Pa. Supreme Court Takes Another Shot at Attorney-Client Privilege

'Gillard v. AIG' is the latest in a series of worldwide rulings covering attorney-client privilege

An attorney arguing for an insured in a case about attorney-client privilege said the Pennsylvania Supreme Court had its chance in 1998 to take control of whether communications from an attorney to a client were privileged and instead let the legislature re-enact an 1887 statute codifying that the privilege extends only to communications from a client to an attorney.

Now it is that statute that the court must strictly construe in finding AIG should produce documents that were drafted by an attorney for the insurance company client, the attorney for William Gillard argued in Gillard v. AIG Tuesday.

It's the second time this year the court was faced with the privilege issue, but in the first case, Nationwide v. Fleming, only four justices decided the case and they were split, leaving a Superior Court's decision that attorney-client privilege is a one-way street stand. Nationwide also involved an issue of waiver, which Gillard does not, allowing the justices in Gillard to look only at the merits.

All seven justices heard Tuesday's arguments in Gillard, in which the lower courts relied on the Nationwide decision in determining communication from an attorney to the insurance company client is not privileged.

In response to the argument by Gillard's attorney, Claire Neiger of Michael T. Sosnowicz & Associates in Darby, Pa., Chief Justice Ronald D. Castille asked whether this was a matter of practice and procedure that was within complete control of the court and not the legislature. He asked Neiger why the court couldn't simply ignore the codification of the privilege and say the legislature violated separation of powers by regulating something within the court's powers to regulate.

Neiger responded that the court could do that, but it would be going against its prior decisions.

"In 1998, you had the opportunity to pull back and you didn't," Neiger said.

Before Neiger was able to finish her next argument that this issue was better handled under the common law attorney work-product doctrine, Castille asked her whether she would like it if her communications with her clients were made public.

"I would hope I would have the sense to craft it in a way" that it would be protected, Neiger said, adding that attorneys are "clever."

"I don't know why an attorney has to be clever," Justice Joan Orie Melvin said later.

Neiger had argued that some communications from attorneys to clients are protected as long as they reference information the client had previously provided. She said Philadelphia Common Pleas Judge Jacqueline Allen followed that guideline in determining in Gillard that some documents were discoverable and others were not.

The argument for the other side is that attorneys sometimes want to be proactive in writing opinion letters to clients on new legislation or issues facing the company and they argue that should be protected.

The court recognized at the start of argument the slew of amici filers on behalf of AIG, including the Philadelphia, Allegheny and Pennsylvania Bar Associations, the U.S. Chamber of Commerce and the Association of Corporate Counsel.

AIG's attorney, David Rosenberg of Weber Gallagher Simpson Stapleton Fires & Newby in Pittsburgh, said it shouldn't be lost on the court that all of these attorney groups are coming out in favor of privilege being a two-way street.

He said for hundreds of years the court has recognized as privileged communication both from and to the attorney. It was in 1887 that the privilege was initially codified, but only in part. Both then and now the statute reads that an attorney cannot "be competent or permitted to testify to confidential communications made to him by his client."

Rosenberg said this language was not meant to limit hundreds of years of privilege protecting communications from the attorney to the client. He cited a 1900 case, National Bank of West Grove v. Earle, in which the Supreme Court found privilege to be a two-way street even after the 1887 enactment of the statute.

Castille said it seems hard to sort out what communication was from the attorney and what was from the client when some of the attorney communication might include client comments as well.

Rosenberg said the communications are intertwined and a finding that privilege is a one-way street creates too big of a risk to the client that something they say might be revealed. He said the Supreme Court has the power to clarify this issue.

"Attorneys and clients need clarification and direction," Rosenberg said.

Neiger said AIG makes it seem that the court hasn't dealt with this issue since 1900, but she said that was only a one-page opinion that was dicta. She said there are plenty of cases, however, that have followed strict statutory construction. Over time, Neiger said, corollaries to the privilege statute have arisen that allow for the protection of some attorney communication.

