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Judge Harvey Bartle III has a word of advice for lawyers who are threatened with malpractice lawsuits: Don’t talk amongst yourselves. In a 10-page opinion in Koen Book Distributors v. Powell Trachtman Logan Carrle Bowman & Lombardo, the U.S. district judge ordered a law firm to turn over a slew of e-mails exchanged among the firm’s lawyers during a 35-day period after the firm was threatened with a malpractice suit and before the client had hired new lawyers. Bartle, of the Eastern District of Pennsylvania, rejected the firm’s argument that the e-mails were protected by the attorney-client privilege. Instead, he said, since the firm’s representation of its own lawyers conflicted with its continuing representation of the client, none of the e-mails was protected. In the suit, Koen Books, a wholesaler, said it hired Powell Trachtman in July 2000 for the purpose of completing a security agreement with one of its largest customers, Crown Books Corp., which was in the midst of purchasing a large volume of books on a line of credit. The suit alleges that Crown provided a signed security agreement, but that Powell Trachtman’s lawyers advised Koen Books against signing it until the law firm could negotiate better terms. Over the next six months, the suit says, Powell Trachtman “purportedly negotiated” better terms and gave Koen a new version of the agreement to sign, advising that it was “now acceptable.” In fact, the suit alleges, the new version was “substantially identical” to the original. But worse yet, it was too late, the suit says, because Crown had filed for bankruptcy. “As a result of [Powell Trachtman's] negligent legal advice and needless delay in perfecting Koen Books’ security interest, Koen Books became Crown’s largest unsecured creditor,” the suit says. At the time of the bankruptcy, the suit says, Crown owed Koen Books $3.4 million which was “entirely unsecured.” After the bankruptcy, the suit says, Powell Trachtman charged Koen Books more than $120,000 in legal fees “in an effort to obscure its mistakes,” for its work in unsuccessfully arguing to the bankruptcy court that Koen Books should qualify as a secured creditor. The suit alleges that Powell Trachtman also “attempted to coerce Koen Books into releasing Powell Trachtman from all existing and prospective liability for malpractice.” In a formal answer to the suit, Powell Trachtman denied the allegations and countersued for breach of contract, seeking $126,254 in unpaid fees from Koen Books. The discovery dispute over the e-mails began when Koen Books’ new lawyers — William E. Mahoney Jr., Joseph D. Cronin and Michael D. O’Mara — demanded that Powell Trachtman turn over all communication among its lawyers during the period after Koen Books threatened to sue and before it hired new bankruptcy lawyers. Judge Bartle found that Koen Books informed Powell Trachtman on July 9, 2001, that it was considering a malpractice action against it. But Bartle also found that Powell Trachtman continued work for Koen Books until Aug. 13, 2001, when it terminated its services. In the meantime, between July 9 and Aug. 13, several lawyers at Powell Trachtman who were doing the work for Koen Books consulted with another lawyer in the firm concerning ethical and legal issues that had arisen out of the portent of a malpractice action. Powell Trachtman’s lawyers, William J. O’Brien, Nicholas M. Centrella and Jacqueline J. Ager of Philadelphia-based Conrad O’Brien Gellman & Rohn, argued that the internal e-mails were protected by the attorney-client privilege because Koen Books had consulted with and engaged other outside counsel to represent them. Bartle disagreed, saying “we do not think this makes any difference. Simply because plaintiffs may have retained other counsel does not remove the conflict so long as defendants also continued to represent them.” Instead, Bartle said, “it is the relationship between the clients and the law firm from which discovery is sought that is central to the analysis.” Powell Trachtman argued that it was in an impossible position between July 9 and Aug. 13 because it was forced to prepare for an upcoming bankruptcy hearing while at the same time handling the threat of a lawsuit against the firm. But Bartle found that the firm had better options that it chose not to pursue. “We recognize that the firm was enmeshed in an unenviable situation once the threat had been made with a hearing before the bankruptcy judge scheduled for … only two weeks away. Nonetheless, the firm still owed a fiduciary duty to plaintiffs while they remained clients,” Bartle wrote. “This duty is paramount to its own interests. To avoid or minimize the predicament in which it found itself, the firm could have promptly sought to withdraw as counsel in the bankruptcy proceeding. Alternatively, if it reasonably believed that representation of the clients would not be adversely affected by also representing itself, it could have promptly solicited the clients’ consent to continue the representation after full disclosure and consultation.” Bartle reviewed the contents of the e-mails and concluded that all of them must be turned over to Koen Books because they showed that Powell Trachtman suffered from a conflict of interest. “These … are e-mails from one lawyer to another in the firm concerning if and how to continue to represent the clients and how to respond to the clients’ communications. Permeating the documents is consideration of how best to position the firm in light of a possible malpractice action. They clearly establish that the law firm was in a conflict of interest relationship with its clients,” Bartle wrote. Likewise, Bartle concluded that the remaining documents were not protected by the work-product doctrine. The work-product doctrine, Bartle said, “shelters the mental processes of the attorney, providing a privileged area within which he can analyze and prepare his client’s case,” and can only be invoked when the material in question was prepared “in anticipation of litigation.” But just like the attorney-client privilege, Bartle said, the protection afforded by the work-product doctrine “is not absolute.” Lawyers “cannot cloak themselves in its mantle,” Bartle said, when their “mental impressions and opinions are directly at issue.” And the doctrine “does not apply where a client, as opposed to some other party, seeks discovery of the lawyer’s mental impressions.” As a result, Bartle said, the work-product doctrine “cannot shield a lawyer’s papers from discovery in a conflict of interest context anymore than can the attorney-client privilege.”

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