The opinion of the court was delivered by: JAMES FRANCIS, Magistrate Judge
The plaintiffs in this action have moved pursuant to Rule 37 of the
Federal Rules of Civil Procedure for an order compelling the defendants
to produce documents withheld on the basis that they are not relevant or
that they reflect privileged attorney-client communications. In a
Memorandum and Order dated October 8, 2003, I deferred decision on the
motion in order to give the defendants an opportunity to provide
additional details concerning the basis for asserting the attorney-client
privilege, to submit the disputed documents for an in camera review, and
to respond to the plaintiffs' arguments regarding relevance. Counsel have
supplemented the record as I requested, and, for the reasons set forth
below, the plaintiffs' motion is granted in part and denied in part.
The plaintiffs in this action are Joel Ross, a licensed real estate
broker in New York, and the two brokerage agencies through which he
operates, Ross Properties, Inc. ("Ross Properties"), and
Citadel Realty Group, L.L.C. ("Citadel"). (First Amended Complaint
("Compl.") ¶¶ 1, 2, 3). The defendants are Tonex Holdings Ltd.
("Tonex"), a holding company in Gibralter; UKI Ltd. ("UKI"), an English
limited liability company with a principal place of business in London;
and Harry Schimmel and his sons Jacob and Marc, each of whom resides in
London. (Compl. ¶¶ 4-8; Declaration of Jacob Schimmel dated Aug. 11,
2003 ("Jacob Schimmel Decl.") ¶¶ 1, 3, 5). The defendants are engaged
in the acquisition and development of real estate, primarily in the
United Kingdom. (Compl. ¶ 11). Tonex is a holding company whose
subsidiaries make the real estate investments and which, according to the
Complaint, is controlled by the Schimmels. (Declaration of Maurice Moses
Benady dated Aug. 11, 2003 ("Benady Decl.") ¶ 3; Compl. ¶ 11).
UKI acts as asset manager for Tonex, and Jacob and Marc Schimmel are both
directors of UKI. (Compl. ¶ 11; Benady Decl. ¶ 5).
The parties engaged in three series of transactions that gave rise to
this action First, the plaintiffs allege that they procured for the
defendants an arrangement they characterize as the Westbrook Brokerage
Agreement. In November 1998, the Schimmels purportedly asked Mr. Ross and
Ross Properties for assistance in obtaining financing for a series of
real estate transactions to be conducted by the Schimmels and Tonex.
(Compl. ¶ 13). In response, Mr. Ross helped negotiate a joint venture
on behalf of the Schimmels and Tonex with Westbrook Partners L.L.C.
("Westbrook"), an opportunity fund. (Compl. ¶ 14). According to the
plaintiffs, the Schimmels and Tonex agreed to pay Mr. Ross and Ross
1% of the gross proceeds of certain transactions between the Schimmels
and Tonex on one hand and Westbrook on the other. (Compl. ¶ 14). The
Schimmels and Tonex then sold a group of properties to Westbrook for
approximately $573 million. (Compl. ¶ 15). Mr. Ross and Ross
Properties contend that they are therefore entitled to a commission of
$5,730,000 on this transaction and that the defendants have refused to
make payment. (Compl. ¶¶ 16, 17).
The second transaction involved a purchase of real estate from The
British Land Company, PLC ("British Land"). The plaintiffs allege that in
1999, the Schimmels and Tonex received a viable offer from Westbrook to
finance their purchase of a portfolio of properties from British Land.
(Compl. ¶ 18). The Schimmels and Tonex did not utilize Westbrook's
financing, but they allegedly used the offer as leverage to obtain better
terms from a German bank. (Compl. ¶¶ 18, 19). On that basis, Ross and
Ross Properties claim that they are entitled to a commission of $150,000.
(Compl. ¶ 20).
The third transaction arose from a meeting in April 2000, when Mr.
Ross, acting on behalf of Citadel, introduced Jacob Schimmel and Tonex to
officers of GMAC Commercial Mortgage ("GMAC"). At that time, the
Schimmels and Tonex purportedly agreed that Mr. Ross and Citadel would be
entitled to 1% of any senior financing and 2% of any "mezzanine"
financing obtained from GMAC. (Compl. ¶ 22). In October 2002, the
Schimmels and Tonex were extended a loan of $200 million by GMAC, as a
result of which the plaintiffs seek a commission of $2.1 million. (Compl.
