Rackwise, Inc. v. Foley Shechter Ablovatskiy, LLP

Background

Rackwise filed a legal-malpractice action against Foley Shechter Ablovatskiy, LLP, Jonathan R. Shechter, and Alexander Ablovatskiy. Rackwise alleged that the Defendants represented Rackwise while assisting Guy Archbold after he had been removed from his positions with the company. Rackwise claimed that the Defendants’ conduct breached duties owed to Rackwise and caused significant damages.

During discovery, the Defendants withheld more than 1,600 communications with Archbold and other former Rackwise employees and board members. They relied on the attorney-client privilege, the common-interest doctrine, and the work-product doctrine. Rackwise moved to compel production. The Defendants cross-moved to compel communications between Rackwise and its own corporate lawyers.

Attorney-Client and Common-Interest Privileges

The Court applied New York law to the attorney-client and common-interest issues. It explained that when a corporation is the client, the corporation—not its officers, directors, or former managers—holds the attorney-client privilege. The Court found that the Defendants represented Rackwise itself, rather than the Archbold Board, based on the engagement letter and the Defendants’ repeated statements that they represented Rackwise.

The Court ruled that Rackwise’s current management controlled the privilege and had expressly waived it for purposes of Rackwise’s claims and its motion to compel. The Court also ruled that the communications were necessarily at issue because Rackwise sued its former attorneys for malpractice. The Court rejected the Defendants’ argument that the Archbold Board had a separate privilege based on an adversarial relationship with Rackwise’s current board. It found no relevant sale, merger, transaction, or litigation that created such a relationship.

The Court further held that the common-interest doctrine did not protect the communications. That doctrine is not an independent privilege; it applies only when an underlying attorney-client or work-product protection exists. Because Rackwise held and waived the relevant protections, the Defendants could not use the common-interest doctrine to withhold the communications.

Work Product

The Court applied federal law to the work-product issue. Work product generally protects materials prepared for litigation, but the Court explained that an attorney cannot use that protection to withhold from the attorney’s own client the work product created while representing that client. The Court also found that Rackwise’s malpractice and breach-of-fiduciary-duty claims showed sufficient need for the materials because they directly concerned the Defendants’ performance as attorneys.

The Court therefore ruled that Rackwise was entitled to the communications withheld under the work-product doctrine.

Judicial Estoppel

The Court rejected the Defendants’ argument that Rackwise should be barred from asserting that the Defendants represented Rackwise. The Court found no inconsistency between Rackwise’s position in the earlier California litigation—that Archbold lacked actual authority to act for Rackwise—and its position in this case—that Archbold retained the Defendants while acting with apparent authority. The Court stated that those positions could be reconciled.

Cross-Motion

The Court denied the Defendants’ cross-motion seeking Rackwise’s communications with its own attorneys. It first found that the discovery dispute was not ready for review because the Defendants had not shown that they had properly requested the communications or met and conferred as required.

The Court also rejected the cross-motion on the merits. It found that the case concerned alleged malpractice by the Defendants, not Rackwise’s reasons for trying to control the company. The Defendants had not identified the alleged wrongdoing, the affirmative defenses to which the communications related, or why the information could not be obtained by other means. The Court held that Rackwise had not placed its communications with its own attorneys at issue merely by filing the malpractice action, unless Rackwise intended to rely affirmatively on those communications.

Disposition

The Court granted Rackwise’s motion and denied the Defendants’ cross-motion. By January 15, 2021, the Defendants were required to amend their responses to specified discovery requests and produce the communications listed in their privilege log that they had withheld under the attorney-client privilege, common-interest doctrine, or work-product doctrine. The parties were directed to meet and confer about any remaining disputes, which could then be submitted for the Court’s private review.