The Attorney General claims he cannot reveal whether he told the Department of Labor and Industries that there was a three year time limit for recover of over payments because of attorney client privilege. However, as is discussed below, in Washington State attorney client privilege is strictly limited to very narrow purposes centered on preparation for likely litigation. As a consequence, in the interests of justice, there are numerous exceptions to the attorney client privilege. The following includes case law citations on four of the exceptions. These are:

1. Ordinary course of business exception. There is no privilege for documents that would have been produced with or without pending litigation. Since L & I was required by law to produce documents to calculate the amount of over payments whether the issue was litigated or not, there is no privilege attached.
2. Communication intended to be disclosed to others. Since the communication between the Attorney General and L & I was intended to be disclosed to Stakeholders, and was in fact disclosed to the public through press releases in February 2009, there is no privilege.
3. Implied Waiver if Client Voluntarily Disclosed Contents. Even if Attorney Client privilege did originally apply, L & I waived the privilege by disclosing the contents of the communication in press releases and news articles and Senate and House hearings.
4. Fraud and/or Bad Faith Exception. The privilege does not apply in cases alleging fraud or bad faith.

 

It is very unlikely that the communication in question even was ever privileged in the first place since it would have occurred even with out litigation and was intended to be disclosed to others. However, even if the privilege did exist originally, the press release from L & I in February 2009 clearly waived the privilege.

 

The emails from Senator Kline and Representative Chase on October 2, 2009 informed the Attorney General that a legal error had occurred which might lead to the misappropriation and/or improper use of hundreds of millions of dollars in public funds to the detriment of the public interest. These emails demanded that the Attorney General take appropriate remedial action to address this problem.

 

However, the Attorney General’s response on October 9, 2009 made it clear that the Attorney General DECLINED to address their concerns. Furthermore, the Attorney General is refusing to act or take any remedial action to correct the problem.

 

This report provides both a case law summary of the issues in question and a more strongly worded letter demanding that the Attorney General enforce existing State law and suggests that if the Attorney General fails to act in the public interest to insure that the hundreds of millions of dollars in over payments are returned to the State Treasury, then a letter should be sent to the Governor requesting that an independent prosecutor be appointed to insure that the public interest is protected.

 

Attorney Client Privilege Strictly Limited to Purpose for which it exists

In PAPPAS v. HOLLOWAY (1990), 114 Wn.2d 198, 787 P.2d 30, our Supreme Court stated:    

Because the privilege sometimes results in the exclusion of evidence which is otherwise relevant and material, contrary to the philosophy that justice can be achieved only with the fullest disclosure of the facts, the privilege cannot be treated as absolute; rather, it must be strictly limited to the purpose for which it exists. DIKE v. DIKE, 75 Wn.2d 1, 11, 448 P.2d 490 (1968).

 

Privilege must be balanced against the duty to testify

In Dietz v. Doe (1997), 131 Wn.2d 835, our Supreme Court stated:

 

The attorney-client privilege of RCW 5.60.060(2) is limited to the purpose for which it exists so that in application it is not used to unjustly prevent the admission of relevant and material testimony, the employment of the attorney-client privilege to prohibit testimony must be balanced against the benefits to the administration of justice stemming from the general duty to give what testimony one is capable of giving

Our Supreme Court quoted the United States Supreme Court which said:

 

The common-law principles underlying the recognition of testimonial privileges can be stated simply. "'For more than three centuries it has now been recognized as a fundamental maxim that the public . . . has a right to every man's evidence. When we come to examine the various claims of exemption, we start with the primary assumption that there is a general duty to give what testimony one is capable of giving, and that any exemptions which may exist are distinctly exceptiona'" United States v. Bryan, 339 U.S. 323, 331, 70 S. Ct. 724, 730, 94 L. Ed. 884 (1950) (quoting 8 J. WIGMORE, EVIDENCE § 2192, p. 64 (3d ed. 1940)). Jaffee v. Redmond, 518 U.S. 1, 116 S. Ct. 1923, 1928, 135 L. Ed. 2d 337 (1996). Employing the attorney-client privilege to prohibit testimony must be balanced against the benefits to the administration of justice stemming from the general duty to "give what testimony one is capable of giving." Bryan, 339 U.S. at 331. In re John Doe Corp., 675 F.2d 482, 489 (2d Cir. 1982).

