AKH Company, Inc. v. Universal Underwriters Insurance Company

Filing 199

MEMORANDUM AND ORDER granting in part and denying in part 160 Motion for Reconsideration re 160 MOTION for Reconsideration re: 152 Order on Motion to Compel filed by Universal Underwriters Insurance Company. Signed by Magistrate Judge Kenneth G. Gale on 8/20/14. (df)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS

AKH COMPANY, INC.,

)
)
Plaintiff,
)
)
v.
)
)
UNIVERSAL UNDERWRITERS
)
INSURANCE COMPANY,
)
)
Defendant,
)
______________________________ )

Case No. 13-2003-JAR-KGG

ORDER GRANTING IN PART
DEFENDANT’S MOTION FOR RECONSIDERATION
Before the Court is Defendant’s motion for reconsideration (Doc. 160) of
this Court’s Order (Doc. 152) granting in part and denying in part Plaintiff’s
Motion to Compel (Doc. 117). Specifically, Defendant challenges the Court’s
rejection of its objection to the production of portions of its claims file as within
the attorney client privilege.
“A motion to reconsider is not a second chance for the losing party to make
its strongest case or to dress up arguments that previously failed.” Voelkel v. Gen.
Motors Corp., 846 F. Supp. 1482, 1483 (D.Kan. 1994), aff’d, 43 F.3d 1484 (Table)
(10th Cir. 1994). A motion for reconsideration must be based on (1) an intervening
change in controlling law; (2) the availability of new evidence; or (3) the need to

correct clear error or prevent manifest injustice. D. Kan. Rule 7.3. Because a
portion of the previous ruling (Doc. 152) constitutes clear error, the motion is
GRANTED in part.
Defendant-insurer claims that Plaintiff-insured induced it to pay a settlement
on behalf of Plaintiff in defense of a lawsuit by misleading Defendant or
concealing material facts from Defendant. In discovery, Plaintiff requested
Defendant’s entire claims file on the previous litigation. Defendant objected that
some of those documents are privileged under the work-product and attorney-client
privileges.
In its previous ruling, this Court ruled that the work-product privilege did
not attach to documents created before the date Defendant reasonably anticipated
litigation, which the Court found to be December 28, 2012. The Court ordered the
production of documents created before that date.1 As it relates to claims of workproduct privilege only, this ruling is not challenged in the present motion and
remains in effect.
Defendant also objected that some documents are protected under the
attorney-client privilege. This Court, following language in a case from another

1

The Order erroneously states that documents produced after that date should be
produced. The word should have been “before.” This issue was previously addressed by
the Court with the parties.
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jurisdiction,2 evaluated that claim under the same principals and found that the
privilege did not attach before the date litigation could be reasonably anticipated.
This was error. Although language supporting that rationale may be found in the
case cited,3 the authorities cited in that opinion do not generally support that
approach.4 Additionally in that case, our sister court ultimately relied upon an
analysis of whether the attorneys for whom the privilege was claimed were acting
in a legal capacity.
The work product privilege is created by Fed.R.Civ.P. 26. The attorney
client privilege in a case based on diversity jurisdiction is determined by state law.
Fed.R.Evid. 501. Although the analysis of those issues may factually trod the
same ground, the questions are different. The Court must determine whether the
communications qualify as privileged under the state standard, and whether any
exception exists.
The party asserting the attorney-client privilege bears the burden to establish
its applicability. Kannaday v. Ball, 292 F.R.D. 640, 644 (D. Kan. 2003). “The

2

Lindley v. Life Investors Ins. Co. of America, 267 F.R.D. 382 (N.D. Okla. 2010).

