Empire West Title Agency, LLC v. DOS Land Holdings, LLC – 5/7/2014

May 30, 2014

Arizona Supreme Court Holds That Merely Alleging the Reasonableness of One’s Beliefs Does Not, in Itself, Waive the Attorney-Client Privilege.

In 2006, David Jemmett discovered a recorded quitclaim deed abandoning an access easement essential for developing a vacant lot he was considering purchasing.  Empire West Title Agency, LLC (“Empire”) allegedly informed Jemmett that the quitclaim deed would not affect his claim to the easement.  Jemmett later decided to complete the transaction through an entity, DOS Land Holdings, LLC (“DOS”). 

DOS’s attorneys later sent Empire a Closing Instruction Letter (“CIL”), which attached a legal description of the property that included the access easement and asked Empire to make sure that the legal description is attached to the conveyance deed.  Empire signed and returned the CIL, acknowledging that it agreed to comply with the CIL’s terms.  Contrary to the CIL’s terms, however, the closing document omitted the easement from the property’s legal description.

In 2008, DOS filed an action against Empire alleging claims of breach of contract and breach of the covenant of good faith and fair dealing.  In its breach of contract claim, DOS alleged that, based on Empire’s agreement to use the legal description attached to the CIL, DOS “reasonably believe that [the easement] was represented in all documents used in the closing.”

Empire moved to compel DOS to disclose any attorney-client communications indicating whether DOS knew before close of escrow that the easement had been abandoned.  The superior court denied the motion and Empire filed a petition for special action, arguing that DOS had implied waived the attorney-client privilege.  The court of appeals agreed, holding that DOS had put in issue all information in its possession bearing on the reasonableness of its belief that Empire West agreed to provide coverage of the easement. 

The Arizona Supreme Court reversed, concluding that merely alleging the reasonableness of one’s beliefs does not, in itself, waive the attorney-client privilege.  Merely filing an action or denying an allegation does not waive the attorney-client privilege.  Rather, the party claiming the privilege must affirmatively interject the issue of advice of counsel into the litigation.  The breach of contract claim in this case did not depend on DOS’s mental state or subjective knowledge.  Although DOS’s knowledge of the alleged title defect might be material to Empire’s defense, DOS did nothing to inject that issue into the litigation. 

Justice Pelander authored the unanimous opinion.