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Subpoena versus confidentiality obligations for appraisers.

During the course of an appraisal assignment, a client may provide an appraiser with information that serves as a basis for the appraiser's value conclusion. This appraiser or his or her firm may subsequently be subject to discovery proceedings in litigation involving litigants unrelated to the client. In such a case, the litigant's counsel may want to inspect the appraisal or written documents of the appraiser, and could request access to such appraisals either informally or through a subpoena duces tecum.

The issues raised by such a request are addressed in Canon 4 of the Code of Professional Ethics of the Appraisal Institute, effective January 1, 1991, which states that "A Member or an Affiliate must not violate the confidential nature of the appraiser--client relationship." Under E.R. 4--1b and E.R. 4--2b, a permitted disclosure can be made "to third parties, when and to the extent that the Member or Affiliate is legally required to do so by statute, ordinance, or order of a court." (Emphasis added.) (1)

A simple request by third-party

litigants to inspect or copy such prior appraisal (i.e., those involving properties other than the property subject to the particular litigation) can usually be refused by reference to Canon 4 or typical employment contracts for appraisal services.

Often, however, an attorney for the opposing party either responds to a refusal with a subpoena duces tecum, or simply sends such a subpeona without a prior informal request. (See Figure 1 and Figure 1a.) If this occurs, the appraiser should keep in mind that the attorney for his or her client in the case in litigation is not the appraiser's attorney.

A subpoena is a legal document issued by a court upon the reasonable request of an attorney involved in a litigation matter. As such, it is a form of "court order" and not to be treated lightly by the recipient. A subpoena duces tecum, however, is not necessarily a sufficient court order to relieve an appraiser of the obligation to maintain confidentiality, either under Canon 4 or under contractual obligations related to specific appraisals. Whether such a subpoena is sufficient to authorize release to third parties under Canon 4 is therefore difficult to ascertain. An appraiser ordered to release material may be in violation of Canon 4 if he or she does so.

According to Rules 45(d) and 45(e) of both federal rules and Arizona Rules of Civil Procedure, respectively, a recipient of a subpoena has the right to object to the subpoena. These rules probably have courterparts in other states as well. Typically, time limits are in effect that should be carefully follllowed, and any ojection should be precisely worded. According to the Arizona Rules of Civil Procedure, Rule 45(e) (similar to federal Rule 45[d]):

The person to whom the subpoena is directed may, within 10 days after the service thereof, on or before the return date if the return date is less than 10 days after service, serve upon the attorney designated in the subpoena written objection to inspection or copying of any or all of the designated materials. If objection is made, the party serving the subpoena shall not be entitled to inspect and copy the materials except pursuant to an order of the court in the county in which the action is pending or in which the deposition is to be or is being taken. (Emphasis added.) (2)

Canon 4 permits confidentiality to be breached only on court order. The question thus becomes whether a subpoena itself is a sufficient court order to comply with the terms of Canon 4, or whether an appraiser must first file the objection stated in Rule 45(e) and await a further order of the court under that rule.

SAMPLE CASE: SUBPOENA

VERSUS CONFIDENTIALITY

OBLIGATIONS

Such a quandary was presented to the author and his attorney--the appraiser and counsel in this case. A little background on the issues of the case may be helpful. The litigation involved the condemnation of a parcel in downtown Tucson. This was a relatively inactive market, and a "landmark" sale, which had occurred around the time of the condemnation, was the General Services Administration's (GSA) acquisition through negotiation of other downtown parcels. According to the attorney for the condemnee, this sale to GSA was a valid comparable sale under Arizona law. Coincidentally, the author had appraised the sale properties for GSA prior to thos sales.

Because no clear resolution of the question of whether the subpoena was a sufficient court order appeared possible, the appraiser was advised to object to the subpoena and face a court hearing should the opposing attorney press the issue and seek a hearing under Rule 45(e). The appraiser also considered simply seeking a protective order under Rule 37 of the Arizona Rules of Civil Procedure. However, this would have placed the burden of action on him. In light of the right under Rule 45(e) to simply send a letter to "void" the subpoena, it seemed inefficient to go through the procedure and expense of seeking a protective order.

In addition to the cost of the hearing, the risk of course was that the judge might have been angry that the subpoena had been ignored and might have found the appraiser in contempt for so doing. (3) Because of the clarity of the rule, however, the appraiser and his counsel did not believe they ran a serious risk of being found in contempt. This was provided that the documents were produced at the deposition rather than inspected or copied, if opposing counsel had insisted on proceeding with the deposition before going to the judge for a formal order. Further, if the appraiser had not used the right under Rule 45(e) to object and to void the subpoena, he might have violated the obligations of Canon 4. This is because an appraiser may be attacked for not protecting client confidentiality if he or she fails to take the first, easy step of voiding the subpoena under Rule 45(e). After all, it cannot be assumed that opposing counsel would, in fact, press the issue in court.

To fail to object under Rule 45(e) might be viewed as an ineffective defense of the client's confidentiality. In addition, the fact that a subpoena is not necessarily the type of court order that permits breach of confidnetiality makes it important to object. This is especially so when Rule 45(e) permits the automatic avoidance of that order and allows the right to a real hearing before the court to present a defense before an order of the court is finally issued. The appraiser thus decided to object under Rule 45(e).

