Supreme Court of Texas.
In re XL SPECIALTY INSURANCE COMPANY and Cambridge Integrated Services Group, Inc., Relators.
Argued Nov. 10, 2011.
Decided June 29, 2012.
Attorneys & Firms
*48 Belinda May Arambula, Burns Anderson Jury & Brenner LLP, Austin, TX, for XL Specialty Insurance Company.
Alan B. Daughtry, Attorney–at–Law, Houston, TX, for Real Party in Interest Jerome Wagner.
David L. Brenner, Burns Anderson Jury & Brenner LLP, Austin, TX, for Other Interested Party Melissa Martinez.
Chief Justice LEHRMANN joined.
We must decide whether, in a bad faith action brought by an injured employee against a workers’ compensation insurer, the attorney-client privilege protects communications between the insurer’s lawyer and the employer during the underlying administrative proceedings. We hold that the privilege does not apply.
XL Specialty Insurance Company is Cintas Corporation’s workers’ compensation insurer. XL’s policy included standard provisions requiring Cintas to cooperate in the investigation, settlement, and defense of a claim. The policy also provided for a one million dollar deductible per claim.
Jerome Wagner, a Cintas employee, sought workers’ compensation benefits for a work-related injury. Melissa Martinez, a claims adjuster with XL’s third party administrator, Cambridge Integrated Services Group, Inc., denied the claim. In a contested case hearing before the Division of Workers’ Compensation, the hearing officer determined that Wagner sustained a compensable injury and was entitled to medical and temporary income benefits. During the course of the administrative litigation, XL’s outside counsel, Rebecca Strandwitz of Flahive, Ogden & Latson, P.C., sent communications about the status and the evaluation of the proceedings to Cambridge and Cintas.
After the workers’ compensation dispute was resolved, Wagner sued XL, Cambridge, and Martinez for breach of the common law duty of good faith and fair dealing and violations of the Insurance Code and Texas Deceptive Trade Practices Act. During discovery, Wagner sought the communications made between Strandwitz and the insured, Cintas, during the administrative proceedings. XL and Cambridge *49 argued that the attorney-client privilege protected those communications. After an in-camera inspection, the trial court held that the privilege did not apply.
XL and Cambridge sought mandamus relief from the court of appeals, which denied the petition. 368 S.W.3d 549, 550. They then petitioned this Court for a writ of mandamus, arguing that the attorney-client privilege protects the communications.
II. Attorney–Client Privilege in Multi–Party Litigation
Confidential communications between client and counsel made to facilitate legal services are generally insulated from disclosure. See West v. Solito, 563 S.W.2d 240, 244 n. 2 (Tex.1978).
Texas evidentiary rules define the privilege as follows:
A client has a privilege to refuse to disclose and to prevent any other person from disclosing confidential communications made for the purpose of facilitating the rendition of professional legal services to the client:
(A) between the client or a representative of the client and the client’s lawyer or a representative of the lawyer;
(B) between the lawyer and the lawyer’s representative;
(C) by the client or a representative of the client, or the client’s lawyer or a representative of the lawyer, to a lawyer or a representative of a lawyer representing another party in a pending action and concerning a matter of common interest therein;
(D) between representatives of the client or between the client and a representative of the client; or
(E) among lawyers and their representatives representing the same client.
TEX.R. EVID. 503(b).1
TEX.R. EVID. 511(1).
XL2 relies primarily on the privilege defined in Rule 503(b)(1)(C)—which has been variously described as the “joint client” privilege, the “joint defense” privilege, and the “common interest” privilege. Courts sometimes use these terms interchangeably, but they involve distinct doctrines that serve different purposes. As we explain below, however, none of them accurately describes the privilege at issue in this case.
A. Joint Client Privilege
The joint client or co-client doctrine applies “[w]hen the same attorney simultaneously represents two or more clients on the same matter.” PAUL R. RICE, ATTORNEY–CLIENT PRIVILEGE IN THE UNITED STATES § 4:30 (2011). Joint representation is permitted when all clients consent and there is no substantial risk that the lawyer’s representation of one client would be materially and adversely affected by the lawyer’s duties to the other. 2 TEX.R. EVID. 503(d)(5) (noting that communications made by two or more clients to a lawyer retained in common are not privileged “when offered in an action between or among any of the clients”).
B. Joint Defense and Common Interest Doctrines
Representations involving multiple clients with separate counsel call for the application of what have been called the joint defense and common interest doctrines. Courts and parties often confuse the relevant nomenclature. See RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 75 cmt. c (“Co-client representations must also be distinguished from situations in which a lawyer represents a single client, but another person *51 with allied interests cooperates with the client and the client’s lawyer....”).