 

Exception #1: Privilege does not apply to documents produced in the Ordinary Course of Business

A record created by counsel representing a public agency is subject to disclosure as a record the agency created in the ordinary course of its business if the record is one the agency would routinely produce, was created by counsel for purposes other than litigation, and was intended for routine administrative purposes. The work product doctrine does not shield records that a party would have generated pursuant to administrative procedures in the "ordinary course of business" even without the prospect of litigation.

The work product doctrine does not shield records that a party would have generated pursuant to "ordinary course of business" administrative procedures even without the prospect of litigation. The sole issue is whether the agency would have prepared the document with or without impending litigation. Heidebrink , 104 Wn.2d at 400 .

 

In Cowles Publishing Co. v. City of Spokane , for example, police officers filed initial mandatory reports with their supervisors of all nontraining police dog contacts that could have caused injury. Cowles Publ'g Co. v. City of Spokane , 69 Wn. App. 678 , 849 P.2d 1271 (1993). We agreed that these initial reports should have been disclosed.

 

Collins v. Mullins , held that investigation reports mandated by internal policy were not work product. Collins v. Mullins , 170 F.R.D. 132 (W.D. Va. 1996). Collins sued under 42 U.S.C. § 1983 after he was roughed up by Mullins, a deputy sheriff, at the sheriff's office. The court made the sheriff turn over the witness reports to Collins. While litigation may have been anticipated, the witness reports were gathered by the sheriff in the course of an internal investigation that was mandated whenever police misconduct was alleged. They were not, then, work product. Id. at 133, 137.

 

In a similar manner, the computer coding error found by Wyman prompted a mandatory internal investigation by L & I. Thus, the AG advice associated with this investigation is not privileged.

 

Exception #2: Privilege does not apply to communication intended to be disclosed to others

In July 1991 SEATTLE NORTHWEST v. SDG HOLDING CO. (1991), 61 Wn. App. 725, 812 P. 2d 488, the Court stated: The attorney-client privilege only applies to communications that are intended by the party to be confidential. Ramsey v. Mading, 36 Wn.2d 303, 312, 217 P. 2d 1041 (1950); see also State v. Sullivan, 60 Wn.2d 214, 217-18, 373 P. 2d 474 (1962). Therefore, if the communication is intended to be disclosed to others, it is not protected by the attorney-client privilege. Sullivan, 60 Wn.2d at 217-18.

 

Exception #3: Implied Waiver if Client Voluntarily Disclosed Contents to Third Party

The attorney-client privilege is subject to implied waiver if the client allows the information to be disclosed to others. Any voluntary disclosure by the client, oral or written, of privileged material  – even inadvertent disclosure - will waive the privilege. Confidentiality will be lost, and a waiver will occur. Once the privilege has been waived, it is treated as a waiver for all purposes. Once privileged communications are revealed, the privilege is left with no legitimate function to perform. McCormick on Evidence § 93, at 371-72; see Underwater Storage, Inc., 314 F. Supp. at 549 (once a document was entered the public domain. its confidentiality was breached) thereby destroying the basis for the continued existence of the privilege.

 

In a case involving the buying of elections in 1940, our Supreme Court wrote:

If the client opens up the subject in his testimony by voluntarily testifying thereto, the privilege is deemed waived."  STATE v. INGELS. (1940) 4 Wn. (2d) 714

 

 

In United States v. Voigt, 877 F.2d 1465 (10th Cir. 1989), the Tenth Circuit held that a voluntary disclosure of the substance of the attorney-client privilege waives that privilege. Selective disclosure of a communication may also waive the privilege as to all related portions of the communication. United States v. Jones, 696 F.2d at 1069, 1072 (4th Cir. 1982).

