United States Surety Company v. Stevens Family Limited Partnership et al

Filing 98

MEMORANDUM Opinion and Order. Signed by the Honorable Geraldine Soat Brown on 3/7/2014.(psm, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

UNITED STATES SURETY COMPANY,
Plaintiff,
v.
STEVENS FAMILY LIMITED
PARTNERSHIP, et al.,
Defendants.

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Case No. 11 C 7480
District Judge Milton I. Shadur
Magistrate Judge Geraldine Soat Brown

MEMORANDUM OPINION AND ORDER
Geraldine Soat Brown, United States Magistrate Judge
Defendants’ Second Motion to Compel [dkt 74] is before the court. This opinion rules on
one document defendants seek to compel – a document plaintiff purportedly received in a mediation.
For the reasons set out below, the motion to compel production of that document is denied. Rulings
with respect to the remaining contested documents will follow shortly.

Background
The background of Defendants’ Second Motion to Compel was set out in this court’s earlier
order. (Order, Feb. 14, 2014.) [Dkt 89.] In response to that order, plaintiff United States Surety
Company (“Surety”) filed a supplemental memorandum (Pl.’s Suppl. Mem. [dkt 93]), and defendants
filed a sur-reply (Defs.’ Suppl. Mem. [dkt 95]).

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The dispute on the motion has been narrowed somewhat by those filings. Defendants no
longer seek the document in category 2, that is, the indemnity agreement with prior owners. (Defs.’
Suppl. Mem. at 2.) The other documents, however, remain contested.
Notwithstanding the caution in the earlier order that the supplemental memorandum would
be Surety’s “last opportunity” to support its claims of privilege or work product protection with
factual evidence or authority (Order, Feb. 14, 2014, at 7), Surety has submitted no additional factual
material to support its claims. The only evidence Surety has submitted in connection with the
motion consists of the affidavit of Joe Bagwell described in the earlier order (id. at 5), and the
affidavit of Emily Brennan, Surety’s Bond Claim Director, stating that the descriptions on the
Supplemental Log are correct (Pl.’s Resp. Mot., Ex. E) [dkt 81].

Applicable Law
“[S]tate law governs privilege regarding a claim or defense for which state law supplies the
rule of decision.” Fed. R. Evid. 501. The District Judge has found that California law “provides the
substantive rules of decision between the litigants” under the indemnity agreement. (Order, Mar.
5, 2014, at 2 [dkt 96]; see also Order, Nov. 26, 2012, at 5 [dkt 40].) In its discussion of choice of law
regarding its claim of attorney-client privilege, Surety acknowledges that California substantive law
applies. (Pl.’s Suppl. Mem. at 5 n. 1.) Nevertheless, it asserts that Illinois law governs its claim of
attorney-client privilege because “a district court sitting in diversity applies the law of the state in
which it sits regarding privilege.” (Id. at 2.) Defendants discuss only Illinois law.
Issues of privilege are substantive. Bell Microproducts, Inc. v. Relational Funding Corp.,
No. 02 C 329, 2002 WL 31133195 at *3-4 (N.D. Ill. Sept. 25, 2002); see also In re Yasmin and Yaz
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(Drospirenone) Mktg., Sales Prac. & Prod. Liab. Litig., No. 3:09-MD-02100-DRH-PMF, MDL
2100, 2011 WL 1375011 at *2-3, 6 (S.D. Ill. Apr. 12, 2011) (stating that “the rationale underlying
Rule 501 and its congressional history . . . emphasize the view that privilege law is substantive”).
Thus, when a “contract specifies the application of another state’s (say California’s) law,” the court
must “honor[] the contractual provision that looks to substantive California law” if that law “would
be chosen under the choice-of-law rules used by the state where the court sits.” Bell Microproducts,
2002 WL 31133195 at *4.
Surety cites Abbott Laboratories v. Alpha Therapeutic Corp., 200 F.R.D. 401, 404 (N.D. Ill.
2001), to support its position that Rule 501 requires the application of the forum state’s law of
privilege notwithstanding the application of a different state’s substantive law to the claim itself.
(Pl.’s Suppl. Mem. at 2.) This court, however, agrees with the analysis in Bell Microproducts. That
decision characterized the holding in Abbott as “analytically questionable” under Rule 501 because
privilege rules are generally viewed as substantive, not procedural, and because “Illinois itself calls
for California law to provide the rules of decision where the parties’ contract so specifies.” See Bell
Microproducts, 2002 WL 31133195 at *4 (emphasis in original). Logic also suggests that the
reference in Rule 501 to the “state law [that] governs privilege” and the “state law [that] supplies the
rule of decision” means the same state. Once the court has, by applying appropriate choice of law
principles, determined the substantive law applicable to a claim based on state law, the privilege
issues are determined by that same state’s law. Accordingly, the law of California – not Illinois –
governs plaintiff’s claim of attorney-client privilege.1
1

For an extended discussion of the choice of law approaches to Rule 501, see Charles
Alan Wright & Kenneth W. Graham, Jr., Federal Practice and Procedure vol. 23, § 5435, 865885 (1st ed., West 1980).
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Discussion
The first document on Surety’s Supplemental Log consists of five pages (bates nos. 1760-64)
described on the log as “Attorney Work Product received from BE&K at Mediation.” (Pl.’s Resp.,
Ex. E at 1.) The document is entitled “UNC Dental Sciences-ASTC Default /Timeline of Relevant
Events /9/11/2012.”2 Its first page bears a handwritten notation, “Rec’d from BE&K Mediation
9/11/12,” and subsequent pages bear a few other short handwritten notations. There are three pages
of a timeline of events regarding ASTC’s default on the Dental Science Building work, and a
calculation of what appears to be BE&K’s claim. On each page appears: “For Settlement Purposes
Only.”
Although Surety’s Supplemental Log asserts work-product protection for the document, there
is no suggestion that it is Surety’s own work product. Rather, the suggestion is that it is work
product of BE&K, handed to Surety’s representatives during the mediation. Assuming that is the
background of the document, Surety argues that it is privileged from production by the Illinois
Uniform Mediation Act, 710 Ill. Comp. Stat. § 35/1, et seq. (Pl.’s Suppl. Mem. at 5.) With respect
to privilege, the Act provides, in pertinent part, that:
(a)

