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A federal appeals court has revived an abuse of process suit against a law firm and lawyer that allegedly used unfair tactics in litigation — including hiding documents, obstructing discovery and fabricating privilege claims — after finding that a lower court improperly determined that such conduct was immune from suit under the doctrine of judicial privilege. In General Refractories Co. v. Fireman’s Fund Insurance Co., a unanimous three-judge panel of the 3rd U.S. Circuit Court of Appeals found that U.S. District Judge John R. Padova of the Eastern District of Pennsylvania had “interpreted the judicial privilege too broadly” when he dismissed claims against the law firm of Gilberg & Kiernan in Washington, D.C., and one of its attorneys, Andrew Butz. “The mere existence of the abuse of process tort is evidence that judicial privilege applies to a much narrower range of activity than the attorney appellees urge. Where judicial process is being perverted, immunity would impede, not further, the interests protected by the judicial privilege,” 3rd Circuit Judge Marjorie O. Rendell wrote. The plaintiff in the suit, General Refractories Co., a manufacturer of heat-resistant materials that contained asbestos, was named in a number of asbestos-related personal injury suits. As the asbestos litigation wore on, GRC and its excess insurer, Fireman’s Fund, developed a dispute over the amount of coverage it was entitled to under its policy. Fireman’s Fund said the policy had a total coverage limit of $5 million, but GRC insisted that the policy had three annual coverage limits of $5 million per year, or $15 million in total excess coverage. Gilberg & Kiernan and Butz initially represented Fireman’s Fund in the Philadelphia Court of Common Pleas. The litigation was especially contentious, and GRC ultimately moved for sanctions, accusing the insurer and Butz of an array of discovery and other litigation abuses. Philadelphia Common Pleas Judge Mark I. Bernstein held a four-day hearing on the sanctions motion and later issued a blistering opinion that was harshly critical of the conduct of both the defendant and its lawyers. “The sad history of defendant’s discovery responses in this case,” Bernstein wrote, “reveals a clear pattern of delay, stonewalling, deception, obfuscation and pretense. Defendant intentionally withheld critical documents, ignored court orders, permitted false testimony at depositions and misrepresented facts to opposing counsel and the court.” Bernstein faulted Fireman’s Fund, its employees, its in-house lawyer and Butz, finding that they “participated in an intentional campaign to hide critical facts and documents.” At every stage of discovery, Bernstein found, “reasonable and relevant requests have been met by incomplete responses, unreasonable objections, unfounded claims of privilege and intentionally incomplete privilege logs.” Whenever GRC turned to the court for help, Bernstein said, “additional documents were ‘found,’ ‘voluntarily produced’ and the privilege log expanded.” Finding the conduct “inexcusable,” Bernstein imposed heavy sanctions, including a fine of more than $125,000, to be paid to the city, and revocation of Gilberg & Kiernan and Butz’s pro hac vice admission, effectively kicking them off the case. Bernstein also awarded GRC $125,000 for its costs and attorney fees for bringing the sanctions motion and extended the discovery period by 120 days. Bernstein issued a blanket waiver of Fireman Fund’s right to assert privilege as to a large number of documents, and a directive that Fireman’s Fund supplement and correct its prior responses to GRC’s discovery requests. On appeal, the Superior Court of Pennsylvania largely upheld all of the sanctions imposed, except the blanket waiver of privilege. GRC then filed a new lawsuit in state court, alleging abuse of process against Butz and his firm and Fireman’s Fund. The suit also included claims against Fireman’s Fund of bad faith and breach of the covenant of good faith and fair dealing for the same alleged conduct. The case was removed to federal court, where Padova dismissed the abuse of process claims against all the defendants, finding that many of the allegations did not qualify as a “use” of process. Padova also found that the lawyer and law firm were entitled to dismissal of the claim under the doctrine of judicial privilege. Now the 3rd Circuit has ruled that while Padova was correct in finding flaws in the abuse of process claim, he should have given GRC an opportunity to amend the suit. “While we agree that some of the alleged uses of legal process, such as failing to