3

267 F.R.D. at 399.

4

The Kansas case cited by the Oklahoma court in support of that proposition is a
ruling only on the work-product privilege. U.S. Fire Ins. Co. v. Bunge North America,
Inc., 247 F.R.D. 656, 659 (D. Kan. 2007).
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privilege ‘protects confidential communications by a client to an attorney made in
order to obtain legal assistance from the attorney in his capacity as a legal
advisor.’” Marten v. Yellow Freight Sys., Inc., No. 96–2013–GTV, 1998 WL
13244, at *6 (D.Kan. Jan. 6, 1998) (quoting Jones v. Boeing Co., 163 F.R.D. 15,
17 (D.Kan.1995)).
The communications at issue in this case were to or from three different
attorneys (1) Stephanie Cole, an attorney acting as a claims professional, (2) an
unnamed in-house counsel, and (3) outside counsel retained to advise Defendant.
An additional distinction may be made concerning the topics of asserted legal
advice. Those may include (1) issues concerning coverage and (2) advice relating
to the settlement that is the subject of Defendant’s fraud claim.
Beginning with communications to or from Ms. Cole, the Court does not
perceive Defendant to claim that those are privileged unless they involve
communication between her and either other in-house counsel or outside counsel.
For purposes of this motion, the Court agrees that Ms. Cole did not have to be an
attorney to perform her job duties handling the underlying claim. As such, to the
extent such documents have not been produced, the Court orders production of all
communications involving Ms. Cole and Universal’s personnel other than other
attorneys.
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Additionally, relating to communications with outside counsel by Ms. Cole
or other agents of Defendant, Plaintiff is not claiming that communications relating
to coverage issues should be produced. The Court sees no reason in this case to
distinguish such advice from outside counsel from advice from in-house counsel.
Therefore, communications between Ms. Cole or other agents of Defendant with
either outside counsel or in-house counsel concerning coverage are privileged and
need not be produced.
The real dispute before the Court concerns communications between Ms.
Cole or other Defendant personnel with either in-house or outside counsel
concerning entering into the settlement that is the subject of Defendant’s fraud
claim. Plaintiff does not dispute that such communications were initially
privileged, but claims that Defendant has waived the privilege by bringing the
present fraud claim. Plaintiff argues that Defendant “has put in issue what it knew
and when regarding the settlement and the reasons for paying the settlement” and
that when “an insurer puts at issue information that is established between it and its
counsel, any attorney-client privilege should to that extent be deemed to have been
impliedly waived.” (Doc. 175 at page 7).
In support of its position, Plaintiff urges application of the rule followed in
California which provides that where “privileged information goes to the heart of
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the claim, fundamental fairness requires that it be disclosed for the litigation to
proceed.” Steiny & Co. V. Cal. Elec. Supply Co., 79 Cal. App. 4th 285, 292
(2000). The California rule is not, however, applicable here. No doubt
Defendant’s conversations with its attorneys concerning whether to pay the
settlement could reveal information relevant to their fraud claim. But relevance is
not the test. To apply a waiver of the privilege, Defendant must have placed the
communications themselves at issue.
The case relied upon by Plaintiff illustrates this distinction. In Merritt v.
Superior Court, 9 Cal. App. 3rd 721 (1970), the client relied upon its attorney’s
testimony in bringing its claim. The central claim was that the attorney had been
confused by defendant. However, “there is no waiver of the attorney-client
privilege where the substance of the protected communication is not itself tendered
in issue, but instead simply represents one of several forms of indirect evidence in
the matter.” Mitchell v. Superior Court, 37 Cal. 3d 591, 606, 208 Cal. Rptr. 886,
691 P.2d 642 (1984). See also Luna Gaming San Diego, L.L.C. v. Dorsey &
Whitney, L.L.P., 06-CV-2804-BTW, 2010WL148713 (S.D. Calif. 2010). In the
present case, Defendant has not “tendered” its communications with its attorneys
as part of its claim, and has not, yet, indicated that it intends to rely upon its
attorneys’ testimony. Thus, the privilege has not been waived.
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An unresolved issue in this case is whether Kansas or California law will
apply. However, the analysis of this issue under Kansas privilege law yields the
same result. The waiver only applies when the party claiming the privilege “puts
the fact of the communication at issue.” State ex rel Stoval v. Meneley, 227 Kan.
355, 22 P.3d 124 (2001) (citing Hearn v. Rhay, 68 F.R.D. 574, 579-81 (E.D.
Wash. 1975)). In the present case, the waiver is not applicable because “the
attorney-client communications are merely relevant to claims” rather than
“integral” to the claim itself. Cincinnati Insurance Company v. Serrano, 11-CV2075-JAG/KGG, 2011 WL 6304086 (D. Kan. 2011).5
The Motion for Reconsideration is, therefore, GRANTED to the extent that
requests for communications between Defendant’s personnel, including Ms. Cole,
with in-house counsel or outside counsel are privileged and the motion to compel
production of those documents is denied. Other communications with Ms. Cole
and others must be produced except as protected under the Court’s previous order
as work product.

IT IS THEREFORE ORDERED that Defendant’s Motion to Reconsider

5

Of course, Defendant may still cause a waiver of the privilege if, for example, its
claim includes an assertion that its in-house or outside counsel were deceived or mislead
by Plaintiff’s conduct or if it tenders its attorneys’ testimony in support of its claim.
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(Doc. 160) is GRANTED in part as more fully set forth herein.
IT IS SO ORDERED.
Dated at Wichita, Kansas, on this 20th day of August, 2014.
S/ KENNETH G. GALE

KENNETH G. GALE
United States Magistrate Judge

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