The Arizona Court of Appeals Division One holds that a moving party does not waive the attorney client privilege by filing a motion to disqualify opposing counsel based on receipt of inadvertently disclosed privileged materials.

When a law firm inadvertently sent a file containing privileged documents to petitioners Burch & Cracchiolo (“B&C”), it set off a chain of events that led the law firm to move to disqualify B&C.  The law firm argued that B&C should be disqualified because an attorney at B&C had reviewed the privileged documents and gained an unfair tactical advantage.  The trial court agreed that B&C should be disqualified, finding that the disputed documents were privileged, and that by reviewing them B&C gained an “obvious and significant” advantage.  B&C brought a special action to challenge the disqualification on various grounds.

The Court of Appeals affirmed.  First, the Court rejected B&C’s argument that the law firm had implicitly waived the privilege by bringing the motion in the first place.  To determine whether there is an implied privilege waiver, courts consider “(1) [whether the] assertion of privilege was a result of some affirmative act, such as filing suit, by the asserting party; (2) [whether] through this affirmative act, the asserting party put the protected information at issue by making it relevant to the case; and (3) [whether] application of the privilege would have denied the opposing party access to information vital to his defense.”  B&C argued that the motion to disqualify put the file “at issue” and that it would be unfair to allow the moving party to withhold documents “vital to the defense of that motion.” 

The Court disagreed, holding that “[r]eliance upon privileged information in support of a motion to disqualify does not place that information ‘at issue relevant to the case,’ as the phrase is contemplated under Arizona law, and does not impliedly waive privilege as to the opposing party.”

Second, the Court held that a moving party need not prove “specific” or “actual” prejudice to prevail on a motion to qualify.  The Court held that a trial court must (1) determine whether the relevant documents are privileged; (2) “determine whether the receiving party exercised an unfair advantage over the documents, such as reviewing, copying, or distributing them” after being notified of the inadvertent disclosure; and (3) objectively review the privileged information “in the context of the case, to determine whether the receiving party possibly gained an unfair tactical advantage over the moving party.”  In addition, the Court noted that courts may consider “mitigating factors” such as “whether the privileged information might have already been known by the receiving party . . . or whether the information may be insignificant to the issues before the court.”  Applying this test, the Court concluded that disqualification was proper because the parties did not dispute that B&C had reviewed the privileged material after being notified of the disclosure and because the trial court had concluded that the advantage gained was “obvious and significant.”

Judge Jones authored the unanimous opinion of the Court; Judges Gemmill and Thumma concurred.

PRACTICE NOTE:

The Court noted that attorneys who comply with the obligations of ER 4.4(b) and Rule 26.1(f)(2) “cannot be disqualified for the mere receipt of inadvertently disclosed documents.”  As the Court explained, under Rule 26.1(f)(2), after an attorney has been notified that privileged material may have been inadvertently disclosed, the attorney “must promptly return, sequester, or destroy the specified information and any copies [he] has made and may not use or disclose the information until the claim is resolved.”  Furthermore, E.R. 4.4 requires an attorney to “down tools” when he realizes he may have inadvertently received privileged materials, “which is to say he must ‘stop reading the document, . . . make no use of the document, and . . . promptly notify the sender.”

Disclaimer: The author appeared as an attorney of record for the Petitioners in this case.