AKH Company, Inc. v. Universal Underwriters Insurance Company

Filing 469

MEMORANDUM AND ORDER granting 458 Motion for Review. Signed by District Judge Julie A. Robinson on 2/23/2017. IT IS THEREFORE ORDERED BY THE COURT that Paul Hastings' Motion to Review Magistrate Judge Gale's December 22, 2016 Order on In Camera Inspection (Doc. 458) is granted. Judge Gale shall reconsider his December 22 Order in accordance with this opinion. (ydm)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
AKH COMPANY, INC.,
Plaintiff,
v.

Case No. 13-2003-JAR-KGG

UNIVERSAL UNDERWRITERS INSURANCE
COMPANY,
Defendant.

MEMORANDUM AND ORDER
This is an insurance coverage dispute filed by AKH Company, Inc. (“AKH”) against its
insurance carrier, Universal Underwriters Insurance Company (“UUIC”), arising out of a
trademark infringement action by and against AKH that UUIC defended and settled under a
reservation of rights. As part of the protracted discovery in this case, UUIC filed a motion to
compel production of documents from third-party law firm Paul Hastings LLP, which
represented AKH during a portion of the underlying trademark case, in the United States District
Court for the Central District of California. That court determined Magistrate Judge Gale should
conduct an in camera review of certain documents listed on Paul Hastings’ privilege log to
determine whether they are protected attorney work product. Judge Gale reviewed over 100
documents and ordered seven discoverable. Before the Court is Paul Hastings’ Motion to
Review Magistrate Judge Gale’s December 22, 2016 Order on In Camera Inspection (Doc. 458).
The motion is fully briefed and the Court is prepared to rule. As explained more fully below, the
Court grants Paul Hastings’ motion to review. With the benefit of the parties’ briefs on the
motion for review, and the transcript of Magistrate Judge Walsh’s hearing on the decision to
transfer the in camera review to Judge Gale, Judge Gale should determine whether the seven

documents he ordered discoverable are subject to absolute work product protection under
California law.
I.

Procedural Background
The procedural history of this motion is key to understanding the Court’s ruling. Judge

Gale has presided over approximately three years of contentious discovery litigation in this
matter, reviewing thousands documents. Having determined that the crime-fraud exception to
the attorney-client privilege applies in this case, Judge Gale reviewed documents AKH withheld
and determined that hundreds are discoverable because “standing alone and unrebutted they
would create a prima facie case of fraud.”1 Judge Gale recently ordered Paul Hastings to
produce several documents under the crime-fraud exception to the attorney-client privilege.2
The present dispute concerns decisions by two different United States Magistrate Judges
in the United States District Court for the Central District of California. UUIC served a
document subpoena on third-party Paul Hastings in connection with this case; Paul Hastings
moved to quash and UUIC moved to compel. Paul Hastings identified 123 documents that it
insisted were internal communications between its attorneys regarding the underlying trademark
settlement, and argued that they enjoy absolute protection under the work product doctrine under
California law. On July 29, 2016, Magistrate Judge Alka Sagar conducted a telephonic hearing
on the parties’ motions and subsequently entered a Minute Order.3 Judge Sagar acknowledged in
the Minute Order that UUIC’s position that the documents at issue are subject to disclosure
under Judge Gale’s previous findings in this case that the crime-fraud exception applies, and that
Paul Hastings should be required to submit the documents to Judge Gale for review.

1

Doc. 215 at 2 n.1; see also Docs. 158, 198, 300, 339.

2

Doc. 431.

3

Doc. 442.

2

Judge Sagar recited California law on the issue of the work product doctrine, explaining
the difference between an absolute and qualified work product privilege.4 Judge Sagar disagreed
with UUIC’s argument that if there is an absolute work product privilege, it belongs jointly to
AKH and Paul Hastings.5 She stated: “Disclosure of material which qualifies as absolute work
product cannot be compelled, even to the client.”6 Judge Sagar ordered Paul Hastings to produce
to her for in camera review the 123 documents at issue “to determine whether these records
qualify for protection as absolute work product under California law.”7
After this Order was filed, the case was apparently transferred to another magistrate judge
who had been assigned to an earlier non-party subpoena motion related to this case. Because
that judge had previously worked for the Paul Hastings firm, he recused himself from reviewing
the in camera submission ordered by Judge Sagar, and the case was again reassigned, this time to
Chief Magistrate Judge Patrick Walsh.8 Judge Walsh conducted a telephonic hearing on
September 22, 2016, and subsequently entered a Minute Order. In the Minute Order, Judge
Walsh explained that upon review of the file, he determined that Judge Gale was in the best
position to review the documents at issue, particularly considering that Judge Gale’s earlier in
camera review in this case included hundreds of documents from the Paul Hastings firm.9 Judge
Walsh stated in his Minute Order that he called and spoke to Judge Gale about the in camera
review and that they agreed that Judge Gale was in the best position to conduct the review.10

4

Doc. 442 at 2 (citing Cal. Civ. P. § 2018; State Farm Fire & Cas. Co. v. Superior Court, 54 Cal. App. 4th
625, 649–50 (1977)).
5

Id. at 3.

6

Id. (citing Lasky, Haas, Cohler & Munter v. Superior Court, 172 Cal. App. 3d 264, 279 (1985)).

7

Id.

8

Doc. 446 at 1.

9

Id. at 1–2.

10

Id. at 2.

