Defendants’ Use of Testimony of Other Defendants’ Attorney Did Not Waive Privilege

On July 22, 2021, the First Department issued a decision in U.S. Bank Natl. Assn. v. Lightstone Holdings LLC2021 NY Slip Op. 04537,  holding that when defendants that had not been represented by an attorney used that attorney’s testimony, it did not waive the privilege for other defendants, who had been clients, explaining:

Subject matter waiver of a privilege occurs when a party affirmatively places the subject matter of its own privileged communication at issue in litigation, so that invasion of the privilege is required to determine the validity of a claim or defense of the party asserting the privilege, and application of the privilege would deprive the adversary of vital information. The fact that privileged communications may contain information relevant to issues the parties are litigating does not, without more, place the contents of the privileged communication itself at issue.

Here, Ashford, Line Trust, and Deuce, as Junior Lenders, are not the holders of the privilege with Cadwalader. The Original Lenders are, which included Wachovia (which is a Junior Lender defendant herein), Bear Stearns and Bank of America. Thus, they did not place the subject matter of its own privileged communication at issue in litigation. Since they are not using their attorney-client privilege as a sword, it cannot be said that plaintiff is deprived of vital information necessary to determine the validity of a claim or defense of the party asserting the privilege.

Wachovia on the other hand, who is also a Junior Lender defendant in this action, is the holder of the privilege since it was also an Original Lender. Wachovia also relied on the testimony of the two Cadwalader attorneys concerning the Original Lenders’ intent with respect to the ICA. In this regard, the trial court correctly held, after the deposition testimony of Fineman was read into the record, that the privilege, as held by Wachovia has been waived with respect to communications/documents between Fineman (acting on behalf of Wachovia) and counsel concerning the relevant provisions of the ICA.

Plaintiff’s contention that Wachovia’s reliance on counsel’s testimony was enough to constitute a waiver as to all documents, and on behalf of all privilege-holders, is unavailing. Wachovia was not the only party that was represented by Cadwalader with respect to the original ESH Transaction. Bear Stearns and Bank of America are equal holders of the privilege since Cadwalader represented all the Original Lenders. Indeed, in at least one statement on the record, Cadwalader’s counsel averred that Bank of America, a nonparty, would not consent to a waiver of any privilege. Contrary to plaintiff’s contention, Wachovia could not unilaterally waive any privilege on behalf of the other privilege holders.

To hold otherwise threatens the sanctity of the attorney-client privilege and would permit the unauthorized waiver of such without the consent of the actual party that possesses the privilege. Plaintiff’s position that the documents were necessary and relevant to the issue of the parties’ intent ignores the well-protected rights afforded privileged communications.

(Internal quotations and citations omitted).

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