Justice Max Baer asked whether Neiger's construction would put an attorney in the position of determining during each conversation with a client whether what she said is discoverable. Neiger responded in the negative, saying those discussions are based on privileged facts from the client, not based on corporate interests of having opinion letters from attorneys be protected.

"All the attorney has to do is write in an opinion letter facts given by the client and it's not discoverable," she said.

Justice Debra Todd said she wanted to "quarrel" with Neiger's repeated comments that the case was about protecting corporate interests, as Neiger said was evidenced by the amici filers. Todd said the associations of attorneys signing on in support of AIG represent both plaintiffs and defendants.

PRIVILEGE IN PA. AND ABROAD

In Nationwide, Justices J. Michael Eakin and Baer wrote to affirm the lower court while Justice Thomas G. Saylor and Castille wrote to overturn it. Justices Seamus P. McCaffery and Todd had to recuse themselves from the case because they sat on the lower court panel. Though the case was argued in March 2008, the court didn't issue a ruling until after interim Justice Jane Cutler Greenspan left the bench in January 2010, leaving only four justices to decide the case. Orie Melvin couldn't rule on the case because her brother represented one of the parties.

The same day the full court heard arguments in Gillard, the European Court of Justice decided in the closely watched Akzo Nobel case that attorney-client privilege does not extend to in-house attorneys in investigations of anti-competitive acts by corporations. Although Gillard didn't deal with in-house counsel, Nationwide did.

The Akzo Nobel ruling raised immediate ire from in-house counsel across the globe, including the ACC, which came out in favor of AIG and Nationwide.

In a statement Tuesday, ACC General Counsel Susan Hackett said the organization was dismayed by the ECJ ruling, which she said ignores the independence of in-house counsel.

"In-house counsel are top legal practitioners who are just as capable as their outside counsel counterparts," Hackett said. "The idea that professional independence stems from the type of office a lawyer works in, rather than from their moral and professional compass, evidences a deep misunderstanding of legal professionalism and lawyers."

Court weighs Bluffton crash blame

Is Bluffton University responsible for the 2007 bus crash that killed seven people, including five of its baseball players, or does blame rest solely with the company whose bus sped over an overpass and landed on the highway below?

The Ohio Supreme Court wrestled with that question yesterday, with the debate coming down to the definition of the word hire.

There's no dispute that Bluffton University paid Ottawa, Ohio-based Executive Coach Luxury Travel to drive its baseball players to a tournament in Florida.

But attorneys for the university's insurance carrier and two of the accident victims clashed over whether the university had "hired" the bus, which would make it liable for the accident. A trial court and the 3rd District Court of Appeals approved dismissal of the lawsuit against the university's insurer, saying there had been no "hire" of the bus.

The driver for Executive Coach apparently mistook a freeway exit ramp as a carpool lane and plunged the bus onto the highway below in the early hours of March 2, 2007. The accident killed five student athletes, as well as the driver and his wife.

Steven R. Smith, the attorney for the estate of one of the accident victims, said that not only had the university hired the bus, but the baseball coach gave "permission" - another catchword in the insurance policy - to the bus driver.

"This court knows that the insurers control every comma and every period of the insurance policy," Smith said.

D. John Travis, the attorney for Federal Insurance Co., one of the university's carriers, said the university had not hired a bus any more than he would hire a taxi to take him to his hotel.

"Somebody's got to maintain control, and here it was Executive Coach, because they're the ones who controlled the methods and the means," Travis said.

The court is expected to issue its decision in several months.

Don't fall for scams: Real mortgage counseling will help secure loan modification for free

 

The foreclosure crisis is bad enough, but in southern New Jersey and elsewhere it is being worsened by illegal and unscrupulous operators scamming distressed homeowners, government-approved counselors say.

With advertised promises of quick and easy mortgage modifications that would let people keep their homes, these mainly out-of-state operators are getting high up-front fees from those who can least afford them and then doing nothing meaningful.

