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Outpost Solar, LLC v. Henry, Henry & Underwood, P.C.

Court of Appeals of Tennessee, Nashville

December 29, 2017

OUTPOST SOLAR, LLC, ET AL.
v.
HENRY, HENRY & UNDERWOOD, P. C., ET AL.

          Session November 1, 2016

         Appeal from the Circuit Court for Giles County No. CC11515 James G. Martin, III, Judge.

         This interlocutory appeal arises out of an action in which two companies brought suit against their former attorney for legal malpractice. The attorney moved for summary judgment as to one client's claim, contending that the claim was barred by the statute of limitations; the client responded that it learned of its cause of action within one year of the assertion of the claim. The attorney then sought through discovery to have the former client produce communications from the client's new counsel; the client declined to produce the communications, taking the position that they were protected by the attorney-client privilege. The attorney moved the trial court to compel the client to produce the communications, and the court granted the motion, holding that the client impliedly waived attorney-client privilege in asserting that the client discovered the cause of action within the year preceding the assertion of the claim. Discerning no error, we affirm the trial court's holding.

         Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed.

          Jay S. Bowen and Will Parsons, Nashville, Tennessee, for the appellant, BNL Technical Services, LLC.

          Winston S. Evans, Nashville, Tennessee, for the appellees; Henry, Henry & Underwood, P.C., and Robert Henry.

          Richard H. Dinkins, J., delivered the opinion of the court, in which Andy D. Bennett and W. Neal McBrayer, JJ., joined.

          OPINION

          RICHARD H. DINKINS, JUDGE.

         This is an interlocutory appeal in an action for legal malpractice brought by Outpost Solar, LLC ("Outpost") and BNL Technical Services, LLC ("BNL") against Robert C. Henry ("Mr. Henry") and Henry, Henry, and Underwood, P.C., his law firm. BNL appeals an order granting Mr. Henry's motion to compel BNL to produce copies of correspondence between BNL and its counsel that BNL claims is protected by the attorney-client privilege. Mr. Henry sought production of the correspondence in connection with his defense that BNL's claim was barred by the one year statute of limitations applicable to legal malpractice claims at Tennessee Code Annotated section 28-3-104. The trial court ordered the production of the documents after holding that BNL impliedly waived the privilege when it asserted, in response to Mr. Henry's statute of limitations defense, that it discovered the cause of action within the limitations period. BNL contends that the court erred because BNL did not use the information to support its legal malpractice claim.

         I. Pertinent Facts and Procedural History[1]

         BNL is a contract engineering support and renewable energy services firm that does business in Tennessee; Wilson P. Stevenson, III ("Mr. Stevenson"), is the majority owner and president. BNL and a company known as Richland, LLC ("Richland") formed Outpost, a joint venture, to design and manufacture solar energy systems. Mr. Henry prepared the articles of organization, operating agreement, and other documents for Outpost, and the articles were filed on January 14, 2009, with Mr. Henry serving as Outpost's registered agent until September 13, 2011. In August 2011, Mr. Henry prepared the Bill of Sale when BNL purchased Richland's 50 percent interest in Outpost; the bill of sale included a provision that Mr. Henry, as Richland's attorney, had drafted the document "at both parties' request, " and that they "have been advised a conflict may exist between them and have requested that this instrument be prepared jointly for the Company's attorney and consent thereto and waive any conflict of interest."

         Prior to BNL's purchase of Richland's interest, Outpost and Mr. Stevenson had engaged in discussions with the Industrial Development Board of the City of Pulaski and Giles County, Tennessee ("the Board") about leasing space in the industrial park. In due course, Mr. Stevenson and Mr. Speer, the Executive Director of the Board, negotiated the terms of a lease of property in the park for a total term of twenty years.[2] When Mr. Stevenson and Mr. Dan Speer reached the agreement, Mr. Henry, who also represented the Board, prepared the lease agreement, which Outpost and the Board executed on September 6, 2011.[3]

         In December 2011, a dispute arose between Outpost and Richland with respect to some equipment manufactured by Richland, and on January 23, 2012, Mr. Henry wrote Mr. Stevenson, advising him that Mr. Henry's firm "no longer represent [Outpost] and our attorney-client relationship has terminated." In February 2012 the Board began discussions with Magneti Marelli, another tenant of the industrial park whose facility adjoined the property upon which Outpost held an option to lease, regarding Marelli's proposed expansion; as a result of these discussions, the Board requested Outpost on several occasions to release its option. The Board and Outpost were not able to agree on the terms of a release.

