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In re Divine Tower International Corp.

April 10, 2007


The opinion of the court was delivered by: Judge Graham


This case is before the Court by way of plaintiff's motion to quash. The motion requests the Court to recognize that certain documents subpoenaed by defendant Kegler, Brown, Hill & Ritter from attorneys who represented the plaintiff are protected by the attorney-client privilege. In response, Kegler, Brown argues that by filing this lawsuit and claiming fraud, the plaintiff (which both parties refer to as "Apollo") has impliedly waived any privilege. For the following reasons, the Court disagrees and therefore grants the motion for protective order.


For purposes of the motion to quash, the pertinent facts are these. The basis of this action is a claim that, while representing certain parties related to Divine Tower, International prior to its bankruptcy filing, Kegler, Brown either misrepresented or failed to disclose certain material information relating to the financial status of the company and the fact that certain assets had been shielded from recovery in the event that the company defaulted on its obligations. Apollo, which now is the holder of a controlling interest in Divine Tower, was represented by attorneys at the time that it made a major investment in Divine Tower and subsequently advanced additional funds to that corporation by way of loans. Those attorneys included the firms of Schottenstein, Zox & Dunn and Wilkie, Farr & Gallahger.

Kegler, Brown issued subpoenas to both law firms. The subpoenas called for the firms to produce documents which, among other things, would reveal their communications with Apollo at or about the time that the alleged misrepresentations or failures to disclose occurred. Apollo has asserted that these communications are protected by the attorney-client privilege. Although Apollo also raised an issue concerning the validity of one of the two subpoenas, Kegler, Brown represents in its responsive memorandum that the infirmity has been cured. Therefore, the issue concerning an implied waiver of the attorney-client privilege is directly presented.


There is no dispute that Apollo has not, either in a pleading or otherwise, specifically asserted a claim which either depends upon the revelation of privileged communications with its attorneys. Further, Apollo has not made a partial disclosure of such communications in an effort to gain an advantage in this litigation. However, Kegler, Brown, argues that this action, because it is predicated upon misrepresentations, presents "a classic case of implied waiver...." Opposing memorandum, at 11. This is so, according to Kegler, Brown, because Apollo's "filing of fraud claims against the Kegler firm...requires an examination of otherwise privileged material." Id. It makes no other specific argument that the pleading or conduct of this litigation constitutes an implied waiver, and therefore appears to argue generally that any time a party pleads a claim, such as fraud, which has as an element reasonable reliance by the party asserting the claim, that party's communications with attorneys are subject to discovery because those communications would shed light upon whether any alleged reliance was, in fact, reasonable or whether the party's attorneys provided advice which would make such reliance unreasonable.

This Court simply cannot accept such a broad proposition. In fact, it has rejected that proposition in the past. In United States v. Ohio Edison Co., 2002 WL 1585597 (S.D. Ohio July 11, 2002), the Court was faced with a similar argument. There, Ohio Edison, in defending a claim premised upon the violation of certain environmental regulations, asserted an estoppel defense. One element of that estoppel defense was that the United States had previously interpreted the regulation at issue in a different manner and that Ohio Edison had reasonably relied upon that interpretation to its detriment. Like Kegler, Brown, the United States argued that in order to test the claim of reasonable reliance, it required access to communications between Ohio Edison and its attorneys on the subject of how the regulation could reasonably have been interpreted.

In rejecting that claim, this Court concluded, first, that merely arguing that the otherwise privileged communications were relevant was insufficient to overcome the privilege. Rather, the Court concluded that in order for an implied waiver to occur, there must have been some affirmative use of the privileged communications themselves. In that case, although Ohio Edison did plead a defense which had as an element reasonable reliance on representations made by the United States, simply pleading that defense was insufficient to allow an inquiry into what Ohio Edison's attorneys may have told it about the same subject matter. Other than the fact that this case involves an affirmative claim based upon misrepresentation rather than a defense of estoppel, the Court sees no basis for distinguishing the two situations.

Further, the overwhelming majority of courts which have addressed this issue have agreed that a party does not waive the attorney-client privilege simply by pleading a claim which sounds in fraud or misrepresentation. Indeed, such claims are common, and it would substantially undercut the attorney-client privilege if the privilege were deemed waived in every case where a party made a claim of reasonable reliance upon the misrepresentations or omissions of the other party. In rejecting such a broadside assault on the attorney-client privilege, courts have said, for example, that although "the client in a fraud or similar action, may be required to disclose its thoughts and knowledge, whether or not those were acquired in whole or in part from conversations with its attorneys...[i]t is not required to disclose what was said between client and counsel." Tribune Co. v. Purcigliotti, 1997 WL 10924, *8 (S.D.N.Y. January 10, 1997), citing, inter alia, Chase Manhattan Bank N.A. v. Drysdale Securities Corp., 587 F.Supp. 57, 58 (S.D.N.Y. 1984). The court in Tippenger v. Gruppe, 883 F.Supp. 1201 (S.D. Ind. 1994) reached a similar result, as did the court in Sedco International, S.A. v. Cory, 683 F.2d 1201 (8th Cir. 1982)(observing that receipt of ordinary legal advice was simply irrelevant to the issue of whether a party reasonably relied upon misrepresentations made by an opposing party). See also Standard Chartered Bank PLC v. Ayala International Holdings (US), 111 F.R.D. 76 (S.D.N.Y. 1986).

Of course, it bears observing that "the [attorney-client] privilege does not protect facts which an attorney obtains from independent sources and then conveys to his client." Allen v. West Point-Pepperell, Inc., 848 F.Supp. 423, 427-28 (S.D.N.Y. 1994). Thus, if the two law firms at issue were involved in gathering facts concerning the relevant transactions, that is a legitimate subject of discovery even if that factual information was never communicated to Apollo. In other words, what the attorneys, acting as Apollo's agents, may have known or learned is both relevant and discoverable. However, what they communicated to Apollo is privileged. Since Kegler, Brown concedes that these subpoenas call for the production of such communications, the motion to quash will be granted.

Kegler, Brown notes in its opposing memorandum that even non-privileged documents described in the subpoenas have not been produced. If that situation still exists, it should be remedied forthwith. The filing of a motion to quash as to certain documents covered by privilege does not excuse the production of non-privileged documents.


Based upon the foregoing, the motion to quash subpoenas duces ...

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