In this particular case, the request in the subpoena duces tecum appeared to include appraisal reports that had been prepared for the GSA and the Federal Deposit Insurance Corporation (FDIC), which were subject to contracts requiring that the appraiser maintain confidentiality under federal statutes. Legal questions exist regarding the authority of state courts to require the violation of confidentiality required under federal statues, which should be discussed with an attorney.

In addition, appraisal reports prepared for the Arizona Department of Transportation (ADOT) were involved, which were made under a confidentiality requirement imposed by ADOT. Appraisal reports for lending institutions (e.g., a foreign bank operating through a U.S. subsidiary) and private clients were also requested.

None of the requested appraisal reports had been prepared for lenders under the control of the Resolution Trust Corporation (RTC) directly. Had this been the case, however, additional questions regarding contractual confidentiality requirements might have been involved.

The letter reproduced in Figure 2 was sent in a timely manner by mail. In addition, each of the clients whose appraisal reports were affected by the subpoena were notified by the cover letter shown in Figure 3, which enclosed a copy of the subpoena. It should be noted that these letters advised the clients that they would carry the burden of defense against any further attempts to obtain the documents by opposing counsel. While this may not have successfully achieved its purpose of placing the burden and expense of such defense on the clients, it certainly rendered the clients more likely to consider waiving confidentiality as a result. Further, those who chose not to waive confidentiality were arguably well advised and fully capable of defending their rights. Ultimately, however, the appraiser and his counsel did appear at a motion hearing and presented defensive arguements for those clients who did not waive confidentiality (few of whom appeared to defend them-selves). This was done to ensure that no one could criticize the appraiser's defense of client confidentiality, although the notices that had been sent proved that every attempt had been made to relieve the appraiser of any liability should the court order confidentiality be breached.

The objection contained in the letter shown in Figure 2 effectively quashed the subpoena pursuant to Rule 45(e) of the Arizona Rules of Civil Procedure. (4) However, under Rule 45(e) (as well as similar federal and other state rules), an attorney who sends such a subpoena has the right to pursue the matter through a court order. This was done in the Motion for Production of Documents, shown in Figure 4.

It is noteworthy that the scope of the request was severely narrowed in the motion as compared to the subpoena. In this case, broad language was used in the subpoena (referred to by one client's attorney as "poorly written and vague"), and such vagueness could also have been the basis of an objection. In the motion, the request went from "all appraisals in the past five years" to appraisals prepared for a specific client on specific properties.

The procedure that was followed (i.e., objection to subpoena, notification to clients of subpoena and objection, and notification of the motion) thus helped place the burden for defense of confidentiality of the requested appraisal on the respective client. While the appraiser did appear and defend out of caution, he had a good case that he was not required to do so. In other words, the appraiser had done everything possible to fulfill both Canon 4 and contractual obligations. Thus, subsequent objections to production or copying of the reports were orguably the responsibility of the clients. This is a matter, however, that should be analyzed on a case-by-case basis by individual appraisers should of course consult with their own attorneys. It is also helpful to be aware of the general rights and obligations involved. The case presented in this article is intended as an example, and should not be used as precedent in any particular situation without the advice of an appraiser's own legal counsel.

Alfred M. Benson, MAI, is owner of the Benson Co., Inc., in Tucson, Arizona. He was 1982-1983 president of the Tucson chapter of the Society of Real Estate Appraisers and 1984 president of the Arizona chapter of the American Institute of Real Estate Appraisers, and has served on several national committees.

John F. Munger is a partner in the law firm of Munger & Munger in Tucson, Arizona. He is a Fellow of the Arizona Bar Foundation and has practiced law in Tucson since 1974. Mr. Munger specializes in real estate, business, and international law, and has published several articles. The authors wish to credit Laurie Woodall, Assistant Attorney General of Arizona, with bringing the applicability of Rule(e) to their attention.

(1) Appraisal Institute, Code of Professional Ethics of the Appraisal Institute, (Chicago: Appraisal Institute, 1990), A-7.

(2) Arizona Rules of Civil Procedure, Rule 45(e).

(3) As to the duty to produce the documents (unless a protective order was obtained) in the event opposing counsel had not voluntarily postponed the hearing, see footnote 4.

(4) It should be noted that the right to object protects one only from the inspection and copying of the documents and not frm the duty to produce them. Therefore, if the attorney serving the subpoena had insisted, it probably would have been necessary to produce the subject documents, although he would not have had the right to inspect or copy them without seeking a court order. See Wright & Miller, Federal Practice and Procedure [section] 2114, (1970), 422; Moore, Federal Practice, Vol. 5A, at 44-45; and Bushen v. United Shoe Mach. Corp., 23 F.R.D. 183 (D N.Y. 1958) (fact that a document has been produced at a deposition does not give opposing party right to inspect or copy same, even though marked into evidence). It might then have been possible to seek a protective order from thecourt on the basis that production should be conditioned upon paymet of appraiser fees and expenses, and further that production was moot and pointless, and therefore unduly burdensome, until the plaintiff's right to inspect and copy had been established.

(5) In addition to poor punctuation and wording, it should also be noted that the motion drastically misstates Rule 45(e) by omitting the word "not" between "shall" and "be" in I(5) (line 21, page 2).
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Author:Benson, Alfred M.; Munger, John F.
Publication:Appraisal Journal
Date:Jan 1, 1992
Words:2180
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