Pivotal Payments, Inc. v. Phillips, et al

Filing 89

MEMORANDUM OF DECISION AND ORDER denying 80 Motion to Compel. See attached Memorandum of Decision and Order for details. Ordered by Magistrate Judge Gary R. Brown on 9/29/2016. c/ecf (Johnston, Linda)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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PIVOTAL PAYMENTS, INC.
Plaintiff,

MEMORANDUM &
ORDER

-against-

CV 14-4910 (GRB)

ANDREW PHILLIPS, CARDFLEX, INC,
and U.S. ALLIANCE GROUP, INC.,
Defendants.
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GARY R. BROWN, United States Magistrate Judge:
Presently before the Court are motions to compel the production of 36 communications
between plaintiff and the attorneys who represented plaintiff in the business transactions
underlying the instant dispute, as identified on plaintiff’s privilege log. Following an in camera
review of the subject materials, and for the reasons set forth herein, the motion to compel is
denied.
In sum and substance, defendants seek production of attorney-client communications that
might bear on plaintiff’s claim of unilateral mistake, contending that by raising this claim,
plaintiff has put communications with its deal counsel at issue, thereby waiving or forfeiting any
privilege that would otherwise attach to these communications. For its part, plaintiff contends
that because it is not intending to rely upon attorney-client communications to establish its claim
of unilateral mistake, raising the claim does not waive the attorney-client privilege. For the
reasons set forth herein, plaintiff’s filing of a claim of unilateral mistake does not give rise to a
waiver or forfeiture of attorney-client privilege, even though one of the 36 sought
communications might be relevant to plaintiff’s claim.

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Background
This matter previously came before the undersigned on a motion for a preliminary
injunction, which was denied in an Order that describes the allegations of the complaint, as well
as a motion to dismiss, also the subject of a written order. See Pivotal Payments, Inc. v. Phillips,
No. CV 14-4910 (GRB), 2014 WL 6674621 (E.D.N.Y. Nov. 25, 2014) (the “PI Order”); DE 65
(the “Motion to Dismiss Order”). Familiarity with both orders is assumed.
The complaint raises a number of claims arising from a complex business transaction,
summarized in the PI Order as follows:
Pivotal, CardFlex and USAG are all “independent sales
organizations” (“ISOs”) involved in processing credit and debit
card transactions for merchants who pay fees, some of which are
payable to the ISOs. These fees are sometimes known as
“residuals.” In 2008, CardFlex acquired rights to use a Bank
Identification Number (“BIN”) assigned by Visa and MasterCard,
which facilitates the ISO's handling of transactions. . . . USAG
acquired Cardflex's rights to the BIN in 2011, and began
processing the transactions. Pursuant to a side agreement,
however, USAG agreed to pay the residuals from the BIN to
Cardflex, and Cardflex retained the right to reassign the rights to
the BIN.
In 2013, Cardflex and Pivotal entered a Letter of Intent by which
Pivotal offered to purchase the rights to the BIN. Following due
diligence, Pivotal and Cardflex entered into an Asset Purchase
Agreement (“APA”), through which Pivotal acquired the rights to
the BIN and the payment of residuals from USAG in exchange for
a payment of approximately $3.1 million. The APA provided for a
“Stage Two” closing, which did not occur, which left Pivotal the
right to continue to receive residual payments until it had received
$3.1 million in “net residual payments.”
[Allegedly], Cardflex failed to disclose in due diligence “certain
fees that USAG charged.” The parties also entered a second
agreement, called the Assignment of BIN Transfer Agreement (the
“ABTA”), which provided that USAG would not change its fees or
charges or impose additional fees upon the merchant accounts
associated with the BIN. [T]he ABTA further provided that if no
“Stage Two” closing occurred under the APA “then USAG was to
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continue paying residuals to Pivotal until Pivotal ‘has received
Residuals in the aggregate amount of $3,100,000....’”
[I]t appears that the parties agree that Pivotal has received just over
$3 million in gross residuals, a figure very close to the approximate
$3.1 million purchase price. The fundamental dispute arises
because, from that $3 million, Pivotal has incurred about $1.7
million in fees and commissions. Thus, the critical issue is
whether the subject agreements provided that Pivotal receive $3.1
million in gross or net residuals. Pivotal maintains that it “had to
receive the equivalent of the purchase price ... in net residuals.”
CardFlex and Phillips, for their part, contend that payout in net
residuals “was not something that CardFlex agreed to, nor would it
have.”
The language of the relevant agreements is distinctly unhelpful on
this issue. The APA defines “residuals” as follows:
“Residuals” means (a) all rights to compensation
and any other amounts received pursuant to the
FDMS Agreement attributable to or payable in
respect of the Merchant Agreements including, but
not limited to discount fees, in each case net of any
expenses charged by FDMS under the FDMS
Agreement attributable to or charged in respect of
the Merchant Agreements, (b) amounts paid or fees
charged byAuthorize.net Merchant Partners and
Network Merchants Inc. in each case attributable to
or payable in respect of the Merchants, (c) amounts
collected from Merchants for their use of the
gateway operated by Verifi Inc. that matches any
fees charged by FDMS labeled ACH Flags
attributable to or payable in respect of the
Merchants and, (d) any other amounts paid or
payable to USAG and/or the Selling Parties
attributable to or payable in respect of the Merchant
Agreements.
This definition appears to describe, for these purposes, gross
residuals. Other sections of the ABTA cited by plaintiff do not
clarify the issue. (“Residuals shall continue to be paid to the
Purchaser until Purchaser has received Residuals in the aggregate
amount of $3,100,000”).
PI Order at *1–3 (citations omitted). Among plaintiff’s primary claims are several for unilateral

