Manufacturers and Traders Trust Co. v. Servotronics, Inc.

• Decision Date: 18 December 1987
• Citation: 132 A.D.2d 392,522 N.Y.S.2d 999
• Parties: MANUFACTURERS AND TRADERS TRUST COMPANY, Appellant, v. SERVOTRONICS, INC., Respondent. Fourth Department
• Court: New York Supreme Court — Appellate Division

Page 999

522 N.Y.S.2d 999

132 A.D.2d 392

MANUFACTURERS AND TRADERS TRUST COMPANY, Appellant, v. SERVOTRONICS, INC., Respondent.

Supreme Court, Appellate Division,

Fourth Department.

Dec. 18, 1987.

Hodgson, Russ, Andrews, Woods & Goodyear, Buffalo (Victor T. Fuzak and William H. Gardner, of counsel), for appellant.

Jaeckle, Fleischmann & Mugel, Buffalo (Linda H. Joseph, of counsel), for respondent.

Before DOERR, J.P., and DENMAN, BOOMER, GREEN and BALIO, JJ.

GREEN, Justice.

In this appeal we must decide whether the inadvertent disclosure of documents containing legal advice waives the attorney-client privilege. We hold that the plaintiff has not waived the privilege because there is no evidence of its intention to do so. Further, defendant has not shown that it will suffer prejudice if a protective order is granted. Therefore, plaintiff is entitled to a protective order directing the return of the disclosed documents and enjoining use of the disclosed material in further proceedings in this matter.

In 1977, plaintiff Manufacturers & Traders Trust Company (Bank) and defendant Servotronics, Inc. (Servotronics) executed a "Debt Modification Agreement" in which Servotronics agreed to issue the bank 20,000 shares of its preferred stock in payment of $4,000,000 of its indebtedness to the bank. The parties also executed a "Sinking Fund Agreement" in which Servotronics agreed to make annual payments into a sinking fund for nine years commencing April, 1978 in order to redeem its stock at a price of $200 per share. The Debt Modification Agreement also provided that any contingent interest due Citibank and The Bank of New York would be credited in a formula to determine if and when payment should be made to the sinking fund.

In 1987, the bank sued Servotronics to recover $449,000 which the bank claimed Servotronics owed in delinquent sinking fund payments. It is Servotronics' position that no sinking fund payments are required because the bank's interpretation of the Debt Modification Agreement and the Sinking Fund Agreement is incorrect. Servotronics also claims that it is entitled to a deduction of approximately $1,500,000 as the amount due and payable to Citibank and The Bank of New York, or at least $450,000 as the amount actually paid these banks in satisfaction of the $1,500,000 before any sinking fund payment was to be made to the plaintiff bank. Servotronics also asserts in a counterclaim that the plaintiff bank breached its agreement to sell its entire preferred stock position no later than December 31, 1981, thus rendering the Debt Modification Agreement and the Sinking Fund Agreement void and unenforceable. This alleged agreement by the bank was purportedly occasioned by the bank's uncertainty whether it could legally continue to hold the preferred stock issue for more than five years.

Servotronics served a notice for the deposition of bank witnesses and demanded production of a large quantity of bank records and documents including all correspondence, memoranda and notes pertaining to the Debt Modification Agreement, the Sinking Fund Agreement and the agreement between Servotronics, and Citibank and The Bank of New York. Pursuant to the notice, the bank's attorney procured from the bank several storage boxes of documents. Counsel then reviewed the large quantity of files to identify and remove those documents that contained attorney-client privileged materials. Once the bank's counsel completed that process, he made the remaining documents available to Servotronics' counsel for examination. When Servotronics' attorney requested that certain documents be copied, the bank's counsel arranged for a paralegal in his office to identify in which box each document was found, to copy the documents and to deliver them to Servotronics' counsel, which he did on May 8, 1987. The bank's counsel did not examine any of the requested documents after they had been designated for copying by representatives of the defendant.

On June 19, 1987 in preparation for depositions scheduled shortly thereafter, the bank's counsel discovered that six documents containing attorney-client privileged matter were inadvertently included in the files disclosed. Each of the documents was an interoffice memorandum from one bank officer or attorney to another containing legal advice regarding the application of securities laws to the preferred stock of Servotronics and the bank's position in the stock.

On June 23, 1987, the bank moved for a protective order seeking return of the six documents and an injunction preventing Servotronics from divulging the information or using it in further proceedings in this action. Servotronics opposed the motion and cross moved for an order declaring that the bank waived the attorney-client privilege because it voluntarily disclosed the documents and because New York law does not recognize an exception to waiver on the ground of inadvertence.