         On October 11, 2012, Mr. Henry sent Mr. Stevenson a letter on behalf of the Board, inter alia, advising him that Outpost was in default of the lease in several respects and that, if the items "[were] not addressed during the cure period, the Board 'may' exercise its option to terminate the Lease." On November 9, Outpost, through its new counsel, gave the Board notice that Outpost was exercising its option to lease the additional acreage, and on November 12, the Board executed a temporary easement in favor of Magneti Marelli. In May 2013, Outpost vacated the premises.

         With specific reference to the claims of BNL, which give rise to the instant appeal, the Amended Complaint also alleged that throughout 2010 and 2011, PV Training & Research, LLC ("PVTRC"), a company owned by Mr. Stevenson's mother which was planning to open a solar farm in Pulaski, entered into agreements with the Board to purchase three parcels of land which it planned to assign to Silicon Ranch, LLC ("Silicon Ranch") to develop the solar farm; that, in exchange, Silicon Ranch was going to reimburse $225, 000 in site preparation costs incurred by BNL and award BNL contracts related to work on the Pulaski solar farm and other Silicon Ranch solar farms; and that the Board sold the property directly to Silicon Ranch in breach of the agreement to sell to PVTRC; that Mr. Henry, in violation of his duties as counsel to BNL, "facilitated [the Board's] breach of the agreements to sell real estate to PVTRC" and failed to inform BNL of the Board's action; and that BNL "did not discover Henry's integral role in this transaction and his violation of duties to BNL until late 2013 and/or early 2014 when these facts were revealed in the discovery process in a separate lawsuit."[4]

         On October 11, 2013, Outpost and Mr. Stevenson filed the instant suit against Mr. Henry and his law firm, alleging that Mr. Henry had a conflict of interest and committed legal malpractice in representing Outpost and Mr. Stevenson while also representing the Board. On December 17, 2013, Mr. Henry served a subpoena duces tecum on Scott Williams ("Mr. Williams"), the attorney who had begun representing Outpost and BNL, seeking all correspondence, e-mails, and other written communications between Mr. Williams, Mr. Stevenson, Outpost, and BNL. Outpost filed a motion to quash the subpoena on January 13, 2014, arguing that the documents were protected by attorney-client privilege and/or the work product doctrine; on July 18, the court entered an order, inter alia, requiring Outpost to provide a log within 60 days of the documents not provided to Mr. Henry for which a claim of privilege was made.

         On July 24, 2014, Outpost amended the complaint, dropping Mr. Stevenson as a plaintiff, adding BNL as a plaintiff, and asserting additional causes of action for breach of fiduciary duty, aiding and abetting constructive eviction, and fraudulent concealment. BNL's legal malpractice claim, which arises from Mr. Henry's role in the Board's sale of the solar farm property directly to Silicon Ranch, asserts that Mr. Henry "committed legal malpractice through his representation of [the Board] that was directly adverse to his client, BNL." Mr. Henry answered on November 19, denying the gravamen of the complaint and asserting, inter alia, that BNL's claim was barred by the one-year statute of limitations at Tennessee Code Annotated section 28-3-104(a)(2).[5]

         On December 3, 2014, Mr. Henry moved for summary judgment, contending that Mr. Stevenson had actual or constructive knowledge of the facts giving rise to BNL's cause of action more than a year before BNL joined in the instant suit, therefore barring BNL's malpractice claim. In a portion of his response to the motion for summary judgment, Mr. Stevenson reasserted statements he made in a September 2014 declaration.[6] On December 10, Mr. Henry filed a motion asking the court to compel BNL to produce documents that had been subpoenaed from Mr. Williams, which BNL had withheld on the ground that the documents were protected from production by the attorney-client privilege.[7]

         On March 27, 2015, the court appointed senior judge Ben Cantrell as Special Master, with instructions to determine whether any of the 151 documents which BNL had withheld from production as privileged were relevant to Mr. Henry's statute of limitations defense and to advise the court in that regard. On May 19, 2015, BNL submitted a total of 172 documents to the Special Master, and on August 10 Judge Cantrell reported that eight of the documents contained information relevant to the defense.[8] The court thereafter ordered BNL to produce the eight privileged documents, holding that that "[the] plaintiffs put their privileged information at issue by pleading the discovery rule."