What’s worse, the real help homeowners need from federally approved mortgage counselors is free, supported by state and federal funding.

“Some former mortgage brokers, to make up for the loss of income from selling mortgages when the market was hyperinflated, are resorting to preying on individuals facing foreclosure,” said Russell Graves, executive director of Consumer Credit and Budget Counseling in Marmora, Upper Township.

John Schmidt, vice president of housing for Tri-County Community Action Agency in Bridgeton, said he has seeing a high number of for-profit operations targeting distressed homeowners.

“When a bank files for foreclosure, that’s a public record. They have teams of people searching the records and contacting those people,” Schmidt said. “They’re charging fees of $1,500 to $3,000, and basically they don’t do anything, just gather some information.”

Graves said agencies need a debt adjuster’s license in New Jersey to work on mortgage modifications, and that’s available only to nonprofit organizations.

As a consequence, modification scam operations are usually, but not always, located out of state. Currently, ones in Maryland and New York are advertising heavily online and on radio in southern New Jersey, he said.

Graves, 52, of Upper Township, said he has called one of the services and found it is charging 1 percent of the mortgage amount, which would be about $2,500 on an average loan — ostensibly to provide a service available for free from agencies approved by the Department of Housing and Urban Development.

He said the foreclosure crisis is grim, and it is especially sad when someone in danger of losing their home comes in after wasting a large amount of money on a loan modification scam.

“One situation really bothered me. This family was losing their home and they went to a young lady who was a former mortgage broker in the state and she charged them $800 up front and after five months had done nothing,” Graves said. “By the time we got to them, they were 11 months behind on their mortgage and once they hit 12 months, they’re not eligible for the Federal Housing Agency’s Home Affordable Modification Program.”

Schmidt said one of his clients, an elderly woman, was given a refinancing mortgage with a payment of $1,200 per month, even though her income was only $900 per month.

Graves and Schmidt said their agencies have turned the names of modification scam operators over to the state Department of Banking and Insurance and the Attorney General’s Office.

Unfortunately, the state does not have the manpower to go after all of the illegitimate operations, Graves said. Many get warnings, and some are prosecuted to discourage others.

Attorneys are exempt from the requirement for a debt adjuster’s license and can work on mortgage modifications, he said, which gives some out-of-state services an opening.

Agencies fronted by lawyers, which could have one attorney and dozens of sales people, often use direct mail to solicit homeowners in foreclosure, he said.

“I contacted one, and when they found out I didn’t need a loan modification, they sold my name and number to a debt-settlement agency,” Graves said.

Even though New Jersey was only 29th among states for foreclosure filings in August, Consumer Credit and Budget Counseling is getting a few new foreclosure clients a day, he said.

The agency has about 425 active foreclosure clients in Atlantic and Cape May counties, he said, and is just one of several HUD-approved agencies in the region helping those in foreclosure for free.

The agency’s staff has gone from nine to 15 to handle the increased need for debt relief, “and will probably increase going forward,” Graves said.

The principle causes of the foreclosure crisis are well-known — a housing bubble that burst, excessively loose mortgage lending standards and a severe recession — but Schmidt said some clients he sees have helped put themselves in trouble.

“Some homeowners feel that if they pay their car loan and credit cards, it will maintain a higher credit rating, but that’s not the case,” he said. “The previous generation knew to pay the mortgage first, but somewhere that got lost in the mix.”

Those who do not pay their mortgage should be saving as much of the payment as they can afford, he said.

“Lenders really frown on going into mediation on a loan modification if the homeowner has nothing to put down on the table,” Schmidt said.

Graves said banking at least a partial mortgage payment can also pay off if foreclosure cannot be avoided.

“From the first missed payment to the time the sheriff is asking you to leave is more than 24 months right now,” he said. “For clients unable to stay in their homes, that’s good news, because if they save even half of what the mortgage payment was, they can move on with some money in their pocket and continue their lives.”