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mistake, further refined in the Amended Complaint as follows: “Although Pivotal understood
that repayment of the purchase price ($3,085,945.00) would be calculated based upon net
residual payments, because the basic assumption was that CardFlex would return the purchase
price, the APA does not accurately state this understanding.” Amended Complaint, DE 58, ¶139.
On this motion, defendants seek the compulsion of three dozen communications between
plaintiff and counsel which have been identified on a privilege log. See DE 87. Based upon the
information provided on the privilege log, it is difficult to say with any certainty whether the
withheld communications would be relevant herein, and the connection to some appears highly
tenuous (such as several emails entitled only “do we have a call?”) In fairness to defendants,
however, the party seeking discovery is at a distinct disadvantage in attempting to identify
improperly withheld information. See Local Civil Rule 26.3(b) (“Discovery requests shall be
read reasonably in the recognition that the attorney serving them generally does not have the
information being sought and the attorney receiving them generally does have such information
or can obtain it from the client”).
As such, following review of the motion papers, the undersigned directed production of
the subject communications for in camera review. See Electronic Order dated July 26, 2016.
Based upon the in camera review and the undersigned’s familiarity with this matter, there is only
one exchange that appears relevant to this action, specifically, the email thread designated as
page CTRL_E_0009388. However, for the reasons discussed herein, the Court is not directing
the production of that communication.
Discussion
The Attorney-Client Privilege
Although federal law does not provide the applicable framework because this case is