 

In the case of the Attorney General advising L & I that there was a three year time limit, either this advice was intended to be disclosed to the public, or attorney client privilege was waived when it was disclosed to the public. Supporting the view that this information was never intended to be privileged is the fact that it was disclosed in L & I’s first press release on this subject on February 10, 2009. The press release noted that L & I was “working with the Attorney General’s office to do further analysis.”  

 

Also on February 10, 2009, reporting on millions of dollars in over payments to the BIAW and other Retro groups due to a clerical error by the Department of Labor and Industries, Mark Fefer noted in the Campaign Cash section of the Seattle Daily Weekly: L&I is working with the Attorney General's office to figure out what to do next, if anything. "There's limits to what state agencies can do when we find a clerical error," Malooly says.

 

Malooly’s statement was incorrect because according to RCW 4.16.160, there are no limits to what state agencies can recover when they make a clerical error. But Malooy clearly disclosed the advice given by the Attorney General’s office, even if the advice was wrong.

 

On February 11, 2009, Brad Shannon wrote an article for the Olympian Newspaper entitled “Computer code cost state millions… Duplication resulted in overpayments to "Retro" programs”.

In this article, Brad states: “The overpayments came to about 10 percent of what should have been paid out, said Bob Malooly, assistant director of insurance services for L&I.

"L&I says that in their legal analysis, they don't think the retro group has to repay that money" since 1994, said Tom Kwieciak, BIAW's program manager. But Kwieciak said that refunds are made in three yearly adjustments, so it is possible that overpayments since the 2005-06 fiscal year could be subject to adjustments. "A lot of us may get a bill," he said.

Kwieciak said he and representatives of other "retro" program operators such as the Washington Farm Bureau learned of the glitch in a meeting with agency director Judy Schurke that was called on short notice for 7:30 a.m. L&I spokeswoman Kim Contris said the agency still is looking into the program to learn what repayments it could seek, and how extensive the overpayments were. “

 

Thus, it is clear that the advice of the attorney general was disclosed to BIAW and other retro groups at a meeting held at 7:30 am on February 10^th. This legal advice was that “they don’t think the retro group has to repay the money (beyond 3 years).”

 

On February 18, 2009, in an official letter sent to Retrospective Rating Participants from Robert J> Malooly, Assistant Director of Insurance Services at L & I, and posted on the L & I public website, L & I states: “We are currently working with the Attorney General’s office to obtain their advice concerning the laws governing recovery of any excess funds paid, as well as several other questions… As more information becomes available, we will share it with you and with the organizations that sponsor retrospective rating groups “

 

The above statement indicates that the information was always intended to be released to the public.

There were numerous other articles and interviews and in nearly every one L & I stated that they hade been advised by the Attorney General that there was a 3 year time limit for recovery of excess payments.

This included the Senate Commerce and Labor Committee hearing on October 2, 2009 in which the Director of  & I stated on the record that the reason they were not seeking full repayment was because they had been advised by the Attorney General that there was a three year time limit.

 

 

 

Exception #4: Privilege Does not apply as a defense against fraud or bad faith

The attorney-client privilege may not be asserted to perpetuate either a civil or criminal fraud.

RCW 48.01.130, requires good faith dealing in all insurance matters. It is a mandatory requirement of the Washington State Bar Association Ethical Code for an attorney to disclose confidential client information to a court when it is necessary in order to avoid assisting a criminal or fraudulent act by the client. Privilege in the context of a government entity must give way when the information relates to criminal conduct sought by the prosecuting authority in another governmental agency, because of the existence of a superior public interest. In re Lindsey, 158 F.3d 1263 (D.C. Cir. 1998)

 