3

On October 5, 2016, several documents filed in the Central District of California case
were transferred to this Court’s docket, including the parties’ briefing on the motion to quash and
motion to compel, and both Magistrate Judge’s Minute Orders.11 On December 22, 2016, Judge
Gale issued a Memorandum and Order granting in part UUIC’s motion to compel and Paul
Hastings’ motion to quash. In his Order, Judge Gale acknowledged Paul Hastings’ argument that
there is no crime-fraud exception to the work product doctrine under California law, and
alternatively, that under federal law, UUIC has not established that the crime-fraud exception
should apply to the documents in this case. Judge Gale found these arguments unpersuasive:
First, the undersigned Magistrate Judge previously ruled in the present
case that
[u]nlike the attorney-client privilege, which belongs to 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.12
Judge Gale then ordered Paul Hastings to produce seven documents, finding them “to be relevant
to Defendant’s theory and, therefore, discoverable.”13
II.

Discussion
Fed. R. Civ. P. 72 allows a party to provide specific, written objections to a magistrate

judge’s order. With respect to a magistrate judge’s order relating to nondispositive pretrial
matters, the district court does not conduct a de novo review; rather, the court applies a more

11

Docs. 434–46.

12

Doc. 455 at 4–5 (footnote omitted).

13

Id. at 5.

4

deferential standard by which the moving party must show that the magistrate judge’s order is
“clearly erroneous or contrary to the law.”14 “The clearly erroneous standard ‘requires that the
reviewing court affirm unless it on the entire evidence is left with the definite and firm
conviction that a mistake has been committed.’”15
Paul Hastings argues that Judge Gale’s in camera review was contrary to the law of this
case because he did not apply Judge Sagar’s work product ruling; instead, he applied his own
previous orders on the crime-fraud exception. UUIC responds that: (1) Judge Gale was not
required to apply California law; and (2) Judge Gale’s Order was consistent with California law
because the documents at issue are merely subject to a qualified work product privilege.
The Court is unable to determine from Judge Gale’s Order whether he considered Judge
Sagar’s July 29 Order in ordering the seven documents discoverable. It is neither cited to nor
discussed. Upon review of Judge Sagar and Judge Walsh’s Minute Orders, and the transcript of
the parties’ hearing before Judge Walsh, it appears that Judge Walsh’s transfer of the motion to
compel was limited to the in camera review set forth in Judge Sagar’s July 29 Order: “whether
these records qualify for protection as absolute work product under California law.”16 The
thirty-page transcript of Judge Walsh’s subsequent hearing makes clear that transfer of the
motion was so limited. Judge Walsh repeatedly assured Paul Hastings’ counsel that the choice of
law issue would not be litigated before Judge Gale, and that Judge Sagar’s Order would govern
that question and would speak for itself.17 To be clear, this Court is cognizant that Judge Gale

14

First Union Mortg. Corp. v. Smith, 229 F.3d 992, 995 (10th Cir. 2000) (quoting Ocelot Oil Corp. v.
Sparrow Indus., 847 F.2d 1458, 1461–62 (10th Cir. 1988); 28 U.S.C. § 636(b)(1)(A);Fed. R. Civ. P. 72(a)).
15

U.S. Fire Ins. Co. v. Bunge N.A., Inc., 244 F.R.D. 638, 641 (D. Kan. 2007) (quoting Ocelot Oil, 847 F.2d

16

Doc. 442 at 3.

at 1464).

17

See, e.g., Doc. 465-1 at 15–16 (explaining to Paul Hastings’ counsel “you already have—prevailed on that
issue. . . . We already know what the structure is. We know what the law is. We know what’s going to happen.”);

5

did not previously have the opportunity to review the transcript from the September 22 hearing
in California. The parameters of Judge Walsh’s decision to transfer this motion to Judge Gale
are much clearer in the hearing transcript than the Minute Order, which largely dealt with a
jurisdictional argument not advanced on this motion for review.
While the Court agrees with UUIC that Judge Gale may have rejected Paul Hastings’
contention that the subject documents were absolute work product given that he ordered them
discoverable, this finding was not explicitly made part of his Order. Upon reconsideration, it
may very well be that the result is exactly the same. Nonetheless, the Court grants the motion for
review insofar as it seeks clarification that Judge Gale considered Judge Sagar’s ruling on work
product under California law, and conducted the review contemplated by her July 29 Order (Doc.
442).
IT IS THEREFORE ORDERED BY THE COURT that Paul Hastings’ Motion to
Review Magistrate Judge Gale’s December 22, 2016 Order on In Camera Inspection (Doc. 458)
is granted. Judge Gale shall reconsider his December 22 Order in accordance with this opinion.
IT IS SO ORDERED.
Dated: February 23, 2017
S/ Julie A. Robinson
JULIE A. ROBINSON
UNITED STATES DISTRICT JUDGE

18 (“I expect based on [my conversation with Judge Gale] that Judge Gale was counting on this Court to rule on
California law, which we’ve done. And then he was going to do the document review based on that ruling. . . . And
I will put that on top of the—the 253 documents I believe it is that I’m—that are on my table that I’m going to
transfer to Judge Gale.”); 22 (“That’s the way I understand it, that it would be done pursuant to California law.”); 25
(explaining in response to counsel’s request to clarify that Judge Sagar’s Order would apply to the review, “My
understanding from my conversation with Judge Gale—and I don’t—we didn’t spend a lot of time on this because I
think we both understood that was what was going to happen is he believed and I believed that the decision in the
first instance, whether California law applied and what the interpretation of that was was going to be done here in
Los Angeles, which was done. And the document review itself would be done by him.”); 27 (“I’m going to send
Judge Sagar’s Order to Judge Gale. And it will be on top of the pile. And what Judge Sagar’s Order says is what
Judge Sagar’s Order says. I’m not going to interpret it now at the end of this hearing.”).

6