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based upon diversity jurisdiction, and for purposes of this motion the legal standard governing
the application and waiver of the attorney-client privilege is governed by state law, it may be a
helpful backdrop to examine federal standards as federal and state law do not differ
meaningfully. See Employers Ins. Co. of Wausau v. Skinner, No. CV 07-735 (JS)(AKT),
As the Supreme Court has held:
Federal Rule of Evidence 501 provides that “the privilege of a
witness . . . shall be governed by the principles of the common law
as they may be interpreted by the courts of the United States in
light of reason and experience.” The attorney–client privilege is
the oldest of the privileges for confidential communications known
to the common law. Its purpose is to encourage full and frank
communication between attorneys and their clients and thereby
promote broader public interests in the observance of law and
administration of justice. The privilege recognizes that sound legal
advice or advocacy serves public ends and that such advice or
advocacy depends upon the lawyer being fully informed by the
client. The lawyer–client privilege rests on the need for the
advocate and counselor to know all that relates to the client's
reasons for seeking representation if the professional mission is to
be carried out. And we [have] recognized the purpose of the
privilege to be to encourage clients to make full disclosure to their
attorneys. This rationale for the privilege has long been
recognized by the Court.
Upjohn Co. v. United States, 449 U.S. 383, 389, 101 S. Ct. 677, 682, 66 L. Ed. 2d 584 (1981)
(citations and alterations omitted).
Because of the considerations described in Upjohn, “‘rules which result in the waiver of
this privilege and thus possess the potential to weaken attorney-client trust’ have been
formulated with caution.” Gardner v. Major Auto. Companies, Inc., 2014 WL 1330961 at *3
(E.D.N.Y. 2014), (quoting In re County of Erie, 546 F.3d 222, 228 (2d Cir. 2008)). At the same
time, “since the privilege stands in derogation of the public's right to every man's evidence, . . . it
ought to be strictly confined within the narrowest possible limits consistent with the logic of its
principle.” In re Grand Jury Proceedings, 219 F.3d 175, 182–83 (2d Cir. 2000).
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Implied Waiver of the Attorney-Client Privilege Under Federal Law
The Second Circuit has “recognized that implied waiver may be found where the
privilege holder asserts a claim that in fairness requires examination of protected
communications.” Id. As the Second Circuit has observed:
Generally, “[c]ourts have found waiver by implication when a
client testifies concerning portions of the attorney-client
communication, ... when a client places the attorney-client
relationship directly at issue, ... and when a client asserts reliance
on an attorney's advice as an element of a claim or defense....”
In re County of Erie, 546 F.3d 222, 228 (2d Cir. 2008) (quoting Sedco Int'l S.A. v. Cory, 683
F.2d 1201, 1206 (8th Cir. 1982)). Most often, implied waivers derive from partial disclosures,
rooted in the sword-and-shield principle. See, e.g., United States v. Bilzerian, 926 F.2d 1285,
1292 (2d Cir. 1991).
Here, however, there has been no partial disclosure, so this case does not fall into the first
category. It would be difficult to conclude that the filing of a unilateral mistake claim, “places
the attorney-client relationship directly at issue” as this category generally encompasses matters
directly arising from the subject representation, such as a legal malpractice action or an advice of
counsel defense. 1 See, e.g. Leviton Mfg. Co., Inc. v. Greenberg Traurig LLP, No. 09 Civ.
8083(GBD)(THK), 2010 WL 4983183, at *4 (S.D.N.Y. Dec. 6, 2010) (“For example, where a
claim of malpractice is premised upon reliance on the erroneous advice of predecessor counsel,
under . . . federal law, the legal advice received from any other counsel on the same issue is
placed at issue.”). Furthermore, the cause of action for unilateral mistake does not expressly
include such reliance as an element. 2 Regarding the third category, plaintiff has made it clear

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Neither the filings of the parties nor this Court’s independent research, has revealed any authority suggesting that a
claim of unilateral mistake “places the attorney-client relationship directly at issue.”
2 To succeed on this claim, plaintiff “must establish that (i) he entered into a contract under a mistake of material
fact, and that (ii) the other contracting party either knew or should have known that such mistake was being made.”
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that it will not rely on communications with its counsel to in any way establish its unilateral
mistake claim. Thus, the situation presented here does not fit squarely within any of the three
general categories of implied waiver.
Cases governing implied waiver of the attorney-client privilege, sometimes referred to as
a “forfeiture” of privilege, prove murky and, oftimes, inconsistent. The legal landscape is
littered with general principles, yet guidance as to their application can be elusive. See John Doe
Co. v. United States, 350 F.3d 299, 302 (2d Cir. 2003), as amended (Nov. 25, 2003) (“While we
have sometimes used broad language in describing the doctrine, such as generalizing about the
incompatibility of using the assertions as a ‘sword’ while using privileges attaching to related
matter as a ‘shield,’ because the doctrine is rooted in fairness we have also cautioned against
broad generalizations, stressing that ‘[w]hether fairness requires disclosure . . . is best decided on
a case by case basis, and depends primarily on the specific context in which the privilege is
asserted’”). As Judge Ross recently observed:
The “at issue” waiver is narrow but ill-defined. Its animating
principle is fairness and, more precisely, “the type of unfairness to
the adversary that results in litigation circumstances when a party
uses an assertion of fact to influence the decisionmaker while
denying its adversary access to privileged material potentially
capable of rebutting the assertion.” In re Cty. of Erie, 546 F.3d at
229 (quoting John Doe Co. v. United States, 350 F.3d 299, 306 (2d
Cir. 2003), as amended (Nov. 25, 2003)). However, many courts
have conflated this form of waiver with reliance on counsel or
have denied its application without explaining its contours.
Martin v. Giordano, No. 11-CV-4507 (ARR), 2016 WL 2354239, at *3 (E.D.N.Y. May 4, 2016).
Indeed, Judge Ross suggests that County of Erie may have failed to rectify the case law
disparities identified in that opinion, noting that the opinion’s “discussion vacillates between

