Crimson Trace Corp. v. Davis Wright Tremaine LLP

• Decision Date: 30 May 2014
• Docket Number: (CC110810810,SC S061086).
• Citation: 355 Or. 476,326 P.3d 1181
• Parties: CRIMSON TRACE CORPORATION, an Oregon corporation, Plaintiff–Adverse Party, v. DAVIS WRIGHT TREMAINE LLP, a Washington limited liability partnership; Frederick Ross Boundy, an individual; and William Birdwell, an individual, Defendants–Relators.
• Court: Oregon Supreme Court

355 Or. 476

326 P.3d 1181

CRIMSON TRACE CORPORATION, an Oregon corporation, Plaintiff–Adverse Party,

v.DAVIS WRIGHT TREMAINE LLP, a Washington limited liability partnership; Frederick Ross Boundy, an individual; and William Birdwell, an individual, Defendants–Relators.

(CC110810810; SC S061086).

Supreme Court of Oregon, En Banc.

Argued and Submitted Nov. 4, 2013.

Decided May 30, 2014.

Original proceeding in mandamus.^*

Kevin Stuart Rosen, Gibson, Dunn & Crutcher, LLP, Los Angeles, argued the cause and filed the brief for defendants-relators. With him on the brief was Daniel L. Keppler.

Bonnie Richardson, Folawn Alterman & Richardson, LLP, Portland, argued the case and filed the brief for plaintiff-adverse party. With her on the brief was John Folawn.

Robyn Rider Aoyagi, Tonkon Torp LLP, Portland, filed a brief on behalf of amici curiae Interested Oregon Law Firms.

Bridget Donegan, Larkins Vacura LLP, Portland, and Kristian S. Roggendorf, of Roggendorf Law LLC, Lake Oswego, filed a brief on behalf of amicus curiae Oregon Trial Lawyers Association.

Amar D. Sarwal and Evan P. Schultz, Association of Corporate Counsel, and Kelly Jaske, Jaske Law LLC, Portland, filed a brief on behalf of amicus curiae Association of Corporate Counsel.

LANDAU, J.

In this original proceeding in mandamus, relator Davis Wright Tremaine LLP (“DWT”) challenges a trial court order compelling production of certain materials that, in DWT's view, are protected under the attorney-client privilege codified at OEC 503. The trial court issued the order in the context of a legal malpractice action against DWT by a former client. The materials that are the subject of the order are communications between DWT's designated in-house counsel and the lawyers in the firm who had represented the former client, and concern how actual and potential conflicts between the lawyers and the former client should be handled.

The trial court concluded that all but three of the communications with the firm's in-house counsel ordinarily would be covered by the attorney-client privilege under OEC 503. The court, however, recognized a “fiduciary exception” to the attorney-client privilege, which arose out of the fact that the firm was attempting to shield its internal communications from a former client.

We conclude that the trial court correctly determined that the attorney-client privilege as defined in OEC 503 applies to communications between lawyers in a firm and in-house counsel. We further conclude, however, that the trial court erred in recognizing an exception to OEC 503 that the legislature did not adopt in the terms of that rule. Accordingly, we issue a peremptory writ of mandamus ordering the trial court to vacate its order compelling production of materials related to those communications that it determined were otherwise subject to the attorney-client privilege.

I. BACKGROUND

Crimson Trace Corp. manufactures and sells laser grips for firearms. The company retained Birdwell, a lawyer with DWT, to prosecute certain patents for those products before the Patent and Trademark Office. Crimson later retained DWT to represent it in a dispute with a competitor, LaserMax, Inc., over possible patent infringements. Birdwell was joined by Boundy, who acted as lead trial counsel in the litigation in the federal district court.

The action did not go smoothly for Crimson. LaserMax asserted counterclaims that challenged the validity of the patents at issue. In particular, LaserMax argued that one of the patents—the “235 patent”—was invalid because Crimson had deceptively omitted material information when it submitted the patent to the Patent and Trademark Office. In its counterclaim, LaserMax named Birdwell as the lawyer who had prosecuted the patent.

Birdwell and Boundy became concerned that the “235 patent” counterclaim could create a conflict of interest between Crimson and the two DWT lawyers. Because LaserMax had named Birdwell as the attorney who had prosecuted that patent before the Patent and Trade Office, the firm could have been put in the position of defending Birdwell at the same time that it was defending Crimson. Birdwell and Boundy consulted with the firm's Quality Assurance Committee (QAC), a small group of DWT lawyers that had been designated by the firm as in-house counsel. Specifically, they consulted with Johnson, a member of the QAC, after which Boundy disclosed the potential conflict in an email to Crimson's CEO:

“[Birdwell] is also alleged to be part of the deceptive activity. * * * Under the circumstances, I should advise you that someone could argue I have a conflict of interest in that I may be defending my partner at the same time as I am representing Crimson * * *. I frankly don't see this as an issue, but I do want you to know that you certainly have the right to consult with independent counsel to fully consider this.”

