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Recent Appellate Decisions: June 15 – 21, 2012

Selected summaries prepared by Commissioner James Verellen (ret.)

Washington Supreme Court

June 21, 2012

Lowry v PeaceHealth; St. Joseph Hospital, No. 85697-4

health care – discovery –  quality assurance privilege –  hospital review of its own quality assurance documents and information to identify discoverable patient files

Health care quality assurance statutes create a privilege protecting communications in a quality assurance meeting and a privilege protecting documents and information created for a quality improvement committee.  The documents and information are protected from “review or disclosure.”

A patient sued her hospital for medical negligence, alleging that an improper intravenous infusion caused serious injury to her arm.  The patient and the hospital agree that patient records of other intravenous infusion injuries are discoverable and that going page by page though nine years of patient records would be unduly burdensome.  The patient proposed that the hospital review its own quality assurance records including a list of other intravenous infusion injuries.  The hospital sought a protective order arguing that the list was prepared by its quality improvement committee for purposes of quality assurance .  Therefore, the hospital argued it could not be required to “review” the protected list to identify patient records not protected from discovery.  The trial court granted a protective order.  Division I reversed the trial court, concluding that the quality assurance privilege does not shield the hospital from reviewing its own quality assurance documents and information to identify discoverable patient files.

The Washington Supreme Court (8-1) affirmed the Court of Appeals.

  • Quality assurance statutes are to be strictly construed and liberal discovery is favored.
  • The RCW 70.41.200 protection against “review” of quality assurance documents or information prevents external access and does not extend to an internal review by the hospital itself.
  • “Records created for and maintained by quality improvement committees are privileged.  If a hospital believes that the use of this privileged information to identify unprivileged information will compromise the purpose of the statute to promote candid discussion and careful self-assessment by the hospital of its care of patients, the hospital may seek an appropriate protective order.”
  • “[T]he legislature did not intend RCW 70.41.200 to be a fortress where a hospital can hide the keys to locating discoverable information.  Absent a protective order, a hospital is required to review its own privileged records to identify relevant discoverable records.”
  • The hospital’s consultation of its own privileged database to identify relevant, discoverable files that fall outside the quality assurance privilege will not violate the hospital’s privilege.

Div. III Washington State Court of Appeals

June 19, 2012

LK Operating LLC v. The Collection Group LLC,  No. 29741-1 – III

attorney and client – representing clients in a business transaction RPC 1.7 – entering into a business transaction with a client RPC 1.8 – rescission

An attorney has a conflict of interest in representing a client in a business transaction with a current client.  RPC 1.7 An attorney who enters into a business transaction with a client must give appropriate notice, disclosure and opportunity to seek the advice of independent counsel.  RPC 1.8   Generally, a violation of ethics rules is the basis for disciplinary proceedings but not for civil liability.

An attorney represented F and TCG LLC, an entity formed by F to collect various debts.  As part of his estate plan, the attorney formed LKO, an entity to manage irrevocable trusts for the benefit of his adult children.  The attorney was the attorney for LKO, and an officer of a corporation that managed LKO.  F proposed a joint venture with the attorney.  The attorney responded that LKO was interested and caused LKO to send checks to F to fund the joint venture.  A dispute arose when the parties tried to formalize the arrangement.  LKO sued TCG and F to resolve ownership rights and for breach of fiduciary duty and breach of contract.   F sued the attorney for legal malpractice and breach of the Consumer Protection Act.   Ultimately, the issues in the trial court narrowed.  The trial court concluded that the attorney had violated RPC 1.7 by failing to reveal his personal interest as a parent, his legal duties as manager and his professional duties as an attorney to LKO.  The trial court also concluded that rescission of the transaction between TCG and LKO was an appropriate remedy.

Division III held that the attorney represented both F and LKO in separate unrelated matters and then represented LKO in the business transaction with F.  The attorney had a duty to disclose his personal interest in LKO, his legal duties as manager of LKO and his professional duties as attorney for LKO.  The attorney had not obtained informed consent in writing and his conduct violated RPC 1.7.  But the court held that rescission is not an appropriate remedy for violation of RPC 1.7.   Rescission “could easily fall on an innocent client.  And it is not the client who should pay for the sins of its lawyer…It is not the client(s) who did anything wrong; it is the lawyer by representing clients on both sides.  The appropriate remedy is to file a disciplinary action with the Washington State Bar Association.”

The court affirmed the trial court on the alternative ground, that the record established a violation of RPC 1.8.  The attorney represented F and TCG.  The attorney accepted the proposal to invest in TCG in his capacity as an attorney and then caused LKO to contribute funds.  The attorney stood to benefit from LKO’s success in many ways.  The attorney “entered into the transaction and then used funds from his children’s company, a company he also controlled.”  The court concluded that rescission of the transaction entered into between an attorney and the client is an appropriate remedy for a violation of RPC 1.8.

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