Creative Waste Mgmt., Inc. v. Capitol Envtl. Servs., Inc., 429 F. Supp. 2d 582, 599 (S.D.N.Y.), supplemented, 458
F. Supp. 2d 178 (S.D.N.Y. 2006). Though irrelevant for present purposes, it is worth noting that “New York law
does not permit reformation or rescission of a contract for unilateral mistake alone. A unilateral mistake must be
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these two forms of waiver [i.e. the “at issue” waiver and the “reliance” waiver] and seems at
certain points to conflate them.” Martin, 2016 WL 2354239 at *3.
For a time, courts in this Circuit and elsewhere relied on the opinion in Hearn v. Rhay,
68 F.R.D. 574, 579 (E.D. Wash. 1975), a civil rights action arising under 42 U.S.C. § 1983
challenging a strip search policy implemented by state prison officials. In holding that
defendants implicitly waived attorney-client privilege applicable to legal advice received from
the state attorney general, the court felt “compelled to recognize a new and narrowly limited
exception to the attorney-client privilege, which applies to civil rights suits against state officials
under 42 U.S.C. § 1983, wherein the defendant asserts the affirmative defense of good faith
immunity.” Id. at 580. Hearn crafted the following test for applying this exception:
(1) assertion of the privilege was a result of some affirmative act,
such as filing suit, by the asserting party; (2) through this
affirmative act, the asserting party put the protected information at
issue by making it relevant to the case; and (3) application of the
privilege would have denied the opposing party access to
information vital to his defense. Thus, where these three conditions
exist, a court should find that the party asserting a privilege has
impliedly waived it through his own affirmative conduct.

Id. at 581.
However, as the Second Circuit observed, “Courts in our Circuit and others have
criticized Hearn and have applied its tests unevenly.” In re County of Erie, 546 F.3d 222, 227
(2d Cir. 2008). Thus, in that case, though confronted with similar facts, the Second Circuit
rejected the application of Hearn by the district court, noting:
Although we have cited Hearn in the past in support of some
general propositions, we never have decided whether the entirety
of the test put forward in that case and relied upon by the District
Court was definitive. . . . We agree with its critics that the Hearn
test cuts too broadly and therefore conclude that the District Court
‘coupled with some fraud.’” Creative Waste Mgmt., Inc. v. Capitol Envtl. Servs., Inc., 429 F. Supp. 2d at 607.
8

erred in applying it here. According to Hearn, an assertion of
privilege by one who pleads a claim or affirmative defense “put[s]
the protected information at issue by making it relevant to the
case.” Hearn, 68 F.R.D. at 581. But privileged information may be
in some sense relevant in any lawsuit. A mere indication of a claim
or defense certainly is insufficient to place legal advice at issue.
The Hearn test presumes that the information is relevant and
should be disclosed and would open a great number of privileged
communications to claims of at-issue waiver. Nowhere in the
Hearn test is found the essential element of reliance on privileged
advice in the assertion of the claim or defense in order to effect a
waiver.
In re County of Erie, 546 F.3d at 229 (emphasis added). And, in a holding with particular
application to the instant case, the Circuit ruled that “a party must rely on privileged advice from
his counsel to make his claim or defense.” Id.
At the same time, the holding in County of Erie also rests on the following:
Petitioners do not claim a good faith or state of mind defense. They
maintain only that their actions were lawful or that any rights
violated were not clearly established. In view of the litigation
circumstances, any legal advice rendered by the County Attorney's
Office is irrelevant to any defense so far raised by Petitioners.

