Tanadgusix Corporation et al v. Arm, Ltd.

Filing 131

ORDER: Plaintiffs' motion to compel is denied. See Order for details. Signed by Judge H. Russel Holland on 7/15/2021. (SDW, COURT STAFF)

WO

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ALASKA

TANADGUSIX CORPORATION, et al.,

)
)
Plaintiffs, )
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vs.
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ARM, LTD., an Illinois corporation, HINES
)
& ASSOCIATES, INC., an Illinois
)
corporation, and UNIMERICA INSURANCE )
COMPANY, a Wisconsin corporation,
)
)
Defendants.
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_______________________________________)

No. 3:18-cv-0219-HRH

ORDER
Motion to Compel
Plaintiffs Tanadgusix Corporation (“TDX”) and the Trustees of the Tanadgusix
Corporation Health and Welfare Trust (“the Trust”) moved to compel defendant Unimerica
Insurance Company to produce 32 documents.1 In the alternative, plaintiffs moved for an
order compelling Unimerica to produce the documents for an in camera review.2 Unimerica
opposed the motion to compel3 and filed its own motion for an in camera review of the

1

Docket No. 119.

2

Docket No. 119.

3

Docket No. 122.
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documents in dispute.4 The court granted Unimerica’s motion,5 and Unimerica has timely
submitted the documents in dispute to the court for an in camera review.6
Background
Unimerica provided stop loss coverage to the TDX Health Plan from 2016 through
the end of 2018, though the benefit period for the Policy extended back through 2015.
During the time the Policy was in effect, TDX became involved in litigation with a Texas
hospital and ARM, TDX’s third-party plan administrator, over the pricing of a plan
beneficiary’s Soliris treatment. TDX provided notice of the hospital litigation to Unimerica
on April 4, 2017. In September 2018, TDX requested that Unimerica attend a mediation in
the Texas hospital litigation, a request that Unimerica refused. At some point thereafter,
Unimerica decided to review the underwriting on the TDX Stop Loss Policy.7 And, on
January 4, 2019, Unimerica advised TDX that it was invoking the “Misrepresentation
Clause” in the Stop Loss Policy because misrepresentations had been made regarding the
pricing of the beneficiary’s Soliris treatment.8 Unimerica advised that it was amending the
Stop Loss Policy to change the beneficiary’s laser and to exclude 2015 from the Benefit

4

Docket No. 124.

5

Docket No. 127.

6

Docket No. 128.

7

Exhibit 11 at 1, Plaintiffs’ Motion to Compel, Docket No. 119.

8

Exhibit 12 at 1-2, Plaintiffs’ Motion to Compel, Docket No. 119.
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Period.9 A formal Explanation of Benefits was issued on January 28, 2019, in which
Unimerica denied $2,212,086.67 in claims for the beneficiary.10
One of the central questions in this case is whether the Soliris pricing was material to
Unimerica’s policy underwriting. Plaintiffs thus sought discovery related to Unimerica’s
underwriting process. Unimerica has so far produced approximately 25,000 pages of
discovery.11 Plaintiffs contend that the discovery it has received so far has “revealed a
substantial likelihood that Unimerica acted in bad faith when it belatedly attempted to amend
an expired policy[.]”12 Unimerica has withheld 32 email exchanges and documents on the
grounds that the documents in question are privileged. All of the withheld documents were
drafted or exchanged prior to January 4, 2019. As such, plaintiffs contend that it is likely that
the withheld documents and emails will explain why Unimerica amended the Stop Loss
Policy, chose to raise the patient’s laser, and eliminated 2015 from the Benefits Period.
Unimerica contends that the 32 documents and emails are privileged because they
contain legal advice from in-house counsel and/or were prepared in response to TDX’s threat
of litigation. Plaintiffs contend that Unimerica has improperly withheld these documents
because there was no threat of litigation until after Unimerica issued the formal EOB on

9

Id. at 2-3.

10

Exhibit 13 at 1, Plaintiffs’ Motion to Compel, Docket No. 119.

11

Declaration of Bret Finkelstein [etc.] at 2, ¶ 5, Docket No. 123.