The joint defense rule applies when multiple parties to a lawsuit, each represented by different attorneys, communicate among themselves for the purpose of forming a common defense strategy. In re JDN, 211 S.W.3d at 923. Unlike the common interest doctrine, the joint defense doctrine applies only in the context of litigation. VINCENT S. WALKOWIAK, THE ATTORNEY–CLIENT PRIVILEGE IN CIVIL LITIGATION 18 (4th ed.2008).
The common interest rule (also known as the “community of interest,” “pooled interests,” or “allied lawyer” doctrine) is more expansive than the joint defense doctrine.4 The parties must share a mutual interest, but unlike the joint defense doctrine, the common interest rule applies to “two or more separately represented persons whatever their denomination in pleadings and whether or not involved in litigation.” 1 RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 76 reporter’s note cmt. b (noting that common interest is the preferable term because it includes “both claiming as well as defending parties and nonlitigating as well as litigating persons”).5
III. Texas Rule of Evidence 503(b)(1)(C)—The Allied Litigant Doctrine
Courts of appeals have generally applied Rule 503(b)(1)(C)’s privilege is more appropriately termed an “allied litigant” privilege.11
The allied litigant doctrine protects communications made between a client, or *53 the client’s lawyer, to another party’s lawyer, not to the other party itself. See, e.g., Griffith v. Davis, 161 F.R.D. 687, 692 (C.D.Cal.1995) (“The [joint defense] doctrine applies where parties are represented by separate counsel but engage in a common legal enterprise.”).
IV. XL has failed to show that the communications between Strandwitz and Cintas are privileged.
XL argues that the communications between Strandwitz and Cintas are protected by the attorney-client privilege, and more generally, the insurer—insured relationship. We have not recognized a general insurer-insured privilege.13 Nevertheless, we agree that, under certain circumstances, communications between an insurer and its insured may be shielded from discovery by the attorney-client privilege. That appears to be the majority rule. See, e.g., Rule 503,14 and it has not done so.
A. Rule 503(b)(1)(C)’s allied litigant doctrine is inapplicable.
Here, XL is the client, and the communications were between XL’s lawyer and a third party, Cintas, who was not represented by XL’s lawyer (or any other lawyer) and was not a party to the litigation or any other related pending action. We recognize that Cintas, having contracted *54 for a substantial deductible, may have shared a joint interest with XL during the administrative proceedings in the outcome of the claim. But no matter how common XL’s and Cintas’s interests might have been, our rule requires that the communication be made to a lawyer or her representative representing another party in a pending action. TEX.R. EVID. 503(b)(1)(C) (protecting certain communications “by ... the client’s lawyer ... to a lawyer or a representative of a lawyer representing another party in a pending action and concerning a matter of common interest therein”). Those requirements were not met here.
Part of XL’s difficulty in proving a privilege stems from the fact that, in Texas, workers’ compensation claims are brought directly against a workers’ compensation carrier, with limited involvement of the employer in the adjudication of the rights to benefits. The insurer, not the employer, is directly responsible for paying benefits. See Rule 503(b)’s subsections. But in a case in which the communications were not made to the insured’s lawyer, and the insured is not a party to a pending action, as required by the rule, the allied litigant privilege does not apply.
B. XL and Cintas were not joint clients.
For similar reasons, the joint client rule of privilege is inapplicable. XL, and XL alone, was Strandwitz’s client. XL does not argue, nor is there any evidence, that Strandwitz also represented Cintas. We do not exclude the possibility that an insured and insurer may have a common lawyer in the workers’ compensation context. “[W]e have never held that *55 an insurance defense lawyer cannot represent both the insurer and the insured, only that the lawyer must represent the insured and protect his interests from compromise by the insurer.” Rule 503, and XL has failed to make such a showing here.
Nor do we rule out the possibility that an insurer can be a representative of the insured under TEX.R. EVID. 503(a)(2), 503(b)(1)(A), (C), (D). But XL has neither pleaded nor proved that this is the case.
Both sides argue forcefully that sound policy favors their position. Whether recognizing a privilege here is good policy is another matter; we conclude only that the communications here are not within the allied litigant or joint client privileges.
C. The communications are not privileged under subsections (A), (B), (D), or (E).
XL also argues that the communications are privileged under Texas Rule of Evidence 503(a)(2) defines “representative of the client” as:
(A) a person having authority to obtain professional legal services, or to act on advice thereby rendered, on behalf of the client, or
(B) any other person who, for the purpose of effectuating legal representation for the client, makes or receives a confidential communication while acting in the scope of employment for the client.
TEX.R. EVID. 503(a)(2).