A. Attorney-Client Privilege
During the course of discovery, the plaintiffs have propounded document
requests to the defendants. In response, the defendants have withheld
some documents on the basis of the attorney-client privilege and have
objected to some requests on the ground that they do not seek relevant
information. The plaintiffs argue that any potential privilege has been
waived because the attorney-client communications were made in the
presence of, or later disseminated to, third-parties. The defendants
respond that these third-parties were their agents who were acting as the
functional equivalent of their own employees, so that the sharing of
attorney-client communications with them did not waive the privilege.
Although the defendants initially withheld many more documents as
privileged, the dispute now concerns only twelve.
Because subject matter jurisdiction in this case is based on diversity
of citizenship, questions of privilege are governed by state law.
Fed.R.Evid. 501. As the parties have treated New York law as controlling
with respect to the substantive claims, that law applies to the privilege
issues as well.
1. Nature of the Communications
In order for a communication to be privileged under New York law, it
must, among other things have been made principally to assist in
obtaining or providing legal advice or services for the client. People
v. Osorio, 75 N.Y.2d 80, 84, 550 N.Y.S.2d 612, 614 (1989). Accordingly,
simple business advice, even if provided by
a lawyer, is not privileged. See Rossi v. Blue Cross and Blue Shield of
Greater New York, 73 N.Y.2d 588, 592-93, 542 N.Y.S.2d 508, 510 (1989).
[i]n pursuing large and complex financial
transactions, commercial entities often seek the
assistance of attorneys who are well equipped both by
training and by experience to assess the risks and
advantages in alternative business strategies. When
providing this assistance, counsel are not limited to
offering their client purely abstract advice as to the
rules of law that may apply to their situation. Of
necessity, counsel will often be required to assess
specific tactics in putting together transactions or
shaping the terms of commercial agreements, and their
evaluation of alternative approaches may well take
into account not only the potential impact of
applicable legal norms, but also the commercial needs
of their client and the financial benefits or risks of
these alternative strategies. The fact that an
attorney's advice encompasses commercial as well as
legal considerations does not vitiate the privilege.
If the attorney's advice is sought, at least in part,
because of his legal expertise and the advice rests
"predominantly" on his assessment of the requirements
imposed, or the opportunities offered, by applicable
rules of law, he is performing the function of a
lawyer. Rossi, 73 N.Y.2d at 594, 542 N.Y.2d at 511. In
such circumstances, the privilege should be recognized
if all other elements are satisfied. See, e.g.,
Stratagem Dev. Corp. v. Heron Int'l N.V., 153 F.R.D. 535,
543 (S.D.N.Y. 1994).
Note Funding Corp. v. Bobian Investment Co., N.V., No. 93 Civ. 7427, 1995
WL 662402, at *2-3 (S.D.N.Y. Nov. 9, 1995).
Having reviewed the contested documents in camera, I find that each one
reflects communications made predominately for the purpose of giving
legal advice. Although business aspects of the transactions are certainly
discussed, this is clearly necessary to provide the context for providing
legal opinions. The documents are therefore protected from discovery
unless the privilege has been waived or an exception applies.
Under New York law, the voluntary disclosure of a privileged
communication to a third party waives the privilege. See National
Education Training Group, Inc. v. Skillsoft Corp., No. M8-85, 1999 WL
378337, at *3 (S.D.N.Y. June 10, 1999). However, "New York courts have
recognized a narrow exception to this rule where privileged
communications are shared with the client's agent." Id. In order to come
within this agency exception and avoid waiver, the party asserting the
privilege must meet a two-pronged test. First, it must demonstrate that
the client had a "`reasonable expectation of confidentiality under the
circumstances.'" Id. at *4 (quoting Osorio, 75 N.Y.2d at 84, 550 N.Y.S.2d
at 615). Though a formal agency relationship is not required, the
relationship between the client and the third party must be sufficiently
close that the client's subjective expectation of confidentiality is
reasonable. See National Education Training Group, 1999 WL 378337, at
*4. Second, the client "must establish that disclosure to a third party
was necessary for the client to obtain informed legal ...