Apex Mortgage Corporation v. Great Northern Insurance Company et al

Filing 65

MEMORANDUM Opinion and Order: Signed by the Honorable M. David Weisman on 1/8/2018. Mailed notice (ao,)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

APEX MORTGAGE CORPORATION, )
)
Plaintiff,
)
)
v.
)
)
GREAT NORTHERN INSURANCE
)
COMPANY and FEDERAL
)
INSURANCE COMPANY,
)
)
Defendants.
)

No. 17 C 3376
Judge Virginia M. Kendall
Magistrate Judge M. David Weisman

MEMORANDUM OPINION AND ORDER
Plaintiff and third party Cozen O’Connor (“Cozen”) seek a Federal Rule of Civil
Procedure (“Rule”) 26(c) protective order barring defendants from obtaining documents pursuant
to their subpoena to Cozen. Judge Kendall referred the motion to this Court for resolution. For
the reasons set forth below, the Court construes the motion as a motion to quash and grants it.

Background
Plaintiff is the mortgagee of the property located at 1738-44 E. 75th Street in Chicago.
Great Northern issued a $1 million insurance policy and Federal issued a $15 million insurance
policy to plaintiff covering third-party claims for bodily injury or death arising out of an accident
on property within plaintiff’s care, custody or control. During the policy period, two firefighters
were killed during fire suppression activities at the 75th Street property, and their estates sued
plaintiff for negligence. Defendants assigned their house counsel to represent plaintiff in the
suits but, when defendants said they might disclaim coverage, a conflict arose between insured

and insurer, forcing defendant’s counsel to withdraw from representing plaintiff. Plaintiff then
hired Cozen, at defendants’ expense, to represent plaintiff in the suits. Subsequently, the parties
engaged in settlement negotiations, but defendants refused to participate. Plaintiff contends that
the refusal violated the insurance policies and filed suit in federal court in Pennsylvania for,
among other things, breach of contract. The case was later transferred to this district and
assigned to Judge Kendall.

Discussion
Rule 26(c) permits the Court “for good cause” to issue an order “to protect a party or
person from annoyance, embarrassment, oppression, or undue burden or expense.” Fed. R. Civ.
P. 26(c)(1). What the movants here actually seek, however, is to have Cozen excused from
complying with the subpoena on the grounds of relevance or privilege, i.e., to quash the
subpoena.

See Fed. R. Civ. P. 45(d)(3)(A)(iii), (iv) (“[T]he court for the district where

compliance is required must quash or modify a subpoena that . . . requires disclosure of
privileged or other protected matter . . . or . . . subjects a person to undue burden.”).
Accordingly, the Court construes the motion as a Rule 45 motion to quash the subpoena to
Cozen.1
The subpoena directs Cozen to produce:
[A]ll documents, electronically stored information, and objects related to the
[underlying law suits]. Such documents, electronically stored information, and
objects shall include, but not be limited to, the following: (a) all files maintained
by Cozen O’Connor and any of its attorneys or employees concerning the
Lawsuits; (b) all communications concerning the Lawsuits; (c) all pleadings,
discovery, transcripts, motions, notices, or other documents generated in

1
  Though the subpoena is not addressed to plaintiff, plaintiff’s assertion of privilege gives it standing to move to
quash. United States v. Raineri, 670 F.2d 702, 712 (7th Cir. 1982) (“A party has standing to move to quash a
subpoena addressed to another if the subpoena infringes upon the movant’s legitimate interests.”).

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connection with the Lawsuits; and (d) all other documents, electronically stored
information, or objects that otherwise relate to the Lawsuits.
(Apex Mot. Protective Order, Ex. A, Subpoena Rider, ECF 43-1.)
Movants first argue that the subpoena should be quashed because information responsive
to it is irrelevant to this case. The gravamen of this case is that defendants2 breached the
insurance policies when they disclaimed coverage and refused to negotiate or offer money to
settle the underlying lawsuits. Defendants made that decision in January 2017 based on the
information they had at the time. Because defendants did not have any information from Cozen
at that time, plaintiff argues, such information has no relevance to plaintiff’s claims.
Defendants argue that the Cozen documents “may lead to admissible evidence in this
action where [plaintiff] has placed a broad range of facts at issue in its 10-count complaint that
include allegations of estoppel, fraud, bad faith, unjust enrichment, waiver, and breach of
contract.” (Resp. Mot. Prot. Order, ECF 53 at 13.) That may be true, but it is no longer how the
scope of discovery is defined. Rather, Rule 26(b)(1) makes discoverable “any nonprivileged
matter that is relevant to any party’s claim or defense and proportional to the needs of the case,
considering the importance of the issues at stake in the action, the amount in controversy, the
parties’ relative access to relevant information, the parties’ resources, the importance of the
discovery in resolving the issues, and whether the burden or expense of the proposed discovery
outweighs its likely benefit.” Defendants have not made a showing that the Cozen information is
discoverable under this standard.
Even if they had, the Court would still be required to quash the subpoena if the material it
seeks is privileged.