Cintas could not have been a “representative of the client,” as it did not have the authority to obtain legal services for its insurer, XL. For the same reason, Cintas could not act, on XL’s behalf, on any advice “thereby rendered”—that is, rendered as a result of it having obtained counsel for XL. XL does not contend, nor is there any proof, that Strandwitz represented both XL and Cintas, so Cintas does not qualify as a “client,” either. Thus, neither subsections (A) nor (D) protects the communications. See TEX.R. EVID. 503(b)(1)(D) (shielding communications “between representatives of the client or between the client and a representative of *56 the client”). XL does not contend that any other provision applies. Subsection B, which involves communications between the lawyer and the lawyer’s representative, is inapposite,17 as is subsection E, which pertains to multiple lawyers representing the same client.18
D. XL’s affidavit does not support a privilege for communications to Cintas.
To support its privilege claim, XL submitted the claims adjuster’s affidavit. Martinez stated that Cambridge retained Strandwitz on XL’s behalf and that Strandwitz would:
[P]rovide communication to Cambridge relating to their professional services, their opinions associated with those professional services and also provide information necessary to the proper rendition of those services.... [T]he records are not disclosed to anyone who is not an employee of Cambridge, XL or in furtherance of the provision of the professional legal services.
(emphasis added). This affidavit speaks only to communications between XL’s law firm and its clients, not to communications between XL’s law firm and the employer Cintas. Furthermore, the affidavit does not purport to establish any privilege extending to the communications between Strandwitz and Cintas. The trial court noted this and ordered production of only those documents.19 We conclude that the trial court acted within its discretion.
The attorney-client privilege shields otherwise relevant information from discovery. As a result, we construe it narrowly20 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.” TEX.R.APP. P. 52.8(a).
Justice WILLETT delivered a dissenting opinion.
Justice WILLETT, dissenting.
Just seven days ago, this Court held that a common-law “bad faith” claim (and certain statutory claims) are inconsistent with the Legislature’s hermetic workers’ compensation regime.1 Today the Court *57 answers a vexing question of attorney-client privilege—a question I concede is important (after all, we granted the petition)—but the question, albeit weighty, arises possibly from a claim that no longer exists.
I say “arises possibly” because it’s impossible to tell really, as the mandamus record before the Court is not the full record. So we really have no idea if Jerome Wagner has any viable claim(s) remaining post-Ruttiger—for example, an Insurance Code claim for misrepresenting the comp policy.2
Today’s decision is undeniably instructive and finely reasoned. But I respectfully take issue with issuing something on a non-issue. Rather than venture what may be a purely advisory opinion springing from a now-defunct lawsuit, I would instead simply have the parties advise the Court on whether Wagner has any actionable claims remaining.
Since 1793, when Chief Justice Jay declined President Washington’s request for advice on twenty-nine questions regarding America’s duties under various treaties, the bar on advisory opinions has become firmly embedded in American law.3 Two hundred and nineteen years later, and lacking ample assurance that any live controversy exists here, I respectfully dissent.
Although many of our evidentiary rules mirror their federal counterparts, see, e.g., United States v. Spector, 793 F.2d 932, 938 (8th Cir.1986).
For ease of reference, we refer to relators XL and Cambridge as “XL.” Their legal arguments are identical, and our conclusion that the privilege does not apply here disposes of both of their claims.
See also 24 CHARLES ALAN WRIGHT & KENNETH W. GRAHAM, JR., FEDERAL PRACTICE AND PROCEDURE § 5493 (1986) (“Federal courts continue to confuse the allied lawyer doctrine, which applies when parties with separate lawyers consult together, and the joint-client doctrine, which applies when two clients share the same lawyer, by using the phrase ‘joint defense privilege’ to mangle the two concepts.”).
Thus, the common interest doctrine is different from the joint client doctrine for the very same reason as the joint defense doctrine: unlike the joint client situation, in the common interest arrangement, each client has her own lawyer—they are not jointly represented by one lawyer. 2 CHRISTOPHER B. MUELLER & LAIRD C. KIRKPATRICK, FEDERAL EVIDENCE § 5:20 (3d ed.2007); see also 1 RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 76 cmt. a (2000) (noting that the common interest rule “differs from the co-client rule of [privilege] in that the clients are represented by separate lawyers”).
See also, e.g., In re Grand Jury Subpoena, 274 F.3d 563, 572 (1st Cir.2001) (“Because the privilege sometimes may apply outside the context of actual litigation, what the parties call a ‘joint defense’ privilege is more aptly termed the ‘common interest’ rule.”).
See, e.g., United States v. Gotti, 771 F.Supp. 535, 545 (E.D.N.Y.1991))).
