane set aside the magistrate's order, reasoning that Hearn applies only to implied waiver of the attorney-client privilege, not the broader protection afforded under the work product doctrine.²⁴ Judge Kane also disagreed with the magistrate's...