Because this case was transferred here from federal district court in

Pennsylvania, the Court is “obligated to apply the state law that would have been applied if there

2

 At some point, it is not clear when, Great Northern paid its $1 million policy limit to settle the underlying suits.
However, plaintiff still asserts claims against both insurers.    

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had been no change of venue.”

Van Dusen v. Barrack, 376 U.S. 612, 639 (1964).

A

Pennsylvania federal court would apply Pennsylvania’s choice-of-law rules. Auto-Owners Ins.
Co. v. Websolv Computing, Inc., 580 F.3d 543, 547 (7th Cir. 2009) (“When a federal court hears
a case in diversity . . . , it applies the choice-of-law rules of the forum state to determine which
state’s substantive law applies.”) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496
(1941)).
Defendants argue that the privilege law of Illinois should apply as the discovery dispute
arises in an Illinois federal court. (Resp. Mot. Prot. Order, ECF 53 at 4.) Defendants cite to
cases that have addressed various scenarios where a conflict of law exists as to attorney-client
privilege issues. However, in none of these cases was the court required to consider the dictates
of 28 U.S.C. § 1404, which, based on Van Dusen, compels the transferee district court (Northern
District of Illinois) to apply the law of the transferor court (Eastern District of Pennsylvania).
Thus, the reasoning of Urban Outfitters, Inc. v. DPIC Companies, Inc., 203 F.R.D. 376, 379
(N.D. Ill. 2001) does not apply as the court was resolving a discovery dispute stemming from
litigation in another federal court, not a case transferred pursuant to § 1404(a). Similarly, CSX
Transportation v. Lexington Insurance, 187 F.R.D. 555 (N.D. Ill. 1999) is also unavailing as the
district court applied Illinois choice-of-law analysis as the suit was initiated in Illinois, and
Illinois, therefore, was the forum state. Finally, defendants’ reliance on Roberts v. Carrier
Corp., 107 F.R.D. 678, 685 (N.D. Ind. 1985) also is misplaced. Roberts involved reconciling
which state’s law applied to discovery efforts brought pursuant to Federal Rule of Civil
Procedure 37(a) -- the privilege law of the state where the substantive litigation is occurring, or
the privilege law of the state where compliance with a subpoena is being sought. While these
cases tangentially touch on the issue presented here, defendants’ cases are not controlling or

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substantively informative. In the instant case, based on well-settled law, this Court must look to
Pennsylvania law for choice-of-law purposes. Van Dusen, 376 U.S. at 639.
The first step in the Pennsylvania choice-of-law analysis is to determine whether the laws
of the two states actually conflict.3 Thibodeau v. Comcast Corp., 912 A.2d 874, 886 (Pa. Super.
Ct. 2006). “If the laws do not differ, then a true conflict is not present . . . and [the court]
appl[ies] Pennsylvania law.” Id.
In this case, there is a conflict between the law of attorney-client privilege of
Pennsylvania and that of Illinois. Under Pennsylvania law, when an insurer funds the defense of
its insured, the insurer is a co-client with the insured only if the facts of the case, “particularly
how the parties interact with the joint attorneys and with each other,” show that “a joint
representation occurred.” CAMICO Mut. Ins. Co. v. Heffler, Radetich & Saitta, LLP, No.
CIV.A. 11-4753, 2013 WL 315716, at *2, *5 (E.D. Pa. Jan. 28, 2013) (quotation omitted). The
facts of this case, that:

(1) plaintiff hired Cozen after defendants’ interests became adverse to

plaintiff’s; (2) Cozen did not represent defendants’ interests with respect to the underlying suits;
(3) defendants were represented by different lawyers in the underlying suits; (4) defendants did
not “direct the manner, means or strategy” of Cozen’s representation of plaintiff; and (5) Cozen
negotiated a settlement of the underlying suits at plaintiff’s “exclusive direction” (Mot. Prot.
Order, Ex. E, Pearson Decl., ECF 43-5) do not establish that a joint representation occurred.
Accordingly, under Pennsylvania law, plaintiff and defendants were not co-clients of Cozen.
Under Illinois law, however, an insurer is the co-client of the attorney it retains for the
insured because the lawyer, by seeking to eliminate or reduce coverage, is “act[ing] for the

