Opponent 'Bought' Privileged Docs, Used Them to Seek More
A struggling mortgage lender in a Chapter 11 bankruptcy case may have opened up a major new battlefield in the legal malpractice arena.
Eager to put an end to a fraud suit brought by a software developer, New Century Mortgage agreed, as part of a settlement in federal bankruptcy court in Delaware, to turn over to opponent Positive Software Solutions Inc. privileged material and internal company documents that also concern a related federal software licensing suit, according to Texas Lawyer.
Now, Positive Software is using those privileged materials to seek sanctions against New Century’s counsel, the Susman Godfrey law firm and two of its partners, Barry Barnett and Ophelia Camina in a federal lawsuit in Texas. It contends that they engaged in fraud and misconduct that eventually caused Positive Software to lose a 2004 arbitration of the software licensing suit, the legal publication explains.
The partners say they did nothing wrong, Texas Lawyer reports. But Positive Software is using material it got from New Century to bolster its argument, in an August filing, that Susman Godfrey should have to turn over internal litigation work product, on the theory that the crime-fraud exception applies, according to attorney Michael Shore of Shore Chan Bragalone in Dallas. He represents the software developer.
“As a practical matter, documents that were thought to be privileged are in the other side’s hands. So, basically, what they did was bought the privilege. And that, in my experience, is unprecedented,” says partner David Beck of Beck Redden & Secrest in Houston, who represents the Susman Godfrey defendants.
Two professional responsibility lawyers who aren’t involved in the case say it is likely that Positive Software will get hold of additional material because attorney-client privilege, in Texas, belongs to the client. And this, they say, should be cause for concern for the legal profession, because it will make it harder for lawyers to be candid with clients, the magazine writes.
“I have some real concerns about the effect that will have on the ability of lawyers to be completely candid,” says Daniel Sheehan, who practices in Dallas. “We don’t want lawyers practicing law defensively.”
