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Wednesday, July 6, 2022

Privilege shields attorney from bankruptcy creditor's claim of sham proceeding to hide client's assets

mohamed hassan CC0 via PxHere
The litigation privilege shields an attorney from tort liability in the conduct of a case, the Massachusetts high court held, even if there was fraud.

The question of litigation privilege arose in connection with a bankruptcy. Creditors of a construction company alleged that its bankrupt owner had transferred assets to his wife in a sham adversarial divorce proceeding, and that their lawyer had orchestrated the plan. Besides attaching property of the debtor, the creditors sued the lawyer who had represented the debtor's wife in the divorce while the debtor appeared pro se. 

The litigation privilege protects participants in litigation, including lawyers and witnesses, from liability arising from their participation in the litigation. The privilege is often employed in defense against tort actions such as defamation and interference with contract.

The litigation privilege is better characterized as an absolute privilege, rather than a qualified privilege, though the line between the two is not always bright.  Qualified privileges usually can be vitiated by malice, whether common law "ill will" malice or actual "reckless disregard" malice.

Closer to impregnable, an absolute privilege can be vulnerable on questions of scope, but usually not on grounds of culpability. For example, the Texas Supreme Court in 2021 declined to extend the litigation privilege to protect an attorney against defamation allegations based on extra-judicial statements to media to garner pre-suit publicity for litigation by the Animal Legal Defense Fund against the commercial owner of the Houston Downtown Aquarium. The privilege failed because of the remoteness of pre-suit publicity from the litigation process, not because of the alleged scienter of the attorney.

The Supreme Judicial Court recounted the common law history of the litigation privilege.

The roots of the litigation privilege can be found in English common law, with the first reported decision dismissing an action against an attorney on the ground of the privilege issued in 1606. See Brook v. Montague ... (K.B. 1606); [T. Leigh] Anenson, Absolute Immunity From Civil Liability: Lessons for Litigation Lawyers [Pepp. L. Rev.] (2004).... In that case, an English court held that an attorney accused of slandering his client's adversary during a previous trial—by asserting that the adversary was a convicted felon—was immune from suit.... The court decided that "[a] counsellor in law retained hath a privilege to enforce any thing which is informed him by his client, and to give it in evidence, it being pertinent to the matter in question, and not to examine whether it be true or false."

Courts in the United States adopted this doctrine in the Nineteenth Century and frequently cited the early English cases in doing so. See, e.g., Marsh v. Elsworth ... (N.Y. Super. Ct. 1869) [citing Brook]; Mower v. Watson [Vt. 1839 (citing Buckley v. Wood (K.B. 1591))]. Over time, the scope of the doctrine has broadened. See [Paul T.] Hayden, Reconsidering the Litigator's Absolute Privilege to Defame ... (1993). Nearly every State, including Massachusetts, has adopted the formulation of the privilege set forth in the Restatement (Second) of Torts, [§ 586 (1977),] which provides:

An attorney at law is absolutely privileged to publish defamatory matter concerning another in communications preliminary to a proposed judicial proceeding, or in the institution of, or during the course and as a part of, a judicial proceeding in which he participates as counsel, if it has some relation to the proceeding.

"The privilege applies regardless of malice, bad faith, or any nefarious motives on the part of the lawyer so long as the conduct complained of has some relation to the litigation." Anenson, supra....

The court also recounted the purpose of the privilege, to "promote[] zealous advocacy by allowing attorneys 'complete freedom of expression and candor in communications in their efforts to secure justice for their clients'" (quoting Mass. precedent). The privilege simultaneously enhances judicial efficiency by precluding "meta-litigation" (my word choice) by disgruntled adversaries. (The same argument has been used to reject civil process torts.)

The litigation is not a privilege to commit wrongs, the court cautioned. Lawyers are subject to a court's inherent authority to sanction, by which a court can compel compensation to a wronged party. And lawyers are subject to bar discipline for violating the rules of professional conduct.

In the instant case, then, the complainants were not permitted to predicate an action for fraud based on the defendant-lawyer's in-court representation of the debtor's wife in the divorce proceedings.

A closer question arose as to the defendant's potential liability for conduct outside the courtroom, what the complainants characterized as orchestration of a fraudulent scheme. But the court resisted the effort to articulate a pattern of conduct apart from the litigation or expression in the course of litigation. The court cited and followed the lead of other state high courts, holding "that the litigation privilege shields an attorney from liability for actions taken during the course of litigation." The court cited a Restatement comment articulating a broad basis for the privilege "upon a public policy of securing to attorneys as officers of the court the utmost freedom in their efforts to secure justice for their clients."

"The litigation privilege thus applies to [the attorney's] advice and to the services he rendered," the court concluded.

The creditors are not without remedy, the court noted, evidenced by their efforts in collateral litigation to attach debtor assets notwithstanding the bankruptcy. Moreover, the court reiterated, civil immunity "would not shield the attorney from any applicable sanction for conduct contrary to the rules of professional responsibility, nor would it suggest to other attorneys that such behavior is acceptable."

The case is Bassichis v. Flores (Mass. July 1, 2022). Justice Serge Georges, Jr. wrote the unanimous opinion.

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