Relying upon Escalante v. Sentry Ins. Co., 49 Wn. App. 375, 743 P. 2d 832 (1987), review denied, 109 Wn.2d 1025 (1988), the attorney-client privilege  cannot be asserted when allegations of bad faith are at issue in the case. In Escalante, the Court of Appeals held that the attorney-client privilege is not to be invoked when the documents sought to be protected pertain to present or future "fraudulent" conduct by an insurer. Escalante, 49 Wn. App. at 394. The court established a 2-pronged analysis for determining whether fraudulent conduct exists which is sufficient to vitiate the privilege. First, the court must determine whether there was a factual showing adequate to support a good faith belief by a reasonable person that wrongful conduct sufficient to invoke the fraud exception has occurred. Escalante, 49 Wn. App, at 394 (quoting Caldwell v. District Court, 644 P. 2d 26, 33 (Cob. 1982)). If so, the documents are subject to an in camera inspection to determine whether there is a foundation in fact sufficient to waive the privilege based upon "civil fraud". Escalante, 49 Wn. App. at 394.

 

Evidence of Wrongful Conduct

The Attorney General has at least three affirmative duties. The first is a legal duty to enforce and comply with existing State laws. The second is a financial duty to minimize losses to the State Treasury. The third is a social duty to act in the public interest. In advising the Department of Labor and Industries that there was a three year time limit to recover over payments when in fact, under RCW 4.160.160 there was no time limit, the Attorney General failed to perform all three of the affirmative duties. First, the advice was clearly contrary to existing State law (RCW 4.16.160 among others). Second, the advice might cost the State Treasury more than one billion dollars. Third, the advice was not in the best interest of the public.

 

Defenders of the Attorney General might claim that the advice was merely an innocent mistake on the part of a low ranking member in the Attorney General’s office. It is difficult to believe that the Attorney General would not be directly involved in advice regarding hundreds of millions of dollars. But even assuming that the original advice was made due to a mistake by a low ranking member of the Attorney General’s office, the Attorney General has had many chances to correct this error and has failed to do so. Not only has this advise from the Attorney General’s office been in numerous media reports during the past 8 months, but separate emails on October 2, 2009 from Representative Maralyn Chase and Senator Adam Kline specifically pointed out the mistake, and cited the law in question. They thus gave the Attorney General warning that there was a problem involving more than one billion dollars - and an opportunity to correct the error.

 

The failure of the Attorney General to acknowledge and correct this billion dollar error in his October 9, 2009 letter to Representative Chase is evidence that this was not merely an innocent mistake.

Instead, the letter from the Attorney General’s Office included at least three claims that were factually incorrect.  First, the letter claimed attorney client privilege, despite knowing full well that L & I had waived the privilege in their many statements to the press.

 

Second, the Attorney General falsely claimed they could not answer these important questions due to the possibility of pending litigation. However, the Industrial Insurance Review Board confirmed that BIAW had not filed for review.. and in fact that it was no longer possible for BIAW to file a petition because there was a 60 day time limit which had expired months ago. 

 

Defenders of the Attorney General point to the Attorney General’s PDC lawsuit against BIAW as evidence that the Attorney General may have legitimate concerns about litigation. But the PDC law suit was not the litigation issue referred to in the Attorney General’s October 9^th letter. Moreover the PDC suit only seeks to recover less than one million dollars. This is little more than pocket change to the BIAW. BIAW Board minute meeting notes refer to a Slush fund account which may have more than $50 million dollars.

 

Third, the Attorney General claimed to be acting to protect the tax payers - when in fact the tax payers stand to loss a billion dollars based on the Attorney General’s 3 year time limit advice - and continue to face that threat due to the Attorney General’s failure to correct their legal error.

 

All three of these untrue claims made by the Attorney General in their letter to Representative Chase are further evidence of Bad Faith and that the Attorney General is actively involved in trying to defraud the public of more than one billion dollars.

 

Paramount Duty of the Attorney General

The Attorney General’s letter to Representative Chase focuses on the Attorney General’s Duty to represent the Department of Labor and Industries – as if L & I were the Attorney General’s primary client. In fact, the Attorney General has a far greater duty to protect the public interest than to L & I.

