Tausz v. Clarion-Goldfield Community School Dist.

• Decision Date: 17 September 1997
• Docket Number: CLARION-GOLDFIELD,No. 96-785,96-785
• Citation: 569 N.W.2d 125
• Parties: 121 Ed. Law Rep. 306 James W. TAUSZ and Tausz Financial Corporation, Appellants, v.COMMUNITY SCHOOL DISTRICT, Appellee.
• Court: Iowa Supreme Court

Page 125

569 N.W.2d 125

121 Ed. Law Rep. 306

James W. TAUSZ and Tausz Financial Corporation, Appellants, v. CLARION-GOLDFIELD COMMUNITY SCHOOL DISTRICT, Appellee.

No. 96-785.

Supreme Court of Iowa.

Sept. 17, 1997.

Timothy McCarthy II of Cook, Gotsdiner, McEnroe & McCarthy, Des Moines, for appellants.

Stephen G. Kersten of Kersten & Carlson, Fort Dodge, for appellee.

Considered en banc.

CARTER, Justice.

James W. Tausz and Tausz Financial Corporation, the plaintiffs in this defamation action against the Clarion-Goldfield Community School District, appeal from an adverse judgment following jury trial. The only contention that they advance for reversal concerns a ruling on their pretrial discovery motion seeking access to a transcript or tape recording of a closed session of the school district's board of directors in which the allegedly defamatory statements were prepared for public release. That session had been called to confer with the district's attorney with respect to an offer of settlement of litigation in which the district was involved. The district court denied plaintiffs' request to review the tape and transcript of this closed session based on attorney-client privilege. After reviewing the record and considering the arguments of the parties, we affirm the judgment of the district court.

The present defamation action is based on a public statement by the school district in connection with its acceptance of an offer to settle other litigation in which it was the plaintiff and Tausz Financial Corporation was one of the defendants. That action concerned charges by the school district that a certain health insurance plan for the district's employees was being improperly administered. Few details of that claim are disclosed in the record now before us.

Tausz Financial Corporation was the local agency through which the district had secured the health insurance plan in question. American Medical Security, Inc. (AMS), the other defendant in the earlier litigation, was the benefit provider. The school district's action against Tausz Financial Corporation and AMS was ultimately bifurcated as the result of an arbitration clause in the contract with the benefit provider. As a result, the district's claims against AMS proceeded to arbitration, and its claims against Tausz Financial Corporation remained pending in the district court.

The transaction on which the present defamation action is based occurred a few days prior to the arbitration hearing on the district's claims against AMS. At that time, AMS offered the sum of $116,000 in full settlement of all claims that the district was pursuing against it and against Tausz Financial Corporation. Acting in accordance with Iowa Code section 21.5(1)(c) (1995), the district's board of directors convened in closed session to consider the offer from AMS. Also present at the closed session were the district's attorney, the district's superintendent, and a certified public accountant who had been retained to advise the district concerning the financial implications of the offer with respect to the perceived inadequacies of the health insurance plan.

The closed session of the board produced a consensus that the AMS offer should be accepted, and immediately after this session was concluded, the board, in open session, passed the following resolution:

Motion by Bowman, second by Petersen, to accept a settlement of $116,000 from American Medical Security (AMS) ... of which $39,054.20 is attributable to AMS and the remainder attributable to James Tausz based on the financial data that has been furnished to the board. Motion carried 6-0.

Plaintiffs contend that they were defamed by this resolution because it falsely implies that they had acted improperly in their business dealings with the school district and caused the district to sustain financial loss. That innuendo, plaintiffs urge, is not true and has caused damage to both their personal reputations and business reputations.

The school district's resistance to granting plaintiffs access to the tape recording or transcript of the closed session of the board was based on both the language in Iowa Code section 21.5(4) that states "[t]he detailed minutes and tape recording of a closed session shall be sealed," and the attorney-client privilege conferred by Iowa Code section 622.10. The district court concluded that this court's decision in Dillon v. City of Davenport, 366 N.W.2d 918 (Iowa 1985), foreclosed the district's right to maintain the confidence of the closed session under section 21.5(4). On the district's attorney-client-privilege claim, however, the court found that the privilege did apply and precluded plaintiffs from gaining access to the record of the closed session of the board with the district's attorney.

We agree with the district court that the sealing of the record of a closed session pursuant to section 21.5(4) only serves to deny access to inspection by members of the general public. A special need for relevant evidence by a party engaged in litigation with the public agency and seeking discovery under Iowa Rule of Civil Procedure 122(a) may be accommodated by court-ordered disclosure to that party of relevant portions of the otherwise confidential record. Dillon, 366 N.W.2d at 921-22. ¹

Plaintiffs maintain that the attorney-client privilege is not available to public agencies or public officials and that in any event the presence of the certified public accountant during attorney-client discussions destroyed any privilege that might otherwise exist. With respect to the second contention, we are satisfied that the accountant's presence did not destroy the privilege if one existed. In State v. Deases, 518 N.W.2d 784, 788 (Iowa 1994), we held that the presence of a third person necessary for the providing of the professional service did not destroy a physician-patient privilege. We believe the same principle should prevail with respect to the attorney-client privilege. Other courts have determined that, because the presence of an accountant or financial advisor can be essential for the rendition of a legal opinion, the presence of such persons at attorney-client conferences does not destroy privilege otherwise existing. See United States v. Adlman, 68 F.3d 1495, 1499-1500 (2d Cir.1995); In re Grand Jury Proceedings Under Seal v. United States, 947 F.2d 1188, 1190-91 (5th Cir.1991); United States v. Kovel, 296 F.2d 918, 920-23 (2d Cir.1961).

Although it appears that we have not previously considered the attorney-client privilege in that context, a respectable body of authority supports the proposition that a governmental body may be a client for purposes of invoking the privilege. The Uniform Rules of Evidence define a client within the lawyer-client privilege as

a person, including a public officer, corporation, association, or other organization or entity, either public or private, who is rendered professional legal services by a lawyer, or who consults a lawyer with a view to obtaining professional legal services from the lawyer.

Unif. R. Evid. 502(a)(1) (amended 1986), 13A U.L.A. 518-20 (1994). ² The term "client" was similarly defined in proposed Federal Rule of Evidence 503 (reprinted in 56 F.R.D. 183, 235 (1972)), promulgated by the Supreme Court in 1972 but not adopted by the Congress. Restatement (Third) of the Law Governing Lawyers section 124 (approved by the American Law Institute on May 28, 1966) also recognizes that the attorney-client privilege extends to a communication of a governmental organization.

With respect to the conflict between the attorney-client privilege and public meeting laws, the California courts have recognized that public agencies may assert an attorney-client privilege for closed sessions with attorneys. Sacramento Newspaper Guild v. Sacramento County Bd. of Supervisors, 263 Cal.App.2d 41, 69 Cal.Rptr. 480 (1968). In so doing, however, the court indicated:

The two enactments [the open meetings law and the statutory attorney-client privilege] are capable of concurrent operation if the lawyer-client privilege is not overblown beyond its true dimensions.... Public board members, sworn to uphold the law, may not arbitrarily or unnecessarily inflate confidentiality for purposes of deflating the spread of the public meeting law. Neither the attorney's presence nor the happenstance of some kind of lawsuit may serve as a pretext for...