12

Plaintiffs’ Motion to Compel at 2, Docket No. 119.
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January 28, 2019. Plaintiffs also contend that these 32 documents are discoverable because
they have alleged that Unimerica has acted in bad faith, which, according to plaintiffs, means
that Unimerica has waived any attorney-client privilege.
Discussion
“The availability of the attorney-client privilege in a diversity case is governed by
state law.” KL Group v. Case, Kay & Lynch, 829 F.2d 909, 918 (9th Cir. 1987). “The
attorney-client privilege allows a client to refuse to disclose, and to prevent others from
disclosing, confidential communications between the client and his attorney . . . made for the
purpose of facilitating the rendition of legal services to the client.” Langdon v. Champion,
752 P.2d 999, 1001 (Alaska 1988). The “‘party asserting the attorney-client privilege has the
burden of establishing the relationship and the privileged nature of the communication.’”
United States v. Ruehle, 583 F.3d 600, 607 (9th Cir. 2009) (quoting United States v. Bauer,
132 F.3d 504, 507 (9th Cir. 1997)).
As an initial matter, plaintiff argues that all of the documents in question should be
produced because this case involves allegations of bad faith and that “[i]n cases against
insurance companies involving allegations that an insurer breached its duty to adjust a claim
in good faith, courts have . . . found a presumption that the attorney client privilege does not
apply in the claims adjusting process.”13 Plaintiffs argue that this court has adopted the
Cedell standard, which is derived from a Washington Supreme Court case, Cedell v. Farmers

13

Plaintiffs’ Motion to Compel at 14, Docket No. 119.
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Insurance Company of Washington, 295 P.3d 239 (Wash. 2013). There, the court held that
in first party insurance bad faith cases,
there is no attorney-client privilege relevant between the insured
and the insurer in the claims adjusting process, and that the
attorney-client and work product privileges are generally not
relevant. However, the insurer may overcome the presumption
of discoverability by showing its attorney was not engaged in
the quasi-fiduciary tasks of investigating and evaluating or
processing the claim, but instead in providing the insurer with
counsel as to its own potential liability; for example, whether or
not coverage exists under the law.
Id. at 246. The Cedell court went on to state that if the insurer overcomes the presumption,
then “the insurance company is entitled to an in camera review of the claims file, and to the
redaction of communications from counsel that reflected the mental impressions of the
attorney to the insurance company, unless those mental impressions are directly at issue in
its quasi-fiduciary responsibilities to its insured.” Id. Here, because the court has already
decided to conduct an in camera review of the emails and documents in dispute, it is
irrelevant whether the court has adopted the Cedell standard. If the court determines that
there is no basis for Unimerica to claim privilege as to the documents in question, then the
court will compel Unimerica to produce them.
As a second preliminary matter, the parties have different views as to when there was
first a threat of litigation from TDX. This dispute matters because Unimerica has contended
that some of the documents in question were prepared in response to TDX’s threat of
litigation, which makes those documents privileged. Plaintiffs, however, contend that none

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of the documents could have been prepared in response to a threat of litigation because all
of them were prepared before January 28, 2019, which was when Unimerica issued the
formal EOB. Plaintiffs contend that it was not until Unimerica issued the formal EOB that
there was a threat of litigation by TDX. Unimerica, on the other hand, contends that there
was a threat of litigation from August 6, 2018, the date on which TDX advised Unimerica
of the Texas hospital litigation and requested that Unimerica attend a mediation in that
litigation. Plaintiffs dispute that there was anything in TDX’s communications with
Unimerica at that time that would have suggested that TDX was contemplating litigation
against Unimerica. However, a September 4, 2018, letter from TDX’s attorneys to
Unimerica, urging Unimerica to reconsider its position regarding attendance at the mediation,
could be viewed as containing a threat of litigation.14 In that letter, TDX’s counsel asserted
that there was no question that Unimerica would be liable under its policy and that “an
Alaska court will look with extreme disfavor on [its] current position under all the
circumstances.”15 The court is mindful that, as plaintiffs point out, Local Rule 88(d) for the
Western District of Texas, the district in which the hospital mediation was held, requires the
presence of all parties at a mediation, including any insurance carriers. But, the Texas local
rule was not the focus of the September 4, 2018 letter. The focus of that letter was
Unimerica’s liability under the TDX Stop Loss Policy and how Unimerica’s conduct would

14

Exhibit 10, Plaintiffs’ Motion to Compel, Docket No. 119.