See PROPOSED FED.R.EVID. 503(b)(3), reprinted in United States v. Schwimmer, 892 F.2d 237, 243–44 (2d Cir.1989) (“ ‘The need to protect the free flow of information from client to attorney logically exists whenever multiple clients share a common interest about a legal matter,’ ... and it is therefore unnecessary that there be actual litigation in progress for the common interest rule of the attorney-client privilege to apply....” (citations omitted)).
A number of other states’ evidentiary rules also require communications to be made in the context of pending litigation in order for the doctrine to apply. See, e.g., EVID. 502(b)(3).
See also Rule 503(b)(1)(C) appears to attach the common interest ‘privilege’ to confidential communications disclosed in the course of legal services rendered during some ‘pending action’ and ‘concerning a matter of common interest therein.’ ... Here, ... this contractual relinquishment of Citibank’s confidential or proprietary information to Universal did not occur during any ‘pending action’ and therefore could not concern ‘a matter of common interest therein.’ ” (emphasis in original) (citations omitted)).
See Katharine Traylor Schaffzin, An Uncertain Privilege: Why the Common Interest Doctrine Does Not Work and How Uniformity Can Fix It, 15 B.U. PUB. INT. L.J. 49, 77–78 (2005) (noting that the pending action requirement is redundant of other safeguards and harmful because it fails to protect communications shared between those with a common legal interest unrelated to litigation).
A leading federal law treatise suggests that the appropriate moniker is the “allied lawyer doctrine.” In re Sandwich Islands Distilling Corp., No. 07–01029, 2009 WL 3055199, at *2 (Bankr.D.Haw. Sept. 21, 2009) (“Under Hawaii law, contrary to federal common law, the joint litigant common interest privilege is limited to co-parties and their counsel in pending litigation.”). Because the Texas rule has both a pending action and a common interest requirement, however, the “allied litigant” doctrine more accurately describes our law.
See also United States v. Schwimmer, 892 F.2d 237, 243 (2d Cir.1989) (“[The joint defense privilege] serves to protect the confidentiality of communications passing from one party to the attorney for another party where a joint defense effort or strategy has been decided upon and undertaken by the parties and their respective counsel.”) (emphasis added).
See, e.g., In re Tex. Farmers Ins. Exch., 990 S.W.2d 337, 341 (Tex.App.-Texarkana 1999, pet. denied) (holding that if counsel retained by an insurer acts as an “investigator,” and not as an attorney, then the communications between the insured and insurer are not privileged).
Our evidentiary rules have the force and effect of statutes and should be construed accordingly. See In re City of Georgetown, 53 S.W.3d 328, 332 (Tex.2001).
Under the insurance policy, XL is primarily responsible for the payment of benefits as well as legal fees that arise out of any claim or suit it defends, while Cintas reimburses it for such expenses:
In consideration of a reduced premium, you have agreed to reimburse us up to the deductible amounts stated in the Schedule at the end of this endorsement for all payments legally required, including Allocated Loss Adjustment Expense(s), where you have elected to include such expense as indicated in the Schedule, which arises out of any claim or suit we defend.
We will remain responsible for the full payment of all claims under this policy without regard to your ability or intention to reimburse us for the deductible amount, provided that this does not release you from your obligation to reimburse us.
See, e.g., Metroflight, Inc. v. Argonaut Ins. Co., 403 F.Supp. 1195, 1197 (N.D.Tex.1975) (“Liability insurance policies ... commonly obligate the insurer to defend actions against the insured within the policy coverage.”).
See TEX.R. EVID. 503(a)(4) (defining “representative of the lawyer” as either a lawyer’s employee or an accountant).
See id. R. 503(b)(1)(E) (protecting communications “among lawyers and their representatives representing the same client”).
After reviewing the documents in camera, the trial court stated that it had determined some were not privileged “mainly because they are communications with a Kelli Green who is the representative for Cintas, which I believe was the employer.” The court continued: “And they do not appear to be documents as described by Ms. Martinez in the affidavit ... I think there is no evidence to support that communications with Ms. Green from Cintas are privileged, and so I’m going to order those produced but only those produced.”
See Hyman v. Grant, 102 Tex. 50, 112 S.W. 1042, 1044 (1908) (“As the rule of privilege has a tendency to prevent the full disclosure of the truth, it should be limited to cases which are strictly within the principle of the policy that gave it birth.”).
Tex. Mut. Ins. Co. v. Ruttiger, 381 S.W.3d 430, 2012 WL 2361697 (Tex.2012).
See TEX. INS. CODE § 541.061.
See RICHARD H. FALLON, JR. ET AL., HART AND WECHSLER’S THE FEDERAL COURTS AND THE FEDERAL SYSTEM 50–52 (6th ed.2009); see also article II, section 1 of the Texas Constitution, courts have no jurisdiction to issue advisory opinions.”).