 

In State ex rel. Dunbar v. State Bd. Of Equalization, 140 Wash. 433, 440, 249 P. 996 (1926), our Supreme Court stated: “(The Attorney General’s) paramount duty is the protection of the interest of the people of the state and, where he is cognizant of violations of the constitution or the statutes by a state officer, his duty is to obstruct and not to assist; and where the interests of the public are antagonistic to those of state officers, or where state officers may conflict among themselves, it is improper for the Attorney General to defend such state officers.” 

Thus, where there is a conflict between protecting the public interest versus protecting the improper actions of employees of a State agency, the Attorney General has a higher duty to the pubic than to the employees of the State agency. 
 

Conclusion

The emails from Senator Kline and Representative Chase on Friday October 2, 2009 informed the Attorney General that a legal error had occurred which might lead to the misappropriation and/or improper use of public funds to the detriment of the public interest. These emails demanded that the Attorney General take appropriate remedial action to address this problem.

 

However, the Attorney General’s response on Friday, October 9, 2009 made it clear that the Attorney General DECLINED to address their concerns. Furthermore, the Attorney General is refusing to act or take any remedial action to correct the problem.

 

In Reed v. Cunningham, 126 Iowa 302, 101 N. W. 1055, it is said:

 

"…such refusal or neglect (of State officers to protect the public interest) is the very basis on which equity will take jurisdiction; for otherwise the taxpayer whose interest is indirect would be utterly without remedy. But for the right to invoke the aid of a court of equity, officers might plunder the public treasury with entire immunity so long as they, or others for them, continue in control of the governing body."

 

In Reiter v. Wallgren (1947), 28 Wn.2d 872, our Supreme Court discussed the possibility that an Attorney General might place the protection of a State agency above protection of the public interest:

 

“The attorney general may be incompetent or corrupt, and may therefore refuse to institute proceedings to prevent actions however illegal, and the funds and property of the state be placed at the mercy of state officers, who, by corruption or incompetency, may produce or allow such a disposition of the property or funds of the state, during their term of office, and before they could be reached by the slow process of impeachment, as would practically ruin the state… We never have held that, in a proper case where the attorney general refused to act to protect the public interest, a taxpayer could not do so. We have not had occasion to pass upon such a question, and we trust we never shall. “

We are rapidly reaching the point where such a question might have to be asked. What can be done when the Attorney General refuses to act? Dunbar mentions the possibility of (the Governor) appointing a special prosecutor when the attorney general’s representation would conflict with the duty to represent and protect the interests of the people of the state.  Dunbar (1926), 140 Wash. at 440-41.  

Article III, Section 5 of Our State Constitution does charge the Governor with the responsibility to see that the laws are faithfully executed. 

In Reiter v. Wallgren (1947), 28 Wn.2d 872, our Supreme Court stated: "Under our form of government, it is the right and duty of the judicial department to interpret the law and declare its true meaning and intent. Equally, it is the right and duty of the executive department to see that the laws as thus interpreted are properly enforced. As the final right to determine the true intent and purpose of all laws is lodged in the supreme court of this state, so is the final determination as to their enforcement and execution lodged in the governor. “

Therefore, one possible course of action might be to draft a letter to the Attorney General -  including some legal citations as to why the Attorney General must act and demanding more clearly that the Attorney General take action -  with the hope that some members of the legislature would be willing to help draft and sign such a letter. 

Hopefully, the Attorney General would then take some kind of action. This will address the concerns of those who might claim that the two prior emails of October 2, 2009 did not clearly enough State that there was a demand for the Attorney General to enforce existing State law. 

But if the Attorney General still refuses to act, then a potential next step would be to ask the Governor to appoint a special prosecutor to look in this matter. I realize this has never been done before. But we have never had an Attorney General refuse to act in a matter involving over one billion tax payer dollars before.

 

As one final point, it is not merely the Attorney General’s duty to enforce State law and act in the public interest, it is also the duty of our Governor and every member of our legislature. I therefore hope that we can somehow work together to find a resolution to this problem which allows our State Treasury to recover the hundreds of millions of dollars in over payments which were improperly given to retro agencies.

 

Regards, David Spring M. Ed.

Director, Fair School Funding Coalition

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