546 F.3d at 229-30 (holding that “[r]espondents shall have leave to reargue forfeiture of the
privilege before the District Court should the Petitioners rely upon an advice-of-counsel or goodfaith defense at trial”). In some sense, this leaves open the question of whether the at-issue
exception to the attorney-client privilege applies to cases such as the instant dispute, which
involve the issue of state of mind.
However, as Judge Ross correctly observed, County of Erie:
firmly rejected a broad definition of the at issue exception—one
that would vitiate privilege whenever the holder puts the protected
information at issue by making it relevant. 546 F.3d at 228-30.
That court instead adopted a more narrow definition, concluding
that the holder waives privilege when he or she attempts to
influence the decisionmaker on the merits of some claim or
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defense by reference to the allegedly privileged information. Id.;
see also Granite Partners v. Bear, Stearns & Co., 184 F.R.D. 49,
55 (S.D.N.Y. 1999) (“Waiver typically occurs when the party
asserting the privilege placed a protected document in issue
through some affirmative act intended to insure [sic] to that party's
benefit or where the party makes selective use of the privileged
materials.”).
Martin, 2016 WL 2354239, at *3. In Martin, Judge Ross concluded:
“Whether fairness requires disclosure has been decided by the
courts on a case-by-case basis, and depends primarily on the
specific context in which the privilege is asserted.” In re Grand
Jury Proceedings, 219 F.3d 175, 183 (2d Cir. 2000). In this case,
the privilege is asserted in the context of arguments about the
circumstances preceding plaintiff's voluntary dismissal of his
claims. Defendants argue that they should be able to explore why
plaintiff voluntarily dismissed his claims, whereas plaintiff argues
that they should not. Specifically, plaintiff argues that defendants
have offered nothing more than speculation about the impetus for
plaintiff's voluntary dismissal and that such speculation neither
warrants a hearing nor vitiates privilege.
In this context, the court does not find that fairness requires
disclosure. Plaintiff has not injected the privileged communications
into this dispute through some affirmative act with the aim of
benefiting himself. Nor has plaintiff selectively used the privileged
materials. Instead, plaintiff has simply responded to the pending
motion for sanctions and attorney's fees. In doing so, plaintiff has
advanced multiple arguments for why an evidentiary hearing is
unnecessary. These arguments include his claim that a large part of
the evidence defendants seek to elicit at that hearing is subject to
attorney-client privilege. It is fair to say that plaintiff uses attorneyclient privilege as a shield, but he does not use it as a sword.

Id. at *4. Applying that logic to this case, it would appear that plaintiff’s assertion of a
unilateral mistake claim – though such claim clearly implicates plaintiff’s state of mind and
arguably rendering discussions with counsel relevant – does not waive the attorney-client
privilege. Like the plaintiff in Martin, whose rationale for voluntary dismissal was relevant (and
could well have been explored through the disclosure of attorney client materials), the plaintiff

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has claimed mistake but has not injected attorney-client material into the case, or attempted to
influence the Court with attorney-client material.

Moreover, neither the allegations in the

complaint, nor the express elements of unilateral mistake contain any reference to reliance upon
advice of counsel.
State Law Regarding Implied Waiver
Unlike decisions in federal question cases, “in a diversity case, the issue of privilege is to
be governed by the substantive law of the forum state,” which, in this case, is New York. Dixon
v. 80 Pine St. Corp., 516 F.2d 1278, 1280 (2d Cir. 1975). Because this is a diversity action, to
the extent that New York law concerning the scope of the attorney-client privilege diverges from
federal law – and this may well not be the case here – New York law applies. However, an
examination of state law is warranted.
Defendants rely upon the decision in MBIA Ins. Corp. v. Patriarch Partners VIII, LLC,
2012 WL 2568972, at *6 (S.D.N.Y. 2012) to support its contention that Pivotal’s assertion of
unilateral mistake, standing alone, gives rise to a forfeiture of privilege. And, indeed, MBIA
appears to support defendant’s argument, finding a waiver of privilege where plaintiff
“introduce[d] various affidavits reflecting its witnesses' intent and interpretation of the Master
Agreement and Indenture,” and rejecting the plaintiff’s argument that an “‘at issue’ waiver
occurs only when a party ‘has asserted a claim or defense that he intends to prove by use of
the privileged materials.’” Id. at *7.
In this regard, it appears that MBIA may be predicated upon a misreading of important
New York state precedent. The MBIA decision largely turns upon the following analysis of
Deutsche Bank Trust Co. of Am. v. Tri–Links Investment Trust, 43 A.D.3d 56, 63, 837 N.Y.S.2d
15 (1st Dep't 2007):

