Attorney-Client Privilege Goes to the Highest Bidder?

Attorney-Client Privilege Goes to the Highest Bidder?

Fraud is never a good way to start a partnership, but that’s what Kyko Global, Inc. alleged Prithvi Information Solutions, Ltd. did in order to gain the former’s business. A fraud suit, public auction and bid for the defendants’ attorney-client privilege followed.

According to the Seattle, Washington, case of Kyko Global, Inc. v. Prithvi Information Solutions, Ltd., the plaintiffs are in the business of factoring — where one company fronts money to another company as advances on customer account receivables. When Kyko provided money to Prithvi, however, it turned out to be for fictitious companies.

A suit ensued in which the plaintiffs alleged, in addition to fraud,  “negligent/intentional/misrepresentation, conversion, unjust enrichment, Civil RICO claims for wire and mail, financial institution fraud, temporary and preliminary injunctive relief, and breach of guarantees.” Twelve of the named defendants, including one Madhavi Vuppalapati, ended up settling and confessing to the judgment.

A public auction followed where the plaintiffs’ attorney and defendants’ representative were present and eager to bid on Ms. Vuppalapati’s seized personal computer. The attorney successfully outbid the representative and secured the computer for Kyko Global, Inc. While there probably wasn’t physical jockeying for the computer, though one can’t help but picture such a scene, legal jockeying ensued.

The defendants contended that plaintiffs’ attorneys violated ethical standards of conduct and should be disqualified from further representation, and that the computer must be returned to the defendants. Counsel for the plaintiffs argued that when the computer was discarded, so, too, was attorney-client privilege. The court determined it could not agree with either the violation of ethical standards or that there were grounds for disqualification.

“Here, Plaintiffs’ acquisition of the computer was not inherently wrongful. Plaintiffs purchased the computer at a public auction. To the extent Plaintiffs intended to obtain privileged materials through this purchase, the ethical considerations are somewhat murkier, but Plaintiffs claim they have not reviewed the materials, and Defendants have not cited case law that supports sanctions in this context.”

In the matter of attorney-client privilege, the court applied the oft-used balancing test in Washington, similar to Fed. R. Evid. 502(b). It found that the defendants did not simply relinquish the computer and privileged documents, like one tossing a privileged memo into the trash; rather, they believe they took the necessary precautions by reformatting the hard drive and installing a new operating system beforehand, like tearing up that privileged memo into 16 illegible pieces.

Thus, the court ruled that the Washington balancing test weighed against the waiver of attorney-client privilege. It ordered that the plaintiffs must review the hard drive for privileged documents and provide the defendants with a privilege log within seven days of the transfer. Sold!


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