AKH Company, Inc. v. Universal Underwriters Insurance Company
MEMORANDUM AND ORDER granting in part 434 Motion to Compel and denying 434 Cross-Motion to Quash. Signed by Magistrate Judge Kenneth G. Gale on 12/22/16. A copy of this Order is e-mailed to non-party cross-movant Paul Hastings LLP at the office of its counsel, Paul Spagnoletti c/o Davis Polk & Wardwell, LLP. (df)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
AKH COMPANY, INC.,
Case No. 13-2003-JAR-KGG
ORDER ON IN CAMERA INSPECTION
Currently before the Court is Defendant’s Motion to Compel and Non-Party
Paul Hastings LLP’s Cross-Motion to Quash and the joint stipulation is support
thereof. (Doc. 434, 435.) For the reasons set forth below, the Court GRANTS in
part Defendant’s motion and DENIES the cross-motion filed by non-party Paul
Hastings. The Court compels non-party Paul Hastings to produce certain
documents as enumerated below.
This motion was originally filed in the United States District Court for the
Central District of California, wherein Defendant sought an Order compelling third
party law firm Paul Hastings (hereinafter “Paul Hastings”) to produce more than
100 privileged or protected documents enumerated in Paul Hastings’ privilege log
for an in camera inspection by the Court to determine whether they provide
evidence of fraud committed by Plaintiff. Defendant also requested that the
motion be transferred to the District of Kansas, where the underlying (and abovecaptioned) lawsuit is pending. Paul Hastings argued against transfer and
contended that the subpoena should be quashed because it sought documents
protected by the attorney work product doctrine. (Doc. 435.)
The Central District of California “determined that it was necessary to
review the documents in camera to determine whether they qualified for
protection.” (Doc. 446, at 1.) That Court ultimately determined that the District of
Kansas and the undersigned Magistrate Judge were “best suited to conduct the
[requested] document review” as “‘[h]e had been overseeing the discovery in [this]
case since February 2013.” (Doc. 446, at 1.) Further, the undersigned Magistrate
Judge has previously reviewed thousands of pages – and has ordered the
production of hundreds of pages – of otherwise privileged or protected documents
in this case on the basis of the crime-fraud exception, the same issue on which the
present motion hinges. (See e.g., Docs. 158, 198, 215, 300, 339.)
The Central District of California thus transferred the motion (Doc. 435) to
the undersigned Magistrate Judge for the in camera inspection. (Doc. 446.) The
undersigned Magistrate Judge has since reviewed, in camera, the documents the
Central District of California ordered to be produced by third-party law firm Paul
Hastings LLP, consisting mainly of copies of e-mail communications, as well as
correspondence, drafts of documents, etc. As with the prior in camera inspections
in this case, the Court reviewed the documents for evidence of an intent by
Plaintiff and/or those acting on its behalf to conceal material elements of the
negotiations or settlement from Defendant.
In prior Orders issued by the Court in this matter, the undersigned
Magistrate Judge has held that the facts presented by Defendant, “taken as a whole,
establish a prima facie case sufficient to invoke the crime-fraud exception to the
attorney-client privilege – false representations made by Plaintiff as to a material
fact or the suppression of facts which Plaintiff was under a legal or equitable
obligation to communicate and ‘in respect of which [it] could not be innocently
silent . . . .’” (See Doc. 158, at 42-43 (quoting DuShane v. Union Nat. Bank, 223
Kan. 775, 759, 576 P.2d 674, 678 (1978)).
The Court previously mandated parameters for an in camera inspection of
certain documents from Plaintiff, ordering to provide to the Court all
communications between itself and counsel (whether coverage counsel or litigating
counsel) that were withheld on the basis of the attorney-client privilege or work
product doctrine that occurred from the completion of the unsuccessful mediation
in September 2012 until Defendant received the final draft of the settlement
agreement with RT in December 2012. (See Docs. 158, 215.)
The same parameters were used by the Court in regard to documents
requested by subpoena from another third party law firm, Gauntlett & Associates.
(See Docs. 300 and 339 (Order on Third Party Motion to Reconsider Order on
Defendant’s Motion to Compel).) Gauntlett had previously represented Plaintiff in
this case.1 As discussed herein, the Court finds these Orders (Docs. 300, 339) to be
In the present motion, Paul Hastings contends that there is no crime-fraud
exception to the work product doctrine under California law. (Doc. 435, at 27.)
Rather, it contends that the exception applies only to the attorney-client privilege.
According to Paul Hastings, work product documents belong to the attorney
exclusively, not the client. According to Paul Hastings, however, federal law also
does not mandate production of any of the documents at issue as Defendant has
failed to establish application of the crime-fraud exception “because Paul Hastings
was not involved in any fraudulent conduct.” (Doc. 435, at 27.) The Court does
not find Paul Hastings’ arguments to be persuasive for two reasons.
First, the undersigned Magistrate Judge previously ruled in the present case
[u]nlike the attorney-client privilege, which belongs to
Gauntlett withdrew as counsel for Plaintiff on March 20, 2014. (Doc. 125.)
the client, ‘[t]he work-product privilege belongs to both
the attorney and the client.’ Lopes v. Vieira, 719
F.Supp.2d 1199, 1201 (E.D. Calif. 2010) (citing (In re
Special September 1978 Grand Jury (II), 640 F.2d 49,
62 (7th Cir.1980)); see also In re Vargas, 723 F.2d 1461,
1466 (10th Cir. 1983) (holding that the work product
doctrine is personal to the attorney).
(Doc. 339, at 18-19.) Second, a review of the documents at issue identifies
additional document(s) that provide evidence of a prima facie case of fraud and
that, at a minimum, Paul Hastings was aware of said fraudulent activity.2
The Court finds these documents, enumerated below, to be relevant to
Defendant’s theory and, therefore, discoverable:
The documents shall be provided to Defendant, at the office of defense counsel,
within 2 weeks of the date of this Order. All of these documents are to be
produced as “Confidential” under the existing Protective Order.
Additional documents reviewed in camera may be relevant to Plaintiff’s
defense of Defendant’s theory. The Court will not, however, hold the privilege
The documents at issue do not, per se, establish fraud. Rather, standing alone
and unrebutted, they would create a prima facie case of fraud.
waived as to such documents. Plaintiff has previously been instructed that in the
event it intends to use such documents as evidence, it must produce the same.
IT IS THEREFORE ORDERED that Defendant’s Motion to Compel is
GRANTED in part as more fully set forth above and the Cross-Motion to Quash
of Non-Party Paul Hastings LLP is DENIED. (Doc. 434.) The above enumerated
documents are to be produced forthwith.
IT IS SO ORDERED.
Dated at Wichita, Kansas, on this 22nd day of December, 2016.
S/ KENNETH G. GALE
KENNETH G. GALE
United States Magistrate Judge
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