         BNL moved for permission to file an interlocutory appeal pursuant to Tennessee Rule of Appellate Procedure 9, which the trial court granted; this court, likewise granted permission to appeal. The question presented for our review is whether the trial court erred in holding that BNL impliedly waived the attorney-client privilege when it invoked the discovery rule in response to Mr. Henry's assertion of the statute of limitations defense and ordering production of the documents.

         II. Discussion

         Decisions regarding pre-trial discovery are inherently discretionary; therefore, the standard of review for such decisions is abuse of discretion. See Lee Medical, Inc. v. Beecher, 312 S.W.3d 515, 524 (Tenn. 2010) (citations omitted). An abuse of discretion occurs if a trial court causes an injustice to a party by "(1) applying an incorrect legal standard, (2) reaching an illogical or unreasonable decision, or (3) basing its decision on a clearly erroneous assessment of the evidence." Id. (citations omitted) "While the abuse of discretion standard limits the scope of our review of discretionary decisions, it does not immunize these decisions completely from appellate review." Boyd v. Comdata Network, Inc., 88 S.W.3d 203, 211 (Tenn. Ct. App. 2002) (citing Duncan v. Duncan, 789 S.W.2d 557, 561 (Tenn. Ct. App. 1990)).[9] "When called upon to review a discretionary decision, we will review the trial court's underlying factual findings using the preponderance of the evidence standard in Tenn. R. App. P. 13(d). However, we will review the trial court's purely legal determinations de novo without a presumption of correctness." Boyd, 88 S.W.3d at 212 (citing Brown v. Birman Managed Care, Inc., 42 S.W.3d 62, 66 (Tenn. 2001); Burlew v. Burlew, 40 S.W.3d 465, 470 (Tenn. 2001); Grand Jury Proceedings v. United States, 156 F.3d 1038, 1042 n.1 (10th Cir. 1998)). The threshold inquiry in this case is whether the court utilized the proper test to determine whether the privilege was waived and, if so, whether BNL's actions met the test.

         A. Appropriate Test

         In Tennessee, a plaintiff must file a legal malpractice claim within one year of the day on which the injury giving rise to the claim occurred. See Tenn. Code. Ann. § 28-3-104(c). In Kohl v. Dearborn & Ewing our Supreme Court discussed a two-prong test, denominated the "discovery rule, " for determining when the statute of limitations period for legal malpractice claims begins to run, 977 S.W.2d 528, 532 (Tenn. 1998). Under the discovery rule, a plaintiff must (1) suffer a legally cognizable or actual injury and (2) know, or in the exercise of reasonable diligence should have known, that the injury was caused by the defendant's negligent or wrongful conduct. Id. Evidence of the plaintiff's actual or constructive knowledge of the injury can establish the second element. Kohl, 977 S.W.2d at 532 (citing Carvell v. Bottoms, 900 S.W.2d 23, 29 (Tenn. 1995)). A plaintiff has constructive knowledge of an injury when he or she is "aware of facts sufficient to put a reasonable person on notice that he [or she] has suffered an injury as a result of wrongful conduct." Carvell, 900 S.W.2d at 29 (quoting Roe v. Jefferson, 875 S.W.2d 653, 657 (Tenn. 1994)). The limitations period begins to run when the plaintiff has actual or constructive knowledge of the injury. See Kohl 977 S.W.2d at 532 (Tenn. 1998).

         In the case at bar, after analyzing a range of Tennessee cases discussing the limits of the attorney-client privilege, the trial court addressed the circumstances under which the privilege can be impliedly waived and concluded that Plaintiffs put the privilege at issue when they asserted the discovery rule in responding to Mr. ...


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