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Malice Risks Attorney Privilege, NY Court Says

ALBANY, N.Y. (CN) - Prelitigation attorney correspondence enjoys qualified privilege, meaning that malicious intent could forfeit it, New York's high court ruled.

"Communication during this pre-litigation phase should be encouraged and not chilled by the possibility of being the basis for a defamation suit," the Tuesday opinion from the Court of Appeals states.

Though the lower courts had found such statements "absolutely" privileged, the court said only "statements pertinent to a good-faith anticipated litigation" should enjoy such privilege.

The ruling came in the case of a U.K. citizen, sponsored for U.S. employment by an American architectural and engineering firm, who allegedly attempted to steal proprietary information from the company to help a competing firm from London establish a Manhattan beachhead.

Front Inc.'s director of engineering Philip Khalil had already tendered his resignation in 2011 when the firm fired him for allegedly downloading company files to an external hard drive that he intended to pass along to his new employer, Eckersley O'Callaghan Structural Design, according to the ruling.

An investigation allegedly revealed that Khalil had also violated Front's policy on moonlighting by working over several years on 40 side projects for competitors, including Eckersley. Indeed Front said Khalil had diverted work for Apple Inc. from Front to Eckersley, including a project for the Apple Store on Broadway in New York City.

Soon after the firing, a law firm Front retained sent Khalil a letter laying out his alleged misconduct.

In the letter, attorney Jeffrey Kimmel of Meister Seelig & Fein demanded that Khalil stop using Front trade secrets and refrain from contacting company clients. Eckersley received a letter that made similar demands and accused it of conspiring with Khalil to take business from Front.

Six months later, a lawsuit Front filed against Khalil and Eckersley echoed the claims from the letters: misappropriation of trade secrets, unfair competition, and breach of contract and fiduciary duty.

Khalil then filed a third-party action against Kimmel and the law firm, alleging the letters he and Eckersley received were libelous because they contained statements offered as fact and not qualified in any way.

The Manhattan Supreme Court found the letter to be "absolutely privileged," however, and an appellate panel agreed in 2013, saying "absolute privilege attaches to the statements made by [Front's] counsel ... because they were issued in the context of 'prospective litigation.'"

Tuesday's ruling from the New York's high court, the Court of Appeals, says three Appellate Division departments have weighed in on the issue but "this court has not directly addressed" it.

The court pointed to two instances of precedent: the first in 1897 regarding statements attorneys made in connection with a proceeding before a court "when such words or writings are material and pertinent to the questions involved."

In 1983, the court extended privilege to "relevant statements made in judicial or quasi-judicial proceedings ... so that those discharging a public function may speak freely to zealously represent their clients without fear of reprisal or financial hazard."

It follows, then, that when litigation is anticipated, "attorneys and parties should be free to communicate in order to reduce or avoid the need to actually commence litigation," Judge Shelia Abdus-Salaam wrote for the unanimous court.

Since the extension of privilege to anticipated litigation "has the potential to be abused," however, the court added that "the privilege should be qualified."

"This requirement ensures that privilege does not protect attorneys who are seeking to bully, harass or intimidate their client's adversaries by threatening baseless litigation or by asserting wholly unmeritorious claims, unsupported in law and fact, in violation of counsel's ethical obligations," Abdus-Salaam wrote.

Chief Judge Jonathan Lippman concurred, as did judges Susan Read, Eugene Pigott and Jenny Rivera. The court's two newest jurists, Leslie Stein and Eugene Fahey, took no part.

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