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Robert W. Baird & Co. Inc. v. Whitten

Court of Appeals of Arizona, First Division

September 28, 2017

ROBERT W. BAIRD & CO. INCORPORATED, a Wisconsin corporation; HILLTOP SECURITIES, INC., f/k/a SOUTHWEST SECURITIES, INC., a Delaware corporation, Petitioners,
v.
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.

         Petition 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.

          OPINION

          SWANN, Judge

         ¶1 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.

         FACTS AND PROCEDURAL HISTORY

         ¶2 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 "Bond Counsel."

          ¶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 settling.

         ¶4 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.

         ¶5 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 ...

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