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MBIA, in rejecting Patriarch's argument that MBIA has placed
counsel's opinion “at issue,” has cited the case of [Deutsche
Bank] and contended in its opposition brief that “ ‘at issue’ waiver
occurs only when a party ‘has asserted a claim or defense that he
intends to prove by use of the privileged materials.’
However, notwithstanding MBIA's contentions, the First
Department in Deutsche Bank held that “‘[a]t issue’ waiver of
privilege occurs where a party affirmatively places the subject
matter of its own privileged communication at issue in litigation,
so that invasion of the privilege is required to determine the
validity of a claim or defense of the party asserting the privilege,
and application of the privilege would deprive the adversary of
vital information.” Deutsche Bank, 43 A.D.3d at 63. The First
Department held only that the privilege-holder had not waived its
attorney-client privilege merely by asserting a claim against its
insurer for indemnification, and the privilege-holder had not made
any factual assertions that placed its state of mind at issue or
otherwise implicated advice of counsel. Id. at 64–65.
The First Department's statement in Deutsche Bank that “at issue
waiver occurs when the party has asserted a claim or defense that
he intends to prove by use of the privileged materials,” id. at 64
(quotations omitted), did not purport to identify the exclusive basis
for “at issue” waiver under New York law. As described above, the
First Department's description of the “at issue” waiver was
broader.
MBIA Ins. Corp., 2012 WL 2568972, at *6. However, the Deutsche Bank decision appears to
support the arguments rejected in the MBIA decision:
Of course, that a privileged communication contains information
relevant to issues the parties are litigating does not, without more,
place the contents of the privileged communication itself “at issue”
in the lawsuit; if that were the case, a privilege would have little
effect. Rather, “at issue” waiver occurs when the party has asserted
a claim or defense that he intends to prove by use of the privileged
materials.

