Photo: Shutterstock

In a general contractor's legal malpractice case against two law firms that advised it in a construction contract dispute, an Appellate Division panel said the contractor must produce discovery related to its communications with counsel hired to replace the firms it is now suing.

In Lane Construction v. Munday, the panel on Tuesday said the exchange of letters and emails between Lane Construction of Denville and its successor counsel in the underlying action was integral to the case and not subject to attorney-client privilege in the legal malpractice suit against New Jersey-based firms Lowenstein Sandler and MARC Law.

"First … the attorney client privilege does not extend 'to a communication relevant to an issue of breach of duty by the lawyer to his client, or by the client to his lawyer,'" the panel said in the per curiam decision, affirming a decision compelling disclosure from the Morris County Superior Court. "The communications at issue are clearly relevant to the alleged breach of such a duty by defendants. … Second, plaintiff placed the disputed discovery directly at issue when it sued its predecessor counsel for malpractice."

The panel of Appellate Division Judges Jack Sabatino, Thomas Sumners and Arnold Natali Jr. also said the documents and related discovery at issue "are clearly necessary for defendants to defend properly against plaintiff's claims that they breached a standard of care that proximately and fully caused plaintiff's damages."

"On remand plaintiff shall produce a privilege log identifying all disputed privileged communications," said the opinion. "The trial court should then conduct an in-camera review of those materials and make specific rulings consistent with the legal principles detailed in our opinion."

The successor counsel for Lane Construction is Trautmann & Associates in Denville and Mineola, New York, firm Levitt.

In addition to Lowenstein and MARC, the malpractice action also names William Munday, who moved from Lowenstein to MARC during his representation of Lane Construction, and Bruce Rosen of MARC, who also represented Lane in the underlying matter.

Gregg D. Trautmann of Trautmann & Associates represents Lane Construction in the appeal.

Reached by phone, he said the plaintiffs are "certainly going to seek certification" to the state Supreme Court. "While I respect the Appellate Division decision, I think it will have an enormous chilling effect on attorneys' willingness to step in underlying cases and represent litigants" and could open "floodgates to a brand new area of discovery that heretofore did not exist," he said.

He added that, given the decision, "In a case like this, where original attorneys show up at the client's offices and say they made a mistake and possibly committed malpractice and suggest that the client should retain new counsel, that [new] attorney would be foolish to step in."

Daniel Albert Malet of McElroy, Deutsch, Mulvaney & Carpenter in Newark represented Rosen and MARC. He sent a statement: "We are pleased with this victory before the Appellate Division, upholding the trial judge's decision that compels the production of documents, communications and testimony."

He added: "The allegations are meritless, and we look forward to having that proven on remand."

David Morgan Blackwell of Donnelly Minter & Kelly in Morristown represents Munday. Blackwell sent an email on Thursday: "We are pleased with the outcome and applaud the court's well-reasoned decision.  We look forward to establishing a full, fair, and accurate record on which to base our defenses on remand."

Philip Touitou at Akerman in New York represented Lowenstein Sandler. Touitou also could not be reached for comment.

According to the decision, Lane Construction contracted with the Great Atlantic and Pacific Tea Co. (A&P) to perform construction and renovation work at a supermarket in New York for a base contract price of $5.74 million. A&P, Lane alleged, authorized another $1.12 million in work and refused to pay for the additional costs. Lane retained Munday, then a partner at Lowenstein, to prepare and file a mechanic's lien on the property. Munday then left Lowenstein and became an associate at MARC, where he continued to represent Lane.

Rosen, assisting Munday, filed an extension of the mechanic's lien and an arbitration demand and after A&P filed for Chapter 11 bankruptcy also filed a mechanic's lien foreclosure complaint in New York state court against the landowners. A New York court entered an order extending Lane's mechanic's lien for one year but Rosen failed to extend the mechanic's lien the following year, according to the decision.

After A&P's bankruptcy plan was confirmed, Lane Construction won an arbitration award of $308,738. A&P later filed a second bankruptcy petition a year later, but Lane claims in its suit that its lawyers failed to file a notice of claim in that action. Three days after its second bankruptcy filing, A&P intervened in the New York foreclosure action and filed a counterclaim against Lane.

Rosen and Munday on April 12, 2016, informed Lane that they allowed the mechanic's lien to expire, rendering the $308,738 arbitration award uncollectable. They advised Lane to retain separate counsel regarding a possible malpractice claim.

Lane terminated MARC, Munday and Rosen the next month, and Levitt and Trautmann were retained as new counsel for Lane.

In a settlement, Lane paid A&P $90,000 to withdraw its counterclaim in New York.

Lane's malpractice action against Munday, Rosen, MARC and Lowenstein claims that the lawyers misrepresented their ability to litigate construction contract disputes and their experience with mechanic's liens, among other shortcomings.

In discovery, Lane cited several documents and emails pertaining to the A&P settlement and an August 2016 check from Trautmann to Levitt. The defendants filed a motion to compel Lane to produce all such communications, though Lane said it had provided all responsive and non-privileged discovery.

A trial court granted the motion to compel, concluding that the attorney-client privilege did not preclude discovery of communications between Lane and its successor counsel, and ordered Lane, Trautmann, and Levitt to produce all such documents relating to litigation with the landowner and A&P.

In its affirmance Tuesday, the Appellate Division said it relied in part on the state Supreme Court's three-pronged Kozlov analysis for piercing the attorney-client privilege: "a legitimate need … to reach the evidence sought to be shielded"; (2) evidence that is relevant and material; and (3) a finding that the information sought cannot be obtained from a less intrusive source.

The panel said the attorney-client privilege does not apply to communications "relevant to an issue of breach of duty by the lawyer to his client, or by the client to his lawyer."

The panel said Lane "implicitly waived the attorney-client privilege by placing at issue in the malpractice action the legal advice Trautmann and Levitt as superseding counsel provided to them, as that advice is directly relevant to the cause of plaintiff's alleged damages."

"Refusing to pierce the attorney-client privilege in this case would severely handicap defendants' constitutional right to a fair trial," and the defendants "would be severely and impermissibly curtailed in establishing their claim that plaintiff entered into a detrimental settlement agreement due to the alleged negligence of its successor counsel," said the court.

For the case to be fairly tried, the trial court reasoned correctly, said the panel.

"Defendants should not be forced to accept such assertions without an ability to challenge those claims or explore action, as noted, the discovery is relevant as it directly addresses the proximate cause and damages issues."

The panel also affirmed an order for Lane Construction principals to be re-deposed.