Special Term, after reviewing the six documents in camera denied the bank's motion reasoning that the matter contained therein did not constitute protectable attorney work product and that, in any event, the bank waived the attorney-client privilege by failing to preserve it through due diligence. We disagree.

Our independent review of the six documents in issue reveals that they contain material protected by the attorney-client privilege. The attorney-client privilege finds expression in statute (CPLR 4503) and ethical code (Code of Professional Responsibility, EC 4-1) and is strongly rooted in the constitutional right to counsel (U.S. Const. 6th Amend.; N.Y. Const., art. I, § 6). It exists to insure that all who seek legal advice will confide in counsel, secure in the knowledge that confidential communications will not be exposed (Matter of Priest v. Henness 51 N.Y.2d 62, 67-68, 431 N.Y.S.2d 511, 409 N.E.2d 983). In order to invoke the privilege there must be an attorney-client relationship and the communications must be made in confidence for the purpose of obtaining legal advice (Matter of Jacqueline F., 47 N.Y.2d 215, 219, 417 N.Y.S.2d 884, 391 N.E.2d 967; People v. Belge, 59 A.D.2d 307, 309, 399 N.Y.2d 539). That is the case here because each of the documents in issue contains legal advice based upon information provided by the bank (cf. Matter of Grand Jury Subpoena, 62 N.Y.2d 324, 329-330, 476 N.Y.S.2d 806, 465 N.E.2d 345; Kenford Co. v. County of Erie, 55 A.D.2d 466, 469, 390 N.Y.S.2d 715).

Although not essential to our determination of the case, we reject Special Term's rationale that the material contained in the documents does not constitute protectable attorney work product because it "is relevant to the underlying issues of the lawsuit and involves legal opinions received by the plaintiff relating to SEC regulations." An attorney's work product includes memoranda, correspondence, mental impressions and personal beliefs conducted, prepared or held by the attorney (Hickman v. Taylor, 329 U.S. 495, 511, 67 S.Ct. 385, 393, 91 L.Ed. 451; Warren v. New York City Tr. Auth., 34 A.D.2d 749, 310 N.Y.S.2d 277). Each of the six documents in issue here is a memorandum containing legal advice from plaintiff's counsel to bank employees and officers and constitutes attorney work product immune from disclosure (Geffers v. Canisteo Cent. School Dist. No. 463201, 105 A.D.2d 1062 482 N.Y.S.2d 635; Lehman v. Piontkowski, 84 A.D.2d 759, 760, 443 N.Y.S.2d 769; Jarai-Scheer Corp. v. St. Paul Fire & Mar. Ins. Co., 52 A.D.2d 555, 556, 382 N.Y.S.2d 314). In this case the documents which we hold privileged also happen to be attorney work product.

We also reject Servotronics' contention that the bank is precluded from asserting the attorney-client privilege because it placed the legal opinions of its counsel in issue by commencing this lawsuit. Waiver of the privilege by issue injection occurs only if the privileged material is placed in issue by the party who enjoys the protection of the privilege (Garfinkle v. Arcata Nat. Corp., 64 F.R.D. 688, 689 [S.D.N.Y.1974] ). That is not the situation here because the bank's claim is not grounded upon the legal opinions and advice contained in the six documents in issue. Rather, the bank's claims, as stated in its supplemental complaint, are based upon the enforcement of written agreements which are to be interpreted objectively in accordance with their apparent terms. The bank simply seeks recovery of stated funds claimed to be due pursuant to the Sinking Fund Agreement and makes no reference in its complaint to information contained in the privileged documents.

The bank's only reference to the documents has been in papers on the motion to enforce the privilege and in response to Servotronics' refusal to honor the privilege. The bank is not attempting to enforce any obligations relating to the preferred stock other than to recover what it claims are delinquent payments Servotronics failed to make in the sinking fund. Since the written agreements upon which the bank's claims are based contain no condition precedent requiring advice of counsel, the bank has no need to present evidence contained in the privileged documents relating to any obligation it may have to sell the stock under government regulations. Indeed, the subject documents are far more important to Servotronics than to the bank since, as Servotronics' counsel has acknowledged in its opposition to the bank's motion for a protective order, the failure to find a waiver would "significantly impair the discovery rights of Servotronics with respect to key evidence concerning its counterclaim" relating to an alleged oral agreement to sell out the stock position no later than December 31, 1981. Thus, the bank has not waived the attorney-client privilege by injecting privileged material into the lawsuit because the bank does not need the privileged documents to sustain its cause of action (see, Jakobleff v. Cerrato, Sweeney and Cohn, 97 A.D.2d 834, 835, 468 N.Y.S.2d 895)...