Crimson offered to dismiss its claims relating to the “235 patent.” LaserMax, however, refused to drop its counterclaims relating to that patent. Moreover, it sought to recover its attorney fees for defending against the claim. In asserting its claim for attorney fees, LaserMax argued that Crimson had both procured the “235 patent” and litigated the claim of infringement over it in bad faith. The district court granted LaserMax discovery for the purpose of determining whether Crimson in fact had acted in bad faith, and LaserMax subsequently subpoenaed Birdwell's files relating to the “235 patent.” Birdwell and Boundy again consulted with the firm's QAC in determining how to respond.

Eventually, Crimson and LaserMax negotiated a settlement, which the parties agreed should remain confidential. When Boundy, acting for Crimson, moved to file the settlement under seal, however, he did so in a way that publicly disclosed certain details of the agreement and gave the impression that LaserMax had conceded liability, which it had not.

LaserMax complained about the disclosure. The district court concluded that Boundy's disclosures were intentional and damaging to LaserMax. As a result, the court disclosed the entire agreement and imposed a monetary sanction on Crimson for having acted in bad faith.

Meanwhile, Crimson had stopped paying DWT. Crimson's CEO told Boundy that the company had intentionally stopped paying because “we did not like the status of the case and what we were getting for our money.” Boundy and Birdwell consulted extensively with Johnson and another member of the QAC, Waggoner, about how to proceed in the light of those revelations.

By that time, the litigation had begun to wind down: Crimson and LaserMax had entered into their confidential settlement agreement and the issue of Boundy's public and misleading references to the settlement terms was before the court. The two lawyers continued to communicate with the QAC about the sanction issue and the fee dispute as they went on with their representation of Crimson. Eventually, Crimson's CEO informed Boundy that Crimson's board of directors had become “hostile” to DWT, leading the lawyers and the firm to believe that Crimson was contemplating a malpractice action against them. The firm nevertheless continued to bill Crimson for small amounts of work performed in the LaserMax litigation until Crimson, in fact, did file an action for legal malpractice and breach of contract.

In its complaint, Crimson alleged that the defendants committed legal malpractice in various ways, including by (1) failing to advise Crimson about problems with its “235 patent” and that Birdwell would likely be a witness in any dispute about those problems; (2) failing to advise against suing LaserMax for infringing that patent; and (3) failing to advise Crimson when conflicts arose in connection with LaserMax's request for attorney fees. Crimson also alleged that defendants had breached their legal services contract with Crimson by charging Crimson for work that was unnecessary, was of no value, and was performed in DWT's own interest at a time when DWT had a conflict of interest with Crimson.

In the course of the ensuing litigation, Crimson requested production of any communications between or among DWT's attorneys about possible conflicts of interest in DWT's representation of Crimson that occurred during the period when DWT still was representing Crimson. The discovery request specifically mentioned internal communications “regarding defendant Boundy's handling of the confidential settlement agreement with Laser[M]ax,” “regarding the failure to disclose * * * to the Patent and Trademark Office during prosecution of the '235' patent,” and “regarding professional duties owed by [DWT] to [Crimson], possible or actual breach of those duties, and/or prevention of loss related to duties owed to [Crimson].”

DWT resisted production, arguing that the communications Crimson sought were protected by the attorney-client privilege under OEC 503 because they involved the rendition of legal services by the firm's in-house counsel to the firm and its members. DWT also argued that some of the documents, which were prepared after DWT began to suspect that Crimson would sue them, were protected by the work-product doctrine.

Crimson responded by moving to compel DWT to respond to its discovery requests. DWT opposed the motion, again contending that the material requested was subject to the attorney-client privilege. In support, DWT offered, among other things, an affidavit of one of the members of the QAC, Thurber, which explained that “[m]embers of the [QAC] act as in-house counsel for the firm and its lawyers on matters relating to the work of the firm” and that, “[a]s a matter of firm policy and procedure, any documents generated from the work of the [QAC] do not become part of the client file for any firm client.” The firm also introduced affidavits of Birdwell and Boundy, both of whom stated that their communications with the firm's QAC “were intended to be confidential” and “were made for the...