ROBERT W. BAIRD & CO. INCORPORATED, a Wisconsin corporation; HILLTOP SECURITIES, INC., f/k/a SOUTHWEST SECURITIES, INC., a Delaware corporation, Petitioners,
THE HONORABLE CHRISTOPHER WHITTEN, Judge of the SUPERIOR COURT OF THE STATE OF ARIZONA, in and for the County of MARICOPA, Respondent Judge, KUTAK ROCK L.L.P., a Nebraska limited liability partnership; STINSON LEONARD STREET L.L.P., a Missouri limited liability partnership; PATRICK RAY, an individual, Real Parties in Interest.
for Special Action from the Superior Court in Maricopa County
No. CV2014-012782 The Honorable Christopher T. Whitten, Judge
Tiffany & Bosco, P.A., Phoenix By Richard G. Himelrick
Williams Montgomery & John Ltd., Chicago By Christopher
J. Barber, Peter J. Meyer Co-Counsel for Petitioners
Coppersmith Brockelman PLC, Phoenix By John E. DeWulf,
Shelley Tolman Counsel for Real Parties in Interest Kutak
Rock L.L.P. and Patrick Ray
Gallagher & Kennedy, P.A., Phoenix By Mark A. Fuller,
Kevin E. O'Malley Counsel for Real Party in Interest
Stinson Leonard Street L.L.P.
Presiding Judge Peter B. Swann delivered the opinion of the
court, in which Judge Kent E. Cattani and Chief Judge Samuel
A. Thumma joined.
The plaintiffs in this legal malpractice action allege that
transaction counsel's negligence caused them to incur the
cost of defending an action brought against the plaintiffs
based on the transaction. The superior court concluded that
the plaintiffs' claims created waiver of the protections
of the attorney-client privilege and the work-product
doctrine with respect to their communications with their
litigation defense counsel. Applying the test for implied
waiver set forth in Hearn v. Rhay, 68 F.R.D. 574
(E.D. Wash. 1975), and adopted by our supreme court in
State Farm Mutual Insurance Co. v. Lee, 199 Ariz. 52
(2000), we hold that the court erred. The plaintiffs cannot
be said to have knowingly and voluntarily waived privilege -
the purported waiver resulted not from plaintiffs' own
act, but from the defendants' independent decision to
defend on a contributory negligence theory. The protected
communications have no inherent relevance to the malpractice
claims. Further, preservation of the privilege does not deny
the defendants access to information vital to their defense.
We therefore accept jurisdiction and grant relief.
AND PROCEDURAL HISTORY
Robert W. Baird & Co. and Hilltop Securities Inc.
(collectively, "Underwriters") were principal
underwriters of a municipal bond offering that financed the
construction of an event center in the Town of Prescott
Valley. Stinson Leonard Street L.L.P. ("Stinson")
served as Underwriters' counsel in connection with the
offering, and Kutak Rock L.L.P. and its partner Patrick Ray
(collectively, "Kutak") served as bond counsel.
Kutak and Stinson are hereinafter referred to collectively as
¶3 The bonds were sold in late 2005
pursuant to official statements and related bond documents,
which Bond Counsel helped prepare. In 2009, the bondholders
brought an action ("the Bond Litigation") against
Underwriters, Bond Counsel, and others. The bondholders
alleged that the official statements misrepresented
debt-service funding projections and debt-service security,
and that the bond documents were defective with respect to
the security interest. Underwriters retained counsel
("Bond Litigation Counsel") to defend them in the
Bond Litigation. Underwriters expended millions of dollars in
defense costs in the Bond Litigation before eventually
In 2014, Underwriters brought a malpractice action ("the
Malpractice Litigation") against Bond Counsel.
Underwriters assert professional negligence claims arising
from Bond Counsel's preparation of the official
statements and bond documents, and they assert a negligent
misrepresentation claim arising from an opinion letter that
Kutak provided in connection with the bond offering. On the
professional negligence claims, Underwriters seek as damages
their cost of defending the Bond Litigation. Bond Counsel
assert, as an affirmative defense, that Underwriters'
defense costs were not reasonable. Bond Counsel also asserts
that Underwriters' damages were caused wholly or
partially by Underwriters or others, and Bond Counsel have
filed notices of non-parties at fault.
Underwriters produced Bond Litigation Counsel's billing
records to Bond Counsel. Underwriters moved for a protective
order, however, with respect to Bond Counsel's discovery
requests for information protected by the attorney-client
privilege and the work-product doctrine. The superior court
denied Underwriters' motion, reasoning:
[Underwriters'] affirmative assertion that malpractice by
[Bond Counsel] caused them to incur all of their
attorney's fees in the bond litigation is an affirmative
claim which squarely puts in dispute what their attorneys in
the [B]ond [L]itigation were doing and why they were doing
it. What those attorneys were doing and why they were ...