515 N.Y.S.2D 735, 508 N.E.2d 647, 651 (N.Y. 1987).
Testimony of an attorney is considered prejudicial if it is sufficiently adverse to the factual assertions or account of events offered on behalf of the client, such that the client might have an interest in the lawyer's independence in discrediting that testimony. The movant bears the burden of demonstrating how and as to what issues in the case the prejudice may occur and that the likelihood of prejudice occurring is substantial. Parke-Hayden, 794 F. Supp. at 527.
Donaghy is asserting the attorney-client privilege with respect to the advice rendered to him by Coffield. The first issue that must be determined, therefore, is whether this privilege has been impliedly waived because this will affect the nature and scope of the testimony Paramount seeks from Coffield attorneys.
Paramount argues that Donaghy will necessarily impliedly waive his attorney-client privilege in this litigation because "an attorney-client privilege may be waived if a party 'injects into . . . litigation an issue that requires testimony front its attorneys or testimony concerning the reasonableness of its attorney's conduct.'" Grant Thornton v. Syracuse Savs. Bank, 961 F.2d 1042, 1046 (2d Cir. 1992) (quoting GAB Business Servs., Inc. v. Syndicate 627, 809 F.2d 755, 762 (11th Cir. 1987)). The privilege may also be impliedly waived where a party "asserts a claim that in fairness requires examination of protected communications." United States v. Bilzerian, 926 F.2d 1285, 1292 (2d Cir.), cert. denied, 116 L. Ed. 2d 39, 112 S. Ct. 63 (1991).
Certain positions taken or potentially taken by Donaghy raise issues of his reliance on Paramount's representations, including those made in the August Letter. Paramount claims that this puts or will put into issue the question of what advice Donaghy received from Coffield attorneys with respect to his departure from Paramount and his exercise vel non of his Options, thereby waiving the attorney-client privilege with respect to these communications.
In this Circuit, the question of whether a party has impliedly waived the attorney-client privilege is often answered with reference to the factors set forth in Hearn v. Rhay, 68 F.R.D. 574 (E.D. Wash. 1975), namely, whether the assertion of the privilege was a result of some affirmative act by the asserting party; whether through this affirmative act the asserting party put the protected information at issue by making it relevant to the case; and whether application of the privilege would have denied the opposing party access to information vital to its defense. See Bowne, Inc. v. AmBase Corp., 150 F.R.D. 465, 488 (S.D.N.Y. 1993) (collecting cases).
The Hearn factors have been applied by this Court to cases similar to the instant one and found not to effect implied waiver of the attorney-client privilege. In Standard Chartered Bank PLC v. Ayala International Holdings (U.S.), Inc., 111 F.R.D. 76 (S.D.N.Y. 1986), the plaintiff bank sued the defendant for breach of contract and fraudulent inducement in connection with a guarantee agreement. The defendant filed counter-claims premised on oral representations allegedly made by the plaintiff, in reliance upon which the defendant initially became involved in the financial transactions that resulted in the guarantee agreement.
The plaintiff argued that, since the defendant interposed counterclaims alleging reliance upon the plaintiff's oral representations, the plaintiff was entitled to disclosure of communications among the defendant and its attorneys to show that the defendant did not justifiably rely upon the plaintiff's oral representations, but rather relied upon its own business judgment and the guidance of its attorneys. Standard, 111 F.R.D. at 79.
Citing Hearn, this Court held that what was relevant to the counter-claims was not the communications among the defendant and its attorneys, but what the defendant knew or should reasonably have been expected to know prior to entering into the transaction in question. The Court went on to state that "to be sure, as in every lawsuit, it would be useful and convenient for [the plaintiff] to obtain [the defendant's] privileged material, and the substance of its confidential communications with its attorneys might reveal some of what [the defendant] knew. But those are not reasons to void the attorney-client privilege." The Court pointed out that the privileged communications were not the only available means by which the plaintiff could learn what the defendant knew, since this could be asked of the defendant. The Court continued that:
Whatever advice, right or wrong, that [the defendant] received from its attorneys concerning [the transactions], and whether or not [the defendant] disregarded its attorneys' advice, are irrelevant to the issue of whether [the defendant] actually relied on [the plaintiff's] statements and whether, as a matter of law, it was entitled to so rely based on all the facts known to it. Information on the former question can be obtained from [the defendant] and the latter question is to be determined by proceedings in this court, not by the opinion of [the defendant's] lawyers.
Id. at 81.
In making this decision, the Court relied upon another factually similar case, Chase Manhattan Bank, N.A. v. Drysdale Securities Corp., 587 F. Supp. 57 (S.D.N.Y. 1984). In this case, Chase sued Arthur Andersen & Co. on an allegedly fraudulent opinion concerning a company in which Chase traded securities. Arthur Andersen sought access to communications from Chase's legal department given to Chase while the trading was being conducted.
The Court, citing Hearn, determined that:
In this case, Andersen asserts that there is a waiver implied by Chase's filing of the securities fraud suit, which includes justifiable reliance as an element. This is said to put the prudence of Chase's behavior in issue, possibly to break the chain of causation flowing from the misrepresentations in Andersen's original opinion. While it may be useful to Andersen to know the substance of the advice Chase received concerning its liability on the transactions, I do not believe that the communications are essential to establish what a reasonably prudent bank should have known and should have done under the circumstances.