15

Id. at 3-4.
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be viewed under Alaska’s good faith and fair dealing law. It would not have been
unreasonable for Unimerica to infer from the September 4, 2018, letter that TDX was
contemplating litigation against it. Thus, the relevant date, for purposes of whether there was
a threat of litigation by TDX, is September 4, 2018.
As a third preliminary matter, plaintiff argues that any attorney-client privilege as to
the 32 documents has been waived under the crime-fraud exception. “One of the widely
recognized exceptions to utilization of the attorney-client privilege is that the privilege
cannot be used to protect a client in the perpetration of a crime or other evil enterprise in
concert with the attorney.” United Services Auto. Ass’n v. Werley, 526 P.2d 28, 31 (Alaska
1974). “[A] court c[an] grant in camera review in its discretion upon a showing of ‘. . . a
factual basis adequate to support a good faith belief by a reasonable person . . . that in camera
review of the materials may reveal evidence to establish the claim that the crime-fraud
exception applies.’” Mogg v. Nat’l Bank of Alaska, 846 P.2d 806, 814 (Alaska 1993)
(quoting Central Constr. Co. v. Home Indem. Co., 794 P.2d 595, 599 (Alaska 1990)). Here,
after reviewing the documents in question, the court finds that the crime-fraud exception does
not apply. The documents do not show that Unimerica was utilizing its in-house counsel’s
services in furtherance of an ongoing fraudulent scheme.
That does not necessarily mean, however, that Unimerica does not have to produce
the documents in dispute. The question remains as to whether Unimerica has properly
asserted the attorney-client privilege as to these documents. As to that question, the court

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finds that Unimerica has properly asserted the attorney-client privilege as to all 32
documents.
Several of the documents in question (Unimerica Privilege Log 48, 60, 155, 168, 169)
are drafts of the letter that Unimerica ultimately sent to TDX on January 4, 2019 invoking
the Misrepresentation Clause. Bret Finkelstein, one of Unimerica’s lawyers, avers that this
“draft was prepared at the request of counsel and with input from counsel.”16 Thus, these
documents are privileged. See In re Premera Blue Cross Customer Data Security Breach
Litig., 329 F.R.D. 656, 662 (D. Or. 2019) (“[a] draft prepared at the request of counsel . . .
is subject to the attorney-client privilege”).
Several of the documents (Unimerica Privilege Log 66, 97, 98, 99, 100, 101, 135, 136)
are related to an email that Unimerica employee, Mary Erickson, prepared to send to Victoria
Evans of PBS, TDX’s third-party administrator. The documents include both drafts of the
Evans email and emails from Erickson in which she sought legal advice on the drafts. The
drafts were “prepared at the request of counsel[,]”17 thereby making them privileged, and the
emails seeking legal advice are also privileged.
Several of the documents (Unimerica Privilege Log 74, 75, 96, 102, 103, 104, 105,
106, 108, 109, 110, 111, 112, 113, 114, 115) are emails (some with attachments) in which

16

Finkelstein Declaration at 4, ¶ 10(i), Docket No. 123.

17

Id. at 4-5, ¶ 10(iv).
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employees were seeking legal advice from in-house counsel. These documents are plainly
privileged.
The remaining documents (Unimerica Privilege Log 57, 58, 166) are also privileged.
The first two documents include a legal discussion about the attachment to the email in
question. The third document is privileged as it is a draft of a letter prepared by in-house
counsel.
Conclusion
Plaintiffs’ motion to compel18 is denied. After its in camera review, the court finds
that the 32 documents in dispute are privileged and have been properly withheld by
Unimerica.
DATED at Anchorage, Alaska, this 15th day of July, 2021.
/s/ H. Russel Holland
United States District Judge

18

Docket No. 119.
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