comply with court orders, failing to seek a stay, and failing to provide copies of subpoenaed documents, as well as contacting the asbestos litigation counsel, do not constitute ‘use’ of a legal process for purposes of an abuse of process claim, we disagree that the complaint does not contain any of the necessary allegations,” Rendell wrote in an opinion joined by 3rd Circuit Judge Thomas L. Ambro and visiting 8th Circuit Senior Judge Frank J. Magill. Rendell found that “most of the allegations clearly involve the use of the legal process.” Under Pennsylvania law, Rendell said, the term “use” in the context of an abuse of process claim “requires that a party actively seek and employ a legal process.” GRC’s allegations satisfied that requirement, Rendell found, by alleging that Butz had “filed various motions in an effort to obstruct discovery, knowingly made bogus claims of privilege in response to discovery requests, hid documents, and made misrepresentations to opposing counsel and the court.” Rendell concluded that the suit “clearly contains allegations that the attorney appellees actively sought and employed legal processes.” As a result, Rendell found that Padova had abused his discretion when he denied GRC leave to amend its allegations of an abuse of process. Turning to the issue of judicial privilege, Rendell found that Padova erred in holding that the doctrine would effectively immunize a lawyer and law firm from such a suit. Padova held that the lawyer’s responses to discovery and court filings “are absolutely privileged and, as such, cannot support a claim for abuse of process.” Rendell disagreed, saying that Padova’s reading of the doctrine was too broad and would effectively render the abuse of process tort meaningless. Under Pennsylvania law, Rendell found, judicial privilege extends to “communications which are issued in the regular course of judicial proceedings and which are pertinent and material to the redress or relief sought.” The privilege exists, Rendell said, “because there is a realm of communication essential to the exploration of legal claims that would be hindered were there not the protection afforded by the privilege.” When applied to lawyers, Rendell said, the purpose of the privilege is to encourage them to best represent their clients without fear of reprisal. But Rendell found that the privilege applies only to “communications” that are “pertinent and material to the redress or relief sought” or “essential to the exploration of legal claims in litigation.” GRC’s lawyer, Michael Conley of Anderson Kill & Olick, argued that Padova erred because judicial privilege cannot apply to discovery abuses and frivolous motions. “It is illogical on the one hand to say that discovery abuses and filing frivolous motions can support an abuse of process claim because those actions are incident to the litigation process, and on the other hand to say that those actions are absolutely privileged because they are communications issued in the litigation process,” Conley wrote in his brief. Rendell agreed, saying that Conley’s argument “has a good deal of logical appeal.” In an analogous case, Rendell said, the 3rd Circuit held in its 1990 decision in Silver v. Mendel that judicial privilege does not apply to the Pennsylvania statutory tort for wrongful use of civil proceedings — the Dragonetti Act — because “Pennsylvania would not have the Dragonetti Act if Pennsylvania’s judicial privilege protected the filing of an action without probable cause and primarily for a purpose other than to secure relief.” Rendell found that the “gist” of GRC’s suit “is that the attorney … acted in a way that abused process. That is, GRC does not base its cause of action merely on statements, but, rather, chiefly on conduct.” While some communications may be privileged,” Rendell wrote, “… conduct is clearly susceptible to being punishable as abuse.” As a result, Rendell concluded that GRC “could include averments that the attorney appellees abused process in a manner not protected by the judicial privilege.” Although the privilege still protects statements made in court filings and during argument and trial, Rendell found that it “does not extend to either conduct or to other communications neither ‘pertinent and material to the redress or relief sought’ nor ‘essential to the exploration of legal claims in litigation.’” Butz and his firm were represented in the appeal by attorneys James W. Christie and Rex F. Brien of Christie, Pabarue, Mortensen and Young. Fireman’s Fund was represented by attorneys Ronald P. Schiller and Daniel J. Layden of Piper Rudnick.

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