AKH Company, Inc. v. Universal Underwriters Insurance Company

Filing 505

ORDER re 455 Order on Review of In Camera Inspection Order re Motion to Compel, Motion to Quash. Signed by Magistrate Judge Kenneth G. Gale on 12/18/17. (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 ON REVIEW OF IN CAMERA INSPECTION ORDER
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 in support
thereof. (Doc. 434, 435.) The District Court granted non-party Paul Hastings’
Motion for Review of this Court’s prior, underlying Order (Doc. 455) granting in
part Defendant’s motion and denying Paul Hastings’ cross-motion (see Docs. 458,
469). The underlying Order compelled non-party Paul Hastings to produce certain
documents that the non-party contends are protected as attorney work product.
(Doc. 455.) For the reasons set forth below, the undersigned Magistrate Judge
GRANTS Paul Hastings’ Cross Motion to Quash.

BACKGROUND
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 initial Order from the Central District of California was issued by
Magistrate Judge Alka Sagar on July 29, 2016. (Doc. 442.) Magistrate Judge
Sagar ordered an in camera inspection of 123 documents at issue “to determine
whether these records qualify for protection as absolute work product under
California law.” (Id., at 3.) Paul Hastings submitted its documents to Judge Sagar
for review as contemplated by her Order.
The review was subsequently transferred to Magistrate Judge Jay C. Gandhi
of the Central District of California for him to conduct the in camera inspection.
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(Doc. 446.) Judge Gandhi recused himself from conducting the document review
because he was a former Paul Hastings partner. (Id., at 1.) Thus, the review was
transferred again, to Chief Magistrate Judge Patrick J. Walsh of the Central District
of California.
Chief Magistrate Judge Walsh held a hearing on September 22, 2016, which
resulted in an Order transferring the in camera document review to the undersigned
Magistrate Judge. (Doc. 446.) Magistrate Judge Walsh believed that the District
of Kansas and Judge Gale were “best suited to conduct the [requested] document
review” as “‘[h]e had been overseeing the discovery in [this] case since February
2013.” (Id., 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.1 (Doc. 446.)

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The undersigned Magistrate Judge notes that he did not have the opportunity to
review the transcript of Judge Walsh’s September 22 hearing. The District Court notes
that the “parameters” of the transfer “are much clearer in the hearing transcript than
[Judge Walsh’s] Minute Order, which largely dealt with a jurisdictional argument not
advanced on this motion for review.” (Doc. 469, at 6.)
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The undersigned Magistrate Judge subsequently reviewed, in camera, the
documents the Central District of California ordered to be produced by third-party
law firm Paul Hastings. These documents consist 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.
Thereafter, this Court issued an Order granting in part Defendant’s motion to
compel reaching two conclusions: 1) that, unlike the attorney-client privilege, “the
work-product privilege belongs to both the attorney and the client”; and 2) that the
review of the documents at issue provided additional evidence of a prima facie
case of fraud and that, at a minimum, Paul Hastings was aware of said fraudulent
activity. (See Doc. 455, at 4-5, citing 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)).) This Court thus ordered the production of seven
documents, which were to be produced as “Confidential” under the existing
Protective Order. (Doc. 455, at 5.)
This Order was subsequently appealed to the District Court by third Party
Paul Hastings. (Doc. 458.) In the motion to review,
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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. [Defendant] 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.
(Doc. 469, at 5.) In granting Paul Hastings’ motion for review, the District Court
sought “clarification that [the undersigned Magistrate Judge] considered Judge
Sagar's ruling on work product under California law, and conducted the review
contemplated by her July 29 Order (Doc. 442).” (See Doc. 469, at 6.)
ANALYSIS
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)).) In the underlying motion, Paul
Hastings contends that there is no crime-fraud exception to the work product
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doctrine under California law. (Doc. 435, at 27.)
Quoting California Code of Civil Procedure § 2018(c), Judge Sagar held that
“any writing that reflects ‘an attorney’s impressions, conclusions, opinions, or
legal research or theories shall not be discoverable under any circumstances’” –
which is known as the absolute work product privilege. (Doc. 442, at 2.) Judge
Sagar also referred to subsection (b), which states that “[subject to subdivision (c),
the work product of any attorney is not discoverable unless the court determines
that denial of discovery will unfairly prejudice the party seeking discovery in
preparing that party’s claim or defense or will result in an injustice” – known as the
qualified work product privilege. (Doc. 442, at 2, quoting California Code of Civil
Procedure § 2018(b).) Stated another way, “[t]he privilege recognizes what is
termed an ‘absolute’ privilege as to writings containing the attorney’s impressions,
opinions, legal research and theories and recognizes a ‘qualified’ privilege as to all
written materials and oral information not reflecting the attorney’s legal thoughts.”
Lasky, Haas, Cohler & Munter v. Superior Court, 172 Cal.App.3d 264, 271
(1985) (citing Fellows v. Superior Court (1980) 108 Cal.App.3d 55, 68 (166
Cal.Rptr. 274).)
Judge Sagar disagreed with Defendant’s contention that the right to assert
absolute work product protection “belongs jointly to AKH and Paul Hastings.” Id.
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She held that “[d]isclosure of material which qualifies as absolute work product
cannot be compelled, even to the client.” (Doc. 442, at 3, citing Lasky, Haas,
Cohler & Munter v. Superior Court, 172 Cal.App.3d 264, 279 (1985) (“‘absolute
work’ product is ‘not subject to discovery under any circumstances.’”).) Judge
Sagar then limited her review to whether any of the 123 documents at issue
“qualify for protection as absolute work product under California law.” Id.
This Court previously found the following documents to be relevant to
Defendant’s theory and, therefore, discoverable:
Doc. 2271
Doc. 2276
Doc. 2277
Doc. 2278
Doc. 2372
Doc. 2374
Doc. 2376
(Doc. 455, at 5.) In the context of the parameters set by the prior Orders of Judge
Sagar and Judge Walsh, however, the Court now finds these documents to contain
the attorneys’ legal thoughts and, thus, to be absolutely protected as attorney work
product under California law. Lasky, 172 Cal.App.3d at 271.
IT IS THEREFORE ORDERED that the underlying Cross-Motion to
Quash of Non-Party Paul Hastings LLP is GRANTED. (Doc. 434.)
IT IS SO ORDERED.
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Dated at Wichita, Kansas, on this 18th day of December, 2017.
S/ KENNETH G. GALE

KENNETH G. GALE
United States Magistrate Judge

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