In Unarco Material Handling, Inc. v. William Liberato, et al., the Middle Section of the Tennessee Court of Appeals expanded the scope of the litigation privilege to include prelitigation conduct. The facts are very interesting, to say the least.
After Kerry Steel and Unarco became embroiled in litigation and settled their dispute, the President of Kerry Steel suspected that Unarco provided inaccurate information to induce the settlement. When Kerry Steel's President and its attorney learned that Unarco's President, Liberato, had resigned after the settlement, they approached him about providing sworn testimony regarding the parties' previous negotiations and settlement. During the course of their discussions, Kerry Steel's President and its attorney learned that Liberato signed a retirement agreement that included a broad confidentiality agreement. To get around that, Kerry Steel agreed to indemnify and hold harmless Liberato from any damages that might result from providing testimony to Kerry Steel. Liberato accepted the offer and spilled the beans on Unarco. When Unarco learned about Liberato's testimony, it sued Liberato for breaching his resignation agreement and sued Kerry Steel, its President, and its attorney for inducing Liberato to breach his agreement. The trial court found that Kerry Steel's attorney was immune from liability pursuant to the litigation privilege, so Unarco appealed.
The Court of Appeals discussed the history of the litigation privilege in Tennessee and its public policy function and then proceeded to examine the scope of the privilege. It discussed how the privilege was extended from communications made during litigation to those made prior to the commencement of litigation. Then, after examining holdings from other states, it extended the privilege to prelitigation conduct so long as (1) the attorney was acting in the capacity of counsel for a client or identifiable prospective client when the conduct occurred, (2) the attorney was acting in good faith for the benefit of and on behalf of the client or prospective client, not for the attorney's self interest, (3) the conduct was related to the subject matter of proposed litigation that was under serious consideration by the attorney, and (4) there was a real nexus between the attorney's conduct and litigation under consideration. Since it was on a roll, the Court then held that Kerry Steel's attorney's conduct satisfied these factors, so it was absolutely immune from suit for inducing Liberato to breach his resignation agreement.
It would be interesting to know whether the information provided by Liberato confirmed the suspicions of Kerry Steel's President and whether it has attempted to set aside the parties' settlement agreement or otherwise take any legal action against Unarco.
It would also be interesting to know what happens to Kerry's Steel's attorney. To be clear, I have no problem with the Court's extension of the parameters of the litigation privilege (and its absolute immunity) to attorneys for doing their jobs. But while reading the decision, I wondered about the ethical propriety of Kerry Steel's attorney's conduct. From my work on another case, I was aware that Rule 4.2 of the Tennessee Rules of Professional Conduct states: "In communicating with a current or former agent or employee of an organization, a lawyer shall not solicit or assist in the breach of any duty of confidentiality owed by the agent to the organization." (emphasis added) While the Court made it clear that the Rule does not establish the applicable standard of care, it strongly suggested that Kerry Steel's attorney may face ethical sanctions despite his immunity from civil liability.