By Carole J. Buckner, Senior Counsel, Klinedinst PC
When one party’s counsel in litigation had knowledge of, access to, and possession and use of privileged communications of the opposing party and her husband, disqualification was appropriate, Militello v. VFarm 1509 (2023) 89 Cal.App.5th 602.
When a client wants to provide privileged communications of the opposing party in litigation to their lawyer, this triggers several important considerations for the lawyer which the lawyer must navigate carefully to avoid disqualification from representation of the client. The lawyer must consider whether it is permissible ethically to discuss privileged matters with their client, as well as whether it is permissible to take possession of and review privileged documents, whether the opposing counsel must be notified, and in addition, whether privileged documents can be used by the lawyer. This depends in part on the expectation of privacy of the opposing party, which can turn upon and be impacted by the policies of the entity. Militello, a recent appellate decision, indicates that a misstep in this analysis can result in disqualification of the lawyer from representation.
The plaintiff Militello and defendants Lawrence and Manek were the officers and directors of Cannaca Research Corporation (CRC). Another defendant, Athey was married to Lawrence. Notably, Lawrence, Militello and Athey are all attorneys. Spouses Athey and Lawrence communicated daily over CRC’s email. After Militello was removed as an officer and director of CRC, she sued Lawrence, Manek and Athey. Militello had at some unknown time downloaded communications between Lawrence and Athey that were protected by the spousal privilege, Evidence Code Section 980, and provided them to her lawyers Spencer Hosie and Hosie Rice LLP, (Hosie) who used the documents in a parallel proceeding to attempt to obtain a receivership for CRC.
CRC brought an action against Militello for breach of fiduciary duty and violation of the California Comprehensive Computer Data Access and Fraud Act, claiming that Militello had improperly interfered with CRC’s computer systems (the CRC Case). CRC alleged Militello had taken control of and searched and reviewed CRC emails, deleted some email accounts, and blocked Lawrence and Manek’s access to information needed to run CRC. Militello filed another suit against CRC, as well as Athey and his law firm. Militello alleged that Lawrence and Manek conspired with Athey to force Militello out of CRC. Militello sought appointment of a receiver in support of which Militello and Hosie submitted numerous emails between Lawrence and Athey.
First Disqualification Motion
In the CRC Case, Lawrence and Manek sought disqualification of Hosie, asserting that the communications between Athey and Lawrence were privileged and that Militello did not have permission to access them, and that Hosie failed to advise Lawrence that Hosie had the privileged communications, and improperly used the privileged communications in the receivership application. The court denied the motion, finding that disqualification was not required because there was no prejudice to CRC, even though the communications were privileged, subject only to the crime fraud exception.
Second Disqualification Motion
In the second case, Lawrence moved to disqualify Hosie due to 1) failure to notify Lawrence’s counsel of privileged communications and 2) use of privileged communications in the CRC action. Militello opposed, asserting that Lawrence had no expectation of privacy, that the crime-fraud exception to the attorney client privilege applied to the communications, that the emails provided no strategic advantage and that she as a party had the right to disclose the information to her own counsel.
The trial court granted the motion and disqualified Hosie, finding that the presumption of spousal privilege applied to the email communications, and that Hosie failed to show that Lawrence had no expectation of privacy. Importantly, CRC had no policy that email communications were not confidential and did not monitor email communications. In addition, the trial court found that Militello did not make a showing that the crime fraud exception to the attorney client privilege applied because she did not show that the communications enabled the commission of a crime or fraud.
The appellate court affirmed. Communications in the course of a marital partnership are presumed privileged. A communication does not lose the privilege by being communicated by electronic means. There was no warning to Lawrence that her communications were not private. Further, Lawrence stated that she regarded her communications with her husband as private and that she had not authorized disclosure.
The court rejected Militello’s argument that the right of directors to inspect corporate books and records under Corporations Code 1602 negated Lawrence’s expectation of privacy. Militello did not demonstrate that she accessed the emails when she was a director or that her access was in furtherance of her duties as a director. The absence of any policy allowing monitoring of emails further precluded third party use and left Lawrence’s expectation of intact.
Nor did the crime fraud exception apply. The crime fraud exception is “quite limited” such that only communications enabling or aiding a crime or fraud are not privileged. Militello failed to carry her burden to make this showing.
The court also considered Militello’s argument that Militello’s disclosure of Lawrence’s communications to her own lawyer did not warrant the lawyer’s disqualification. The court observed that some dicta in other cases supported the argument that where the attorney’s client is the source of privileged information relating to the litigation, courts typically refuse to order disqualification. But the court further noted that to the extent that this analysis is premised on the lack of sophistication of a law client, it was not applicable to Militello, who is a lawyer. Instead, the court relied on other precedent in which lawyers had excessively reviewed and used stolen privileged documents, which resulted in disqualification.
Accordingly, the court found that, consistent with prior precedent, Hosie’s disqualification was warranted by virtue of their unauthorized possession and use in court filings of Lawrence’s confidential communications with her husband. Allowing continuing representation after counsel had read purloined documents would undermine the public’s trust in the integrity of the judicial process.