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Except as otherwise provided in Section 6, a mediation communication is
privileged as provided in subsection (b) and is not subject to discovery or
admissible in evidence in a proceeding unless waived or precluded as
provided by Section 5.3

The document has been submitted to court for its in camera review. (Order, Feb. 14,

2014.)
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Under section 5 of the Act, “[a] privilege under Section 4 may be waived in a record or
orally during a proceeding if,” among other things, “it is expressly waived by all parties to the
mediation.” 710 Ill. Comp. Stat. § 35/5(a). Section 6 of the Act carves out exceptions to the
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(b)

In a proceeding, the following privileges apply:
(1)

A mediation party may refuse to disclose, and may prevent any other
person from disclosing, a mediation communication.

710 Ill. Comp. Stat. § 35/4.
Surety also argues that, if California law applies, that state’s similar mediation privilege
found in California Evidence Code § 1119 likewise protects the document. (Pl.’s Suppl. Mem. at
5 n. 1.) Section 1119 provides (save for exceptions that are inapplicable here) that:
(a)

No evidence of anything said or any admission made for the purpose of, in
the course of, or pursuant to, a mediation or a mediation consultation is
admissible or subject to discovery, and disclosure of the evidence shall not
be compelled, in any arbitration, administrative adjudication, civil action, or
other noncriminal proceeding in which, pursuant to law, testimony can be
compelled to be given.

(b)

No writing . . . that is prepared for the purpose of, in the course of, or
pursuant to, a mediation or a mediation consultation, is admissible or subject
to discovery, and disclosure of the writing shall not be compelled, in any
arbitration, administrative adjudication, civil action, or other noncriminal
proceeding in which, pursuant to law, testimony can be compelled to be
given.

(c)

All communications, negotiations, or settlement discussions by and between
participants in the course of a mediation or a mediation consultation shall
remain confidential.

Cal. Evid. Code § 1119.
Although the evidence Surety has provided about the document is scant, the document
appears to be consistent with Surety’s representation that it was presented by BE&K’s

privilege afforded to mediation communications under section 4, none of which are applicable
here. Id. at. § 35/6.

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representatives at the mediation to summarize BE&K’s review of the facts underlying its claim and
a calculation of its damages. As such, it would arguably be within the scope of the mediation
privilege established by the Illinois Uniform Mediation Act and the California Evidence Code.
Defendants do not directly dispute the mediation privilege, rather they argue as a general
matter that Surety cannot assert attorney-client privilege or work-product protection as a shield to
prevent defendants from discovery about Surety’s settlement of the underlying claim. For support
they cite Waste Management, Inc. v. International Surplus Lines Ins. Co., 579 N.E. 2d 322, 332 (Ill.
1991). (Defs.’s Suppl. Mem. at 6.) In that case, the Illinois Supreme Court held that an insured
could not withhold from its insurers communications the insured had with its defense counsel
regarding the underlying claim that the insurer was called upon to satisfy. Id at 328. The decision
focused on the cooperation clause of the insurance agreement, which required the insured to
cooperate with its insurer. Id. at 327. The court observed that such a clause was for the insurer’s
interest. Id.
Defendants’ argument does not compel the production of the document, for a number of
reasons. First and foremost, the document is not within the scope of discovery because it is not
relevant to any claim or defense in this case. See Fed. R. Civ. P. 26(b)(1). The only relevance
suggested by defendants is to support their contention that in the mediation Surety abandoned a
“failure to mitigate” defense to BE&K’s claim. (Defs.’ Mot. at 13.) However, defendants’ attempt
to plead an affirmative defense that Surety failed to act with good faith and fair dealing in settling
of BE&K’s claim has been repeatedly rejected by the District Judge. (See, e.g., Order, Mar. 5,

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2014.)4
Secondly, as noted above, defendants’ argument is based entirely on Illinois law.
Defendants do not argue that California law would compel production.5
Finally, even if, arguendo, defendants will be permitted to plead an affirmative defense that
Surety violated the duty of good faith and fair dealing in settling the claim, and, if, arguendo, Illinois
law applied, defendants are not in the position of the insurer in Waste Management. Defendants are
not insurers, they are guarantors. As defendants themselves observe, the cooperation clause in the
indemnity agreement at issue here required defendants to provide information to Surety, not the other
way around. (Defs.’ Suppl. Mem. at 7, citing Ex. 3 at bates no. 1788.) The cooperation clause does
not help defendants’ argument here.6
Accordingly, defendants’ motion to compel is denied as to the document bates nos. 17601764.

____________________________
Geraldine Soat Brown
United States Magistrate Judge

Dated: March 7, 2014

4

It is not clear why defendants are seeking a document prepared by BE&K for the
mediation which, presumably, would present BE&K’s case against ASTC in the best light.
5

It is doubtful that California law follows the holding announced in Waste Management.
See Rockwell Intl. Corp. v. Superior Court, 32 Cal. Rptr. 2d 153, 156 (Cal. App. 1994)
(“refus[ing] to adopt the rules announced by the Illinois Supreme Court” in Waste Management).
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Thus, it is not necessary to reach the question of whether the mediation privilege would
shield the document in a context like that addressed in the Waste Management case.
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