3

  Defendants suggest that Pennsylvania state courts “have not adopted a clear conflict-of-law analysis regarding
attorney-client privilege . . . . ” (Resp. Mot. Prot. Order, ECF 53 at 7 (citing In re Diet Drugs, No. MDL 1203, Civ.
A. 03-20014, 2004 WL 1058160, at *2 (May 11, 2004).) We believe that Pennsylvania state courts have
consistently applied the two-step analysis outlined herein. See Thibodeau v. Comcast Corp., 912 A.2d 874, 886 (Pa.
Super. Ct. 2006) (citing Ratti v. Wheeling Pittsburgh Steel Corp., 758 A.2d 695, 702 (Pa. Super. 2000)).

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mutual benefit of both the insured and the insurer.” Waste Mgmt., Inc. v. Int’l Surplus Lines Ins.
Co., 579 N.E.2d 322, 329 (1991). Thus, if Illinois law applies, defendants are co-clients of
Cozen.
Given that there is a conflict, the next step in the Pennsylvania conflict-of-laws analysis
is to “analyze the governmental interests underlying the issue and determine which state has the
greater interest in the application of its law to the matter at hand.” Thibodeau, 912 A.2d at 886.
In other words, the court applies “the law of the predominantly concerned jurisdiction,
measuring the depth and breadth of that concern by the relevant contacts each affected
jurisdiction had with . . . the policies and interests underlying the particular issue before the
court.” Samuelson v. Susen, 576 F.2d 546, 551 (3d Cir. 1978) (quotation omitted).
Defendants contend that “the contacts favor application of Illinois law” because:
The communications at issue involve Illinois attorneys defending an insured
against Illinois lawsuits arising out of an accident that occurred at property
allegedly possessed by the insured in Illinois. Further, the settlement negotiations
and discussions occurred in Illinois. Given that the underlying cases were in
Illinois, there could be no expectation that anything other than Illinois attorneyclient privilege would apply to the communications with Illinois defense counsel.
(Resp. Mot. Protective Order, ECF 53 at 9.)
The Court disagrees. The government interest at issue here is Pennsylvania’s interest in
protecting the attorney-client privilege of its citizens. The fact that the accident occurred in
Illinois and the underlying suits were filed here has little connection to that attorney-client
privilege interest. Rather, because the Pennsylvania attorney-client privilege belongs to the
client, see Haines v. Liggett Group, Inc., 975 F.2d 81, 90 (3d Cir. 1992), the location of the client
and the place where the relationship arose seem to be the most significant contacts in this
analysis. See Super Tire Eng’g Co. v. Bandag Inc., 562 F. Supp. 439, 440 (E.D. Pa. 1983)
(considering where the attorney-client relationship arose in an attorney-client privilege conflict6 

of-laws analysis). Plaintiff is a citizen and resident of Pennsylvania (see Compl. ¶ 1), and its
relationship with Cozen arose there. See Super Tire Engineering, 562 F. Supp. at 440 (stating
that “[t]he attorney-client relationship relevant to this case arose in Iowa, the state of [the
client’s] corporate headquarters”). Thus, Pennsylvania has the most significant contacts to the
attorney-client relationship at issue here. Moreover, the depth and breadth of Pennsylvania’s
concern with that relationship far outweighs any tangential concern with it that Illinois may have.
Pennsylvania has a compelling interest in protecting the confidential communications of its
citizens, one that it has codified in its statutes. See 42 Pa. Const. Stat. § 5928 (“In a civil matter
counsel shall not be competent or permitted to testify to confidential communications made to
him by his client, nor shall the client be compelled to disclose the same, unless in either case this
privilege is waived upon the trial by the client.”). Further, this suit was initially filed in
Pennsylvania, and the parties have stipulated that Pennsylvania’s law governs its substantive
claims and defenses. Given the circumstances, the fact that this case landed in Illinois as a
matter of federal procedure does not vitiate Pennsylvania’s substantial interest in protecting
plaintiff’s confidential relationship with its counsel.
In sum, defendants have not demonstrated that the Cozen information is relevant and thus
discoverable under the current version of Rule 26. Moreover, to the extent the information has
any relevance, it is subject to the attorney-client privilege under the law of Pennsylvania, which
governs this dispute.

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Conclusion
For the reasons set forth above, the Court construes movants’ motion for a protective
order [43] as a motion to quash defendants’ subpoena to Cozen O’Connor and grants the motion.
SO ORDERED.

ENTERED: January 8, 2018

_________________________________
M. David Weisman
United States Magistrate Judge

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