Deutsche Bank, 43 A.D.3d at 64, 837 N.Y.S.2d at 23 (citations and alterations omitted). Based
on this reasoning, the Appellate Division held as follows:
In this case, it is undisputed that Bankers Trust, by suing to obtain
indemnification for the WMI action, has, at a minimum, placed at
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issue the reasonableness of the amounts it spent on the defense of
that matter and of the amount it paid WMI in settlement. The
need to determine the reasonableness of the amounts Bankers Trust
spent to defend and settle the WMI action does not, however, place
at issue the legal advice Bankers Trust received from its attorneys
in that litigation, those attorneys' work product, or their private
mental impressions, conclusions, opinions or legal theories.
Bankers Trust has not premised its claims for contractual and
common-law indemnity on the legal advice it received in the WMI
action, nor has Bankers Trust made any self-serving, selective
disclosure of any protected material. Further, Bankers Trust
forthrightly states that it will not use privileged material or attorney
work-product to establish the reasonableness of its defense and
settlement of the WMI action. Instead, Bankers Trust states that it
will rely on evidence from the 120 boxes of non-privileged
documents it has already produced to Tri–Links in this action . . .
Id., 43 A.D.3d at 64–65, 837 N.Y.S.2d at 24. In fairness, Deutsche Bank does observe that the
question of reasonableness is “an objective standard,” which does distinguish it somewhat from
the instant case involving plaintiff’s subjective state of mind. Id. Nevertheless, the decision
suggests that, under New York law, the implicit waiver does not extend to situations in which a
party has repudiated the use of protected materials to establish a claim. Accord Ambac Assur.
Corp. v. DLJ Mortgage Capital, Inc., 92 A.D.3d 451, 452, 939 N.Y.S.2d 333 (2012)
(“Generally, no ‘at issue’ waiver is found where the party asserting the privilege does not need
the privileged documents to sustain its cause of action”).
Other courts interpreting New York law have reached similar conclusions. In reversing a
trial court’s directive to produce certain attorney-client communications as “an improvident
exercise of discretion,” the First Department, relying on Deutsche Bank held:
“[T]hat a privileged communication contains information relevant
to issues the parties are litigating does not, without more, place the
contents of the privileged communication itself ‘at issue’ in the
lawsuit” (Deutsche Bank, 43 AD3d at 64). Instead, “at issue”
waiver occurs when a party has asserted a claim or defense that he
or she intends to prove by use of the privileged material (id.).
Accordingly, it was error for the JHO to find waiver on the basis of
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relevance alone.
Veras Inv. Partners, LLC v. Akin Gump Strauss Hauer & Feld LLP, 52 A.D.3d 370, 374, 860
N.Y.S.2d 78 (2008). Significantly, Veras, a malpractice action, involved the potential disclosure
of “any relevant advice plaintiffs received from their nonparty counsel bears on the issue of
plaintiffs' reasonable reliance on defendant's advice regarding the legality of their trading
practices.” Veras Inv. Partners, LLC v. Akin Gump Strauss Hauer & Feld LLP, 52 A.D.3d 370,
373, 860 N.Y.S.2d 78 (2008). The parallels to the instant case, in which defendant seeks to
discover attorney client communications which may bear on the reasonableness of plaintiff’s
alleged mistake, are obvious.
Construing New York law, another district court rejected a defendant’s effort to obtain
plaintiff’s privileged communication where plaintiff did “not intend to rely on any privileged
communications to prove its claims.” Nimkoff Rosenfeld & Schechter, LLP v. RKO Properties,
Ltd., No. 07CIV7983DABHBP, 2016 WL 3042733, at *6 (S.D.N.Y. May 24, 2016). In
reaching this determination, the court noted that under New York law, “relevance and utility
does not itself implicate at issue waiver.” Id. The court advised plaintiff that any subsequent
effort to “introduce evidence that demonstrates reliance on advice of [counsel], RKO would be
putting the subject matter of the communication with counsel at issue which would result in
waiver of the privilege. Id.
Thus, the trend among courts interpreting New York privilege law supports the notion
that where a plaintiff’s claim does not require the introduction of privileged material, and the
plaintiff disclaims any such effort, the attorney client privilege is not waived.
The notion that a plaintiff can maintain the privilege by committing to refrain from using
privileged materials which might otherwise be relevant substantively or for the purposes of

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impeachment may seem, at first blush, counterintuitive. See, e.g. Leviton Mfg. Co. v. Greenberg
Traurig LLP, No. 09 CIV 8083 GBD THK, 2010 WL 4983183, at *5 (S.D.N.Y. Dec. 6, 2010),
objections overruled, No. 09 CIV. 08083 GBDTHK, 2011 WL 2946380 (S.D.N.Y. July 14,
2011) (finding “some superficial appeal” to the argument that a defendant should not be forced
to “take [plaintiff] at its word” in the face of privileged materials that might disprove plaintiff’s
contentions). Indeed, this reading of the law appears to give plaintiff the choice of whether to
waive privilege when state of mind is at issue, suggesting that such waivers would be made
tactically to the benefit of plaintiff (though, of course, there could well be other reasons that a
party would opt to protect privileged material).
However, looking more broadly at privilege cases, the notion of providing a party this
option is far from unprecedented. Indeed, in the area of psychotherapist-patient privilege, it is
well established that a plaintiff can avoid forfeiting privilege by foregoing claims to emotional
harm beyond “garden-variety” injury. In In re Sims, 534 F.3d 117, 129 (2d Cir. 2008), the
Second Circuit faced “the novel and far-reaching question of whether a plaintiff's claim for
injuries that include only the garden-variety emotional injury that would ordinarily result from a
physical assault, constitutes a forfeiture of his psychotherapist-patient privilege.” In considering
this question, the Circuit quoted the holding of the Supreme Court in Jaffee v. Redmond, 518
U.S. 1, 116 S. Ct. 1923 (1996), which made clear that “if the purpose of the [psychotherapistpatient] privilege is to be served, the participants in the confidential conversation must be able to
predict with some degree of certainty whether particular discussions will be protected.” Id. at 18.
Sims upheld the privilege in these circumstances, specifically rejecting the argument that “even a
request for only garden-variety damages waives the psychotherapist-patient privilege ‘because
the psychiatric records might conceivably disprove the experiencing of the pain and suffering.’”

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Sims, 534 F.3d at 134 (emphasis original). The alternative, the Circuit ruled, would mean that
“the confidentiality of psychotherapist-patient communications would be uncertain—if not
extinguished—in a great number of cases.” Id.
Considerations of Fairness and Use of Privileged Materials to Controvert Plaintiff’s Claim
According to the defendants, “the central point of this motion” is that “it would be unfair
to allow [plaintiff] to use[] an assertion of fact to influence the decisionmaker while denying its
adversary access to privileged material potentially capable of rebutting the assertion.” DE 83 at
1 (quotations omitted). Based on this premise, defendants contend that “by placing ‘at issue’ its
subjective intent and understanding of the contractual meaning, Pivotal has "forfeited" the
privilege because (among other reasons) the truthfulness of its assertions can be assessed only by
examining those communications.” DE 80 at 1.
The question then arises whether, either as a general matter or within the specific
contours of this case, the dictates of fairness require disclosure of plaintiff’s privileged
communications to permit defendants to attempt to substantively controvert plaintiff’s claim of
mistake or to impeach plaintiff’s witnesses. In other words, does plaintiff’s claim of mistake
entitle defendants to breach the attorney-client privilege to search for evidence helpful to the
defense?
Importantly, “[t]he Supreme Court has noted that ‘[p]arties may forfeit a privilege by
exposing privileged evidence, but do not forfeit one merely by taking a position that the evidence
might contradict.’” In re Sims, 534 F.3d 117, 132 (2d Cir. 2008) (quoting United States v.
Salerno, 505 U.S. 317, 323 (1992)). In John Doe Co. v. United States, 350 F.3d 299, 302 (2d
Cir. 2003), as amended (Nov. 25, 2003), upon which defendant relies, the Second Circuit, in
finding that the privilege at issue had not been forfeited, held that:

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Forfeiture of this nature is justified by considerations of fairness to
the adversary. In some circumstances, courts have ruled that it
would be unfair for a party asserting contentions to an adjudicating
authority to then rely on its privileges to deprive its adversary of
access to material that might disprove or undermine the party's
contentions. While we have sometimes used broad language in
describing the doctrine, such as generalizing about the
incompatibility of using the assertions as a “sword” while using
privileges attaching to related matter as a “shield,” because the
doctrine is rooted in fairness we have also cautioned against broad
generalizations, stressing that “[w]hether fairness requires
disclosure . . . is best decided on a case by case basis, and depends
primarily on the specific context in which the privilege is
asserted.”
Based on these principles, it can be said with some confidence that defendants are not entitled to
invade the privilege because the subject information may prove of value for the purposes of
impeachment or contravention of plaintiff’s claims. In other words, simply because the material
in question might help defendants undermine plaintiff’s claims does not entitle the defendants to
examine the material for those purposes. Standard Chartered Bank PLC v. Ayala Int'l Holdings
(U.S.) Inc., 111 F.R.D. 76, 81 (S.D.N.Y. 1986) (“To be sure, as in every lawsuit, it would be
useful and convenient for SCB to obtain Ayala's privileged material, and the substance of its
confidential communications with its attorneys might reveal some of what Ayala knew. But
those are not reasons to void the attorney-client privilege”).
Which brings us to the specific context of this case. One can posit a set of circumstances
in which an attorney-client communication would run so far counter to the assertions made in a
lawsuit that considerations of fairness would demand the production. This case, however, is very
different. As noted above, of the 36 challenged communications, only one could potentially bear
on the question of mistake and the level of understanding of one of plaintiff’s principals.
However, the email in question could in no way be characterized as conclusive and, based on the
undersigned’s familiarity with the case, would best be described as marginally relevant. As
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such, in the specific context of this case, I find that considerations of fairness do not require
disclosure.
Conclusion
Based on the foregoing, the motion to compel is denied.
SO ORDERED.
Dated: Central Islip, New York
September 29, 2016
/s/ Gary R. Brown
GARY R. BROWN
United States Magistrate Judge

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