Empire West v. Talamante (5/7/14)

The court here makes an arguably rather subtle distinction rather than allow a party to play “gotcha” with the attorney-client privilege.

DOS Land Holdings sued Empire for breach of contract because Empire, a title company, allegedly fouled up the legal description of a property by leaving out an easement. The Complaint alleged (for reasons unexplained, its counsel essentially admitting that the language was surplusage) that DOS “reasonably believed” that the closing documents included the easement. Empire seized on this language, arguing that it must refer to or rely on the advice of counsel and that DOS had thereby waived the privilege. The trial court denied Empire’s motion to discover DOS’s communications with counsel but the Court of Appeals accepted special action and, in an unpublished opinion, allowed the discovery. The Supreme Court accepted review; this opinion overturns the Court of Appeals.

Empire relied on State Farm v. Lee (2000), in which the court held that State Farm waived the privilege by alleging, in defending a bad-faith case, that its employees reasonably believed that its interpretation of a policy provision was correct. The point of this opinion is to explain why State Farm’s reasonable belief is different from DOS’s reasonable belief. “[M]erely alleging the reasonableness of one’s beliefs does not, in itself, waive the privilege; rather, the litigant must advance a subjective evaluation or understanding that incorporates the advice of counsel.” DOS’s reasonable belief was not an essential element of its cause of action, the breach-of-contract claim does not rely on its mental state or subjective knowledge. Mentioning  reasonable belief in the Complaint did not “interject” advice of counsel into the case; “[w]e will not find a waiver based merely on imprecise or superfluous pleading.” As to State Farm, the court seems to feel that it was using its employee’s beliefs as a sword  while trying to use the privilege as a shield against discovery of what they actually knew, whereas this is a simple contract case in which Empire either did or didn’t do what it was supposed to do.

Whether the distinction works we leave the the reader. The opinion itself is reasonably well done; it opens well